Can You Guess the Significance of These 3 Unusually Active Options?

In Wednesday’s trading, there were 1,051 unusually active options -- defined as a Vol/OI ratio of 1.25 or higher -- with 616 puts and 435 calls. So, while the options market was somewhat bearish on the day, the S&P 500 finished up nearly 0.6%. 

As I looked through the options data for Wednesday’s trading this morning, searching for an interesting topic related to unusual options activity, I came across three stocks worthy of your investment consideration or, at the very least, names to be added to your watchlist. 

Of these three names, I’ve selected one unusually active option for each that you might consider as part of your bet on one or more stocks.

By the end, I’m hopeful you will have determined the significance of the three unusually active options. 

Visa

Visa (V) had one unusually active option on Wednesday: the Feb. 16 $250 call with a $17.45 ask price. The Vol/OI ratio of 6.0 put it 331st of 1,051. 

The ask price was a 7% down payment for the right to buy 100 shares of the payment processor. With 36 days to expiration, you can double your money by selling the option before it expires if the shares increase by $20.61, or 7.8% higher than yesterday’s closing price of $264.56. 

However, if that happens, you could exercise your right to buy 100 Visa shares for $267.45 each [$250 strike plus $17.45 premium], generating an unrealized gain of 6.6% on those shares over 36 days, an annualized return of nearly 67%. You own shares in one of the biggest public companies in the world. 

In the worst-case scenario, the share price goes nowhere, and you’re out $1,745. 

There are plenty of reasons to hold on to the shares. 

As The Motley Fool points out, it’s doubled its dividend since 2019 and could double it once more before 2030.

“With the substantial free cash flow that both companies can generate from leveraging their leading payment networks, they should be able to keep growing their dividends at the same rapid pace we've seen over the last five years,” The Motley Fool wrote on Jan. 8.

I don’t think there’s any question that Visa is a financial stock worth owning. The 26 analysts covering its stock rate it a Strong Buy (4.62 out of 5) with a mean target price of $279.46, 6% higher than where it currently trades.

Visa stock generated a 90.79% return over the past five years, 715 basis points higher than the S&P 500. 

Jacobs Solutions        

Jacobs Solutions (J) had one unusually active call option on Wednesday, and it was also a Feb. 16 expiry with a $135 strike and a $2.85 ask price. The Vol/OI ratio of 2.66 put it 622nd out of 1,051. 

The ask price was a 2.1% down payment for the right to buy 100 shares of the engineering and infrastructure project management company. With 36 days to expiration, you can double your money by selling the option before it expires if the shares increase by $6.37, or 4.8% higher than yesterday’s closing price of $131.95. 

If that happens, you could exercise your right to buy 100 Visa shares for $137.85 each [$135 strike plus $2.85 premium] with a minimal unrealized gain of 47 cents. So, in this instance, if you want to buy and hold the shares, you’ll need more than 4.8% appreciation over the next 36 days to make it worth your while. 

And, of course, your maximum loss on this bet would be $285. 

Analysts like Jacobs’ stock. Eleven analysts cover it. They give it a Strong Buy rating (4.55 out of 5) with a mean target price of $151.50, 15% higher than where it’s currently trading, providing investors with reasonable upside over the next 12 months.

Over the past five years, J stock has generated a 117.5% return, 35 percentage points higher than the index.  

To become even more profitable, the company announced in November that it would spin off its Critical Mission Solutions and Cyber & Intelligence Government Services Businesses and merge them with Amentum, a leading global engineering and technology solutions provider.

The trio would become a significant government service sector player with $13 billion in annual revenue. Jacobs would own as much as 63% of the publicly traded company.  

AT&T

I’ve been bearish about AT&T (T) since it saddled itself with massive debt by announcing it would acquire Time Warner in October 2016. The wireless carrier completed the transaction in June 2018, almost two years later. 

Less than four years later, AT&T spun off its Warner Media subsidiary, which merged with Discovery Communications in April 2022, to form Warner Bros. Discovery (WBD).     

It’s been shareholder value destruction at its finest. 

However, AT&T stock’s been on a bit of a tear since hitting a 30-year-low of $13.43 in July 2023, up 24%. I believe there are more gains ahead in 2024 and beyond. I feel this way primarily because of the debt repayment it’s been able to accomplish over the past two years. 

On March 31, 2022, before the spinoff and merger, AT&T had net debt of $169.0 billion. As of Sept. 30, 2023, it was $128.7 billion, 24% less in 18 months. That’s nothing to sneeze at. That said, its net debt is still 108% of its market cap, a very high rate compared to T-Mobile (TMUS), which is at just 58%.

If interest rates come down in 2024, it should be just fine.  

T had three unusually active options on Wednesday. Two puts expire on Jan. 19, and a call expires on July 19. Both of the puts are in the money. I’d avoid those and focus on the call with a Vol/OI ratio of 1.63 yesterday. 

The $19 strike expires in 190 days. The ask price of $0.42 is a down payment of 2.2%. You can double your money by selling the call if the shares move $1.71 higher (10%) over the next 27 weeks. It’s more than doable. 

In the worst-case scenario, the share price goes nowhere, and you’re out $42. You barely get a monthly phone plan for that. 

The Significance of the Trio Is?

Your first guess might be that all three are call options exhibiting unusual activity. You would be right.

However, the actual significance of the three stocks, other than being attractive stocks to buy in 2024, is that they all have single-letter stock symbols. They’re scarce. 

Of the 503 stocks in the S&P 500, only 10 companies have a single-letter stock symbol. All three names in this article are part of this elite group. 

 

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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.