Returning from the Juneteenth holiday respite, the markets are expected to head lower on Friday due to global geopolitical uncertainty stemming from the Israel-Iran conflict.
Typically, on Fridays, I’ll discuss the unusual options activity from the previous day’s trading. I can’t do that in light of the holiday and the markets being closed.
However, there were plenty of options action in the first three days of the week, so I’ve scoured the unusual options activity from Monday, Tuesday, and Wednesday, to find three stocks or ETFs that jump out for one reason or another.
Monday led off the week with 945 unusually active options--defined as those with Vol/OI ratios of 1.24 or higher and expiring in seven days or longer--with the calls getting 61% of the action compared to 39% for the puts.
Tuesday’s put/call ratio was 41%/59%, another bullish day. On Wednesday, we saw more of the same, with calls accounting for 61% of the 1,065 unusually active options on the day, indicating that investors have yet to become concerned about the problems in the Middle East.
That could change shortly. Let’s get to the three that have captured my attention.
Have an excellent weekend.
Morgan Stanley (MS)
Morgan Stanley’s (MS) Dec. 17/2027 $80 put had the highest Vol (volume)/OI (open interest) ratio on Monday at 80.04.
The volume of 8,004 was approximately half of the investment bank’s 30-day average, making it a significant amount. Even more compelling because it was a single trade for 8,000 of the put contracts at 12:12 p.m. on Monday.
Admittedly, when I first examined the top 100, I had a hard time understanding why someone would buy or sell this particular put, given that it is 39% out of the money (OTM).
If you’re bullish about Morgan Stanley’s future, you likely wouldn’t be buying the 8,000 put contracts to go long for downside protection. With a DTE (days to expiration) of 915, you probably wouldn’t be selling them short, either, given the annualized return on the premium is just 2.6% [$5.10 bid price / $80 strike price*365 / 915].
However, when you think about it, the S&P 500 average dividend yield is currently 1.27%, so you’re getting double that, without a near-term capital outlay, although you will need the cash on hand or margin equivalent should you have to buy the 800,000 shares of Morgan Stanley in December 2027.
Morgan Stanley’s current dividend yield is 2.79%, so you’re effectively getting the same income, without spending $104.7 million [8,000 put contracts * 100 shares * $130.90 share price].
Nice.
Exxon Mobil (XOM)
Exxon Mobil (XOM) had three unusually active options on Tuesday in double digits, including the Oct. 17 $150 call with the second-highest Vol/OI ratio at 48.72.
The second and third call options from above are bets that the short-term price of oil will increase due to the ongoing conflict in the Middle East.
In Nova Scotia, where I live, gas prices are regulated, with changes happening weekly or bi-weekly. The price increased by nearly five cents per liter today. With 10 days to expiration, the profit probability of both is low. You can sell before they expire to recoup some of the premium you paid.
However, it is the $150 call on Oct. 17 that makes the most sense. With 122 days to expiration, oil prices could surge if the U.S. is dragged into the conflict. While Exxon Mobil can’t run a business based on near-term oil prices, speculative investors would still pile in.
The $0.10 ask price is just 0.20% of the $150 strike price and 0.26% of the $114 share price. That’s peanuts for the big money out there.
I like this Hail Mary bet.
Planet Fitness (PLNT)
Planet Fitness (PLNT) had two unusually active options on Wednesday, with the July 18 $120 call in the top 100, with a Vol/OI ratio of 23.70%.
Both OTM with 30 days to expiration, the Barchart Technical Opinion is a Strong Buy with the likelihood of its near-term trend continuing at 88%--the fitness chain’s stock is up over 5% in the past five trading days--suggesting that a 30-day bet on its stock isn’t the worst idea in the world.
On June 16, TD Cowan analysts reiterated their Buy rating and a $125 target price, which is higher than both of the strike prices mentioned above. The broker has Planet Fitness as its top small and mid-cap investment idea.
Of the 17 analysts covering PLNT stock, 15 rate it a Buy (4.65 out of 5). It currently trades at 37 times Wall Street’s 2025 EPS estimate of $2.91 and 31 times the 2026 EPS estimate of $3.44.
While that’s high, its momentum makes it attractive to many investors. Of the two, I especially like the $120 strike because of its low outlay, which is just 0.54% of the strike price.
Is there another 5% increase in the cards? There very well could be.
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.
