Happy Thanksgiving to all my Barchart readers out there.
As you gather with family and friends today to share stories, drink, eat, and be merry, I hope you have a holiday full of gratitude and joy. With plenty of tragic events happening in the world right now, it’s tough to spend a day watching football and celebrating the good things in life, but tradition calls us to do so just the same.
My hapless Washington Commanders play later today against their long-time rivals, the Dallas Cowboys. Dak Prescott, please take pity on my poor excuse for a team.
On Thursdays and Fridays, I write about unusual options activity in the markets. Today, I’ve provided five unusually active options from Wednesday’s trading to help you get through the holiday.
May you have a memorable day!
Altria Group
Okay, before you rat me out to the Surgeon General, I’m not advocating that you take up smoking or anything like that. However, Altria Group (MO) owns John Middleton, a producer of cigars under the Black & Mild brand. Millions still enjoyed cigars on special occasions such as Thanksgiving the last time I checked.
As for Altria, while it might be the devil to many Americans if you’re an income investor, there aren’t many dividend payers better than MO. Currently yielding 9.5%, it has the highest yield in the S&P 500.
Usually, I’m not a fan of high yields because it is often a sign of a troubled business, but Altria is anything but. Its free cash flow through the first nine months of 2023 was $5.92 billion, allowing it to pay out $5.04 billion in dividends and repurchase $732 million of its stock.
It might be a sin stock, but it’s a good one.
Yesterday’s action provided two possible options. The Dec. 1 $42 put and the Dec. 1 $41.50 call. The former had a Volume-to-Open-Interest (Vol/OI) ratio of 8.35, the latter 1.52. The put has a very appealing annualized yield of 91.3%. However, the risk of the shares being put to you is high.
Your net price paid based on its $41.19 closing price would be $41.12, just pennies lower. With eight days to expiry, you could be looking at a loss with a move lower.
The call is the far safer play, with an ask price of $0.20 and a delta of 0.34078. MO shares would only have to increase by 59 cents for you to double your money selling the call before expiry. However, it would be even less (51 cents) for you to consider seriously exercising your option to buy at $41.50.
From a historical perspective, it’s a good entry point.
Comcast
Even though cable is on the way out, millions of Americans will be watching one or more of the three football games on TV today -- as mentioned earlier, I’ll be watching my team get hammered by the Cowboys starting at 4:30 EST -- and the TV feed will have been supplied by Comcast’s (CMCSA) cable business, possibly through its Xfinity 10G network.
Comcast ended the third quarter (Sept. 30) with 32.29 million domestic broadband customers. It lost 18,000 broadband customers in the quarter. Despite the decline, its revenue increased by 3.8% to $6.37 billion.
To counter the slow leakage on the broadband front, it continues to grow Peacock, its direct-to-consumer streaming platform. Its paid subscribers at the end of the quarter were 28 million, nearly 80% higher than a year ago, with four million added in Q3 alone.
The unusually active option on my radar is the Dec. 15 $44.50 call. With over three weeks to expiration, the ask is just $0.20, a 0.4% down payment on the $44.50 strike. You’ll pay more today for beer.
Once again, the share price doesn’t have to move up higher than $44.50 for you to generate a profit on the trade. A $1.09 move will double your money if you sell before it expires.
Airbnb
Perhaps you and your gathering have traveled to some neutral location and rented an Airbnb (ABNB) to house all the attendees. The world’s leading vacation property rental provider can help with that.
The company recently paid $200 million to buy GamePlannerAI. It plans to use its generative AI to create a travel concierge to deepen its user experience. Makes sense.
As for the option in question, I’m looking at the March 15/2024 $185 call. It has 113 days to expire with a Vol/OI ratio of 16.23. The ask was $0.65, a 0.4% down payment on Airbnb’s stock.
Again, the cost to you is small compared to the money you spent on today’s big feast. Further, the shares only have to appreciate by $10.82 to double your money if you sell the call before expiry. So, it’s another income play with an outside shot at exercising your right to buy the shares at $185.
Kraft Heinz
What would be a Thanksgiving celebration without condiments supplied by Kraft Heinz (KHC)?
Kraft Heinz’s top products include Kraft Mac and Cheese and Heinz Ketchup. Of course, it’s got plenty of other brands to sell to grocery stores. However, it’s probably best known today for Warren Buffett’s holding company, Berkshire Hathaway (BRK.B), which owns 26.5% of the company.
Investors continue to wonder if the Omaha billionaire will ever get a satisfactory return on his investment. My guess, like almost everything he touches, is a resounding yes.
As for the unusual options activity for KHC stock, it had the second-highest Vol/OI ratio on Wednesday at 71.86. The option in question: the Dec. 1 $35 call. With eight days to expiration, the ask was $0.15, a down payment of just 0.4%.
Although I’m not one to consider short-duration options, the downside on this one is minimal.
Mastercard
You have to pay for today’s festivities. Mastercard (MA) can help you do that.
The payment processor had two unusually active options yesterday: the Dec. 8 $420 call and the Jan. 19/2024 $415 put. The former’s Vol/OI ratio was 20.36, while the latter was more subdued at 3.02.
With 57 days until expiration, I would sell the put as a potential income play. The $10.60 bid is an annualized yield of 16.6%. Interest rates are high right now, but not that high. While currently in the money, a nice move over the next two months will allow you to keep the premium. If not, you’re buying a small piece of an excellent company.
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.
