As I write this before the markets open on Friday, the S&P 500 futures are up 0.33%. The index has lost ground in three of the four trading days this week. It would sure be nice to finish on a positive note.
Whether it does depends on several factors, including oil prices, the January core PCE (personal consumption expenditures) price index, the second Q4 2025 GDP estimate, the University of Michigan’s U.S. Consumer Sentiment Index, and several others.
The one I’ll be watching is the University of Michigan Consumer Sentiment Index. Economists expect the March figure will be 55.0, down 160 basis points from February, not the lowest monthly figure in the past 12 months -- November 2025 was the lowest at 51.0 -- but much lower than the 71.7 reading when President Trump took office.
It will be what it will be.
In the meantime, Pinterest’s (PINS)share volume on Thursday was 29.19 million, about 8% higher than its 30-day average, while its options volume was 139,715, 3.1 times higher than its 30-day average of 45,292, and the second-highest in the past three months.
When options volumes are higher than normal, that often leads to unusual options activity. Yesterday, that was definitely the case for Pinterest. For options expiring in seven days or later with Vol/OI (volume-to-open-interest) ratios of 1.4 or higher, the April 17 $22 call had the highest Vol/OI ratio at 156.74, 1.6 times the second-highest.
What does this mean for Pinterest stock? I’ve got three possibilities.
Have an excellent weekend.
The Options in Question
As I said in the introduction, Pinterest had the highest Vol/OI ratio by far yesterday.
Interestingly, out of 2,000 unusually active options, only three accounted for 90% of Pinterest’s options volume on the day.
Let’s get the put out of the way first.
There were two trades for the Sept. 18 $17 strike; one for 1,000 and the other for two. The bid and ask prices on the 1,000-contract trade were $2.33 and $2.48, respectively, with the trade at $2.44. That suggests bearish sentiment. The DTE (days to expiration) of 190 days would normally not be something a seller of puts would use to generate income (too lengthy), but somebody did.
The annualized return of 32.3% [$2.44 trade price / $17 strike price - $2.44 trade price * 365 / 190 DTE], while high, could very well result in having to buy PINS stock from the put buyer at a higher price than where they might be trading in September.
Now to the two calls.
You had two large trades for both the $21 and $22 calls -- 30,000 and 32,o00 each -- which accounted for 99.4% and 99.3%, respectively, of the total volume for these two strike prices.
Based on these focused trades, I’ll consider three possible strategies for these trades.
They’re Bull Call Spreads All the Way
A Bull Call Spread options strategy is moderately bullish. In this instance, you would buy the $21 call and sell the $22 call. The two calls that traded at 10:43 ET yesterday would have generated a net debit of $0.24 [$21 strike trade price of $0.52 - $22 strike trade price of $0.28]. The net debit for the two at 10:46 ET would be $0.22 [$21 strike trade price of $0.48 - $22 strike trade price of $0.26].
So, the most you could lose on the two bull call spreads is $24. The most you could profit is $78 [$22 strike price - $21 strike price - $0.22 net debit]. The maximum profit percentage is 325% [$78 / $24], while the risk/reward ratio is .31 to 1 [$24 / $78].
To obtain the maximum profit, Pinterest’s share price on April 17 would be above $22. With an expected move up or down of $2.23 over the next 36 days and a share price of between $18.73 and $18.76 at the time of yesterday's trades, the likelihood is low. The likelihood of breaking even -- the share price at expiration being over $21.24 [$21 call + $0.24 net debit] -- is also low.
Here’s how things look as I write this early on Friday morning.
The probability of breakeven is 20.1%, while the probability of maximum profit is 14.4%. If you buy a call at a lower strike, say $19, and keep the short $22 call, your probability of profit jumps up to 33.8%, while your maximum profit percentage drops from 325% to 261.45%.
While one might think a trade like this seems pointless given the probability of success, the potential returns are so high that traders are willing to roll the dice.
Further, in the case of Pinterest, Elliott Investment Management's $1 billion additional investment announced in early March -- it triples the activist’s stake -- could lead to positive changes at the company.
That alone adds some strength to the bullish argument.
There’s No Question These Are Bear Call Spreads
A Bear Call Spread is a bearish options strategy. You believe the share price will fall by April 17.
The strategy involves selling the $21 call option and buying the $22 call. The inverse of the bull call spread, the strategy generates a net credit rather than a net debit.
Here’s how things look for this strategy on Friday morning.
As you can see, the net credit for selling the $21 call and buying the $22 call is $10 [$0.34 bid price - $0.24 ask price * 100]. The maximum loss is $90 [$22 strike price - $21 strike price - $0.10 net credit]. As a result, the maximum profit percentage and risk/reward ratios have also been flipped.
The good news is that the odds of making money on the trade are reasonably high at nearly 79%. You make money if the share price at expiration is below $21.10, the breakeven price [$21 strike price + $0.10 net credit].
Given the Barchart Technical Opinion says it's an 88% Strong Sell in the near-term, the bull call spread could be the better bet.
The Ratio Call Spread Is the Ticket
The Ratio Call Spread is similar to the bull call spread in that you are bullish about Pinterest stock. However, while you would have bought one $21 call in this example, like the bull call spread, you would have sold at least two $22 calls, with the premium covering some or all of the long call’s ask price.
Based on the 10:43 trades, your net debit of $24 becomes a net credit of $4 [$22 strike trade price of $0.28 * 2 - $21 strike trade price of $0.52]. Sell a third $22 call, and the net credit becomes $32, and so on.
Based on the 10:46 trades, your net debit of $22 also becomes a net credit of $4 [$22 strike trade price of $0.26 * 2 - $21 strike trade price of $0.48]. Sell a third $22 call, and the net credit becomes $30, and so on.
These trades didn’t happen.
Also, in this example, one of the short $22 calls would cancel out the long $21 call, leaving the second or even third short $22 calls unhedged. This means that if the share price moves higher than $22 by expiration -- let’s say $27 -- your $4 profit (two short calls) turns into a $496 loss [$27 share price - $22 strike price - $0.04 net credit * 100].
Ouch.
The Bottom Line on Pinterest Stock
Elliott Investment Management’s $1 billion Pinterest investment was in convertible senior notes maturing on March 1, 2031, paying 1.75% interest. Based on the conversion price of $22.72, were it to exercise that right, its ownership stake would increase from 28 million shares at the end of December to 72.01 million shares, making it the largest shareholder with a 10.1% stake.
While that’s a big commitment, it would still only be 1.4% of Elliott’s $117.32 billion in assets under management, according to WhaleWisdom.com.
I’ve always liked Pinterest’s business. With Elliott's investment, it will increase its share repurchases to $2 billion.
That said, it’s easy to see why yesterday’s unusual options activity might have been bearish rather than bullish. The bearish bet was the safer one.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
