Uber vs. Medallion Financial Corp (TAXI): A Controversial Battle

Can you bet bullishly on still-private Uber by betting bearishly on Medallion Financial Corp?

Dec 30, 2014 at 11:18 AM
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Full disclosure: Other than Spotify, Uber is my absolute favorite app. Before Uber came along, hailing a cab in a medium-sized city like Cincinnati was a hassle at best, and borderline infuriating at worst. Everyone has experienced frustration while trying to flag a traditional taxi, from standing in the street watching cab after cab whiz by, to waiting over an hour for a called-in ride only to have them cancel anyway.

Uber, on the other hand, has found a way to circumvent almost all of the undesirable qualities of getting a taxi. In my personal experience, Uber drivers take less than five minutes to show up after you request a ride. The app's sleek interface allows users to track their ride via GPS, as a small car icon shows the driver's real-time progress on a detailed map, taking the guesswork out of when a car will arrive. Users upload their credit card information when they install the app, and are automatically billed when their ride is over, making payment a breeze. And, Uber is often cheaper than a regular taxi (I average an $8-$10 fare for a quick ride downtown, compared to $12-$15 for yellow cab service).

However, the company is currently swimming in controversy and has many vocal detractors. Between a deadly accident involving a six-year old girl, multiple accusations of sexual assault by drivers, the ethically questionable practice of surge pricing, and a controversy over one of Uber's top executives threatening to hire private investigators to dig up dirt on combative journalists, the company can't seem to catch a PR break. Did I mention they are banned from operating in Portland (Oregon), the Netherlands, New Delhi (India), Thailand, Madrid, and the state of Nevada? And that CEO Travis Kalanick was just indicted in South Korea for allegedly violating the nation's transport laws?

Whew. Despite all of the negative press surrounding the controversial ride-sharing app, the company is valued at over $41.2 billion, making Uber more valuable than 77% of the publicly traded companies on the Fortune 500, and easily the wealthiest private startup in America. And, to the delight of Wall Street, the company is rumored to go public in 2015. It seems that the more controversial Uber becomes, the more money it makes.

How can options traders take advantage of Uber's insane growth? Since Uber isn't a publicly traded company (yet), one way to bet bullishly on Uber is to bet bearishly against Medallion Financial Corp (NASDAQ:TAXI), the company that finances taxicab medallions, which regular yellow cab drivers are required to purchase in order to operate legally. TAXI has shed 30.5% of its value in 2014 to sit at $9.96, compared to adding 22.2% in 2013 (back when Uber was worthy only $3.5 billion). Additionally, TAXI has underperformed the S&P 500 Index (SPX) by nearly 22 percentage points over the past three months, and it's Schaeffer's put/call open interest ratio (SOIR) of 2.96 indicates that short-term puts are very predominate over calls. However, this reading ranks only in the 46th percentile of its annual range, suggesting there is plenty of room on the bearish bandwagon.

Weekly Chart of TAXI since January 2013
 

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