The S&P 500 is set to open Friday up 0.32% despite rather mediocre earnings results from yesterday's trading, which included Eli Lilly (LLY) stock losing more than 14% after reporting disappointing data on its new weight-loss pill.

As for yesterday's unusual options activity, there were 1,268 options with Volume-to-Open-Interest (Vol/OI) ratios of 1.24 or more expiring in seven days or longer. Of those, 640 were calls, and 628 were puts, a slightly bearish indication.

One of the top 20 unusually active options on Thursday was the Wayfair (W) Sept. 19 $72.50 put. Expiring in 43 days, I believe this particular option provides valuable insights into the current markets. Read on and I’ll explain. 

Have an excellent weekend. The NFL season is almost here. 

The Option Itself

As I said in the introduction, one of Wayfair’s three unusually active options from yesterday's trading caught my attention, and not in a good way. I’ll get to that shortly. Meanwhile, here’s the put in question.

The Sept. 19 $72.50 put expires in 43 days. Its volume of 4,086 was 35.53 times the open interest. Two trades accounted for 4,000 of the total. Those trades both took place between 10:30 and 11 a.m. The remainder were little bets of one or two contracts. 

Somebody was either looking to protect on the downside or generate some income. I’ll consider which scenario seems more likely. 

Are These Two Bets Bullish or Bearish on W Stock?

To figure this out, I’ll consider both the long put and the short put. 

The former is a bet that the share price will fall below the strike price in 43 days, generating a profit after accounting for the premium. If one or both of the trades for 2,000 contracts already own 200,000 Wayfair shares, then it would be a protective put to protect unrealized gains, allowing them to hold onto the shares. 

Alternatively, it could be a very bearish bet that the euphoria from Wayfair’s latest positive earnings surprise would quickly subside, returning to below $60, where it traded as recently as July 21. According to the data below, they’ve got a 33% chance of the share price falling to the $67.60 break-even.    

The short put, or naked put, expects the shares to keep rising, enabling them to pocket the premium income. In this example, the annualized return from a successful bet would be a very healthy 58.2%. Given the profit probability is nearly 67%, it would suggest that the institutional or hedge fund investors see it continuing to move higher or tread water in the weeks ahead.   

If I were to hazard a guess, I’d say it’s a little of both. Perhaps one investor was bullish and the other bearish, or vice versa. Alternatively, it could be the case of a large investor looking to capture pricing inefficiencies from the options market. 

However, my level of sophistication or lack thereof does not allow me to render an opinion on this front. Now back to Wayfair and its business. 

Wayfair Is the Poster Child for Overheated Markets

I am not a fan of Wayfair’s business or stock. Never have been. I don’t care that its shares are up 64% in 2025. It is not a good stock to own for most risk-averse investors. 

In mid-March, I considered whether Wayfair stock's 52-week low meant it was a buying opportunity. While I wasn’t buying, I did suggest the Dec. 19 $95 call for those who were. 

This particular call had two contracts traded yesterday. The ask prices are between 10 and 12 times higher than in March. Makes sense given the shares have more than doubled in the past five months. Options are made for situations like Wayfair.   

Now, I’ll outline the reasons why Wayfair is the poster child for overheated markets. 

The U.S. economy has yet to reveal the damage inflicted by the Trump administration's historically high tariff rates. This week, the new tariff rates kicked in on Aug. 7 for approximately 100 of America’s trading partners, raising the average tariff rate to 18.3%, the highest since 1934, according to the Budget Lab at Yale.   

Companies aren’t going to be able to hold off on price increases for much longer. Consumers will soon be paying a lot more for everyday items. For example, Stanley Black & Decker (SWK) has said that tariffs are costing them $800 million in 2025. Not surprisingly, its shares are trading at some of the lowest levels in more than a decade. 

Come the Q3 and Q4 earnings seasons, it could get very ugly for investors. 

As for Wayfair, its stock is up about 10% since it reported Q2 2025 results before the markets opened on Monday. The company’s earnings press release ran with the headline Wayfair Announces Second Quarter 2025 Results, Reports Highest Revenue Growth and Profitability Since 2021. 

The long and the short of the report: It made $15 million off $3.27 billion in revenue, a net margin of 0.5%. On a non-GAAP basis, its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $205 million, a margin of 6.3%. 

Since Wayfair went public in October 2014, it’s had just six quarters out of 45 where it has made money on a GAAP basis from its continuing operations. The most recent example was this past quarter. Its best stretch of profitability was during COVID-19, when it had five consecutive profitable quarters from Q2 2020 through Q2 2021.

But that’s it. 

According to S&P Global Market Intelligence, Wayfair’s best quarter for a GAAP profit from continuing operations was $274 million on $4.3 billion in revenue in Q2 2020. Its best trailing 12-month EBITDA was $828.3 million as of Q1 2021, an EBITDA margin of 5.4%. The 12-month EBITDA margin as of June 30 was -0.7% on $12 billion in revenue, $3.3 billion less than in Q1 2021. 

The company’s current enterprise value is $12.03 billion, 94.3 times its trailing 12-month EBITDA through June 30, more than double what it was in June 2021. 

So, not only are today’s investors willing to pay twice as much for EBITDA profitability, they’re eager to do so even though sales have fallen in 11 of the past 16 quarters (on a trailing 12-month basis) since June 2021, its best situation in nearly 11 years as a public company. 

The Bottom Line

With thousands of stocks available to invest in, it boggles my mind that even one investor bothers with Wayfair. It’s a lost cause. 

That said, if you must invest in W stock, do so with options. It’s the only way to go given the risk.

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. For more information please view the Barchart Disclosure Policy here.