Every investor should have a funnel or a process that they use to narrow down the universe of tradable stocks to a select set of companies that they would be inclined to trade. One approach is to look at the so-called “smart money.” These large investors have a lot of money that they manage, and option activity is one place to look for where the money is going. The following six companies saw significant bullish option activity in the past week.
Options are derivative products used on an underlying stock, ETF, index, or futures product. Options provide the option buyers with the ability to add leverage and control shares of stock. They also allow sellers generated income and create high probability trades. The possible combinations provide the ability to create the exact risk profile you want.
Institutions and other investors with a lot of money use options as a means to gain these advantages and provides a way to hide some of their activity with so many expirations and strikes available. You may also find that the option activity is used in conjunction with stock, which adds even more significance to the trades being executed.
When considering option activity, identifying companies with above average option volume is the beginning point. From there, it’s about identifying the option contract being traded, seeing the volume is greater than the open interest and finally identifying if the activity was long or short.
Here are six companies that experienced unusual option activity over the past week on more than one occasion.
Unusual Option Opportunity #1: Freeport-McMoRan Inc (NYSE: FCX)
Since August 5, FCX has seen a flurry of significant option activity. Last week there were two large trades that were made for the September expiration and for January. The activity was call option buying activity ranging from the $15.5-0 strike to the $18 strike price. On Thursday, another large trade popped up as 10,000 November $14 calls were rolled out to the $16 strike price. Rolling is a form of profit taking, but allows the trader to still capitalize on additional upside.
Unusual Option Opportunity #2: LYFT Inc (NASDAQ: LYFT)
LYFT has seen unusual option activity every day this week. While the stock failed to respond all week, the price finally popped on popped on Thursday as news came of the temporary stay in the driver reclassification case. The bullish activity was seen predominantly on the April expiration this week, but also next week’s expiration and November. On Thursday, over 7,800 calls were traded on the 20 NOV 20 $$32.50 call option.
Unusual Option Opportunity #3: Ritchie Bros. Auctioneers Inc (NYSE: RBA)
On Monday and Tuesday of this week, RBA saw unusual option activity. The trading focused on call option buying on the March $65, $70 and $80 contracts. The trade on Monday was a long vertical spread where the $70 strike price is bought, and the $80 strike price is sold for a net debit. The strike selection is an indication of an expected move to $80 or above by expiration.
Unusual Option Opportunity #4: Intel Corporation (NASDAQ: INTC)
Intel finished 1.74% higher yesterday as news came out of the company accelerating its planned stock buyback program. The planned $10 billion accelerated share repurchase is part of a planned $20 billion program. The end of last week saw increased activity that spilled over into Monday’s trading. All of the trades were for this week’s expiration at the $50.50 call strike price.
Unusual Option Opportunity #5: United States Steel Corporation (NYSE: X)
After seeing a lot of unusual activity in July, option bulls are back at it this week with significant trades being made on Tuesday and Wednesday. On Tuesday, it was the August 28 expiration using the $8 call options. Then on Wednesday, the same expiration was chosen for a long call vertical using the $8 and $9 strike prices. The trade is an indication of an expected move above $9 by next week’s expiration.
Unusual Option Opportunity #6: L3Harris Technologies Inc (NYSE: LHX)
For L3Harris, Wednesday saw and significant trade being put on using a combination spread. The trade involved buying a call spread for December on the $190 and $210 call options and financing the debit by selling the December $155 puts. The trade was put on for a $0.05 credit with the expectation the stock will trade above $21 by December’s expiration.