In a volatile period like we just experienced last week, it can be hard to know where to look at investing. Using option activity can help you see where large trades being made and helps identify a direction, timeframe, and magnitude of the expected movement. While nothing is 100%, it is an important indicator that can be used to find opportunities. The following seven companies experienced multiple days with bullish unusual option activity.
Unusual Option Activity Stock #1: General Motors Company (NYSE: GM)
General Motors is on the cusp of breaking out to a multi-month high with a close above $31.66. A breakout of that level would complete a cup and handle formation, which is a bullish continuation pattern. The $8 depth of the cup provides a potential target of $39.50.
While the price has yet to break the resistance, the option activity in the past two weeks has been significant. On August 27, the 16 OCT 20 $35 calls were bought Last Tuesday, there was significant long vertical transaction made on the 16 OCT 20 31/36 contracts. Then on Thursday and Friday, large trades were made on the 16 OCT 20 $34 calls and a long call vertical for the same expiration using the $31 and the $36 call options.
Unusual Option Activity Stock #2: Pfizer Inc (NYSE: PFE)
Pfizer broke its $37.70 support last week and is near the 50% retracement of the July to August uptrend near $36. The 50% level is a typical retracement point for a trend.
As the price was falling, the option activity began to heat up. On Thursday, there was a call that was rolled from the 25 SEP 20 $39 to the 02 OCT $38.50 call option. The roll is an indication that the trader is expecting the stock to move now. On Friday, the activity picked up again with over 7,000 contracts traded of the 02 OCT 20 $40 call. That trade followed significant activity on the same contract on August 21.
The option activity is an indication of an expected retest of the August high near $39.
Unusual Option Activity Stock #3:Groupon Inc (NASDAQ: GRPN)
Groupon is in the process of testing its June 8 high near $35. The price has risen quickly off of its pate-July low.
The company has seen several large option trades made recently. On August 24, there was over 2,000 call bought on the 25 SEP 20 $33 strike price. The activity continued last week on Wednesday with over 2,000 contracts traded on the 11 SEP 20 $33 calls and again on Friday with another 2,000 contracts traded on the 11 SEP 20 $34 calls.
While the strikes are close to the money the indication is for an expected breakout above the $35 resistance.
Unusual Option Activity Stock #4: Datadog Inc (NASDAQ: DDOG)
Datadog’s price fell back near its $75 support last week. On Thursday and Friday, the price closed near the high of the day following intraday selloffs.
The buying in the stock at the end of the trading session on those days aligned with significant bullish option activity. During both sessions there were over 12,000 contacts traded on the 20 NOV 20 $85 calls on Thursday and the $80 calls on Friday.
The indication from the option activity is a move above $85 by November’s expiration. That indicates an expected retest of the July high near $95.
Unusual Option Activity Stock #5: Dropbox Inc (NASDAQ: DBX)
Dropbox sold off hard on Thursday and Friday as the price tested its $19.50 support. The price on Friday saw the price rally off its $19.11 low.
The company saw a surge in option activity last Wednesday with over 5,000 contracts traded on the 16 OCT 20 $25 calls. The activity increased on Thursday with over 10,000 contracts traded on the 16 OCT 20 $25 call options.
The use of the $25 strike price is an indication of that the price will not only retest the 52-week high near $24 but break through that level.
Unusual Option Activity Stock #6: Vale SA (NYSE: VALE)
Vale has been trading in a range for the past six weeks. Despite the weakness in the market, the price was able to hold its trading range and rallied off its low on Friday.
The option activity picked up on August 25 with over 5,000 contracts traded on the 18 DEC 20 $15 call that was rolled from the 18 SEP 20 $13 call contract. On Thursday, there were 8,000 contracts traded on the 18 SEP 20 $11.50 and $12.50 calls and the $10.50 puts. The trade is a bullish combination trade where the 11.50/12.50 call spread was bought, and the $10.50 put was sold.
The indications provided by the option activity is a breakout above $12.50 by September’s expiration and a run to $15 by December’s expiration.
Unusual Option Activity Stock #7: Fiserv Inc (NASDAQ: FISV)
The share price of Fiserv failed to break the $105 resistance as the price sold off on Thursday and Friday.
The unusual option activity started on Tuesday with over 31,000 21 JAN 22 105/115 long call verticals bought. On Wednesday, over 2,000 contracts were bought on the 16 OCT 20 $110 calls. On Friday, over 3,000 16 OCT 20 105/120 long call verticals were rolled from September’s expiration.
The indication is that the price is expected to test the $115 to $120 range in the coming months or longer.