3 Unusually Active Reasonably-Priced Call Options to Buy Now

The Labor Department reported the November jobs numbers on Friday morning. 

They were reasonably sound, with 199,000 jobs created in November, lowering the unemployment rate to 3.7%, 20 basis points lower than in October. The unemployment rate has remained under 4% for 22 consecutive months. 

The jobs report paints an economic picture that appears to be returning to a pre-pandemic norm where inflation is near 2%, and employers aren’t nearly as stretched to find workers. 

As a result, interest rate cuts may come earlier in 2024 than expected, which should get investors in a buying mood on the last trading day of the week. 

With that said, I’ve got three unusually active call options to buy now that are reasonably priced and could provide a nice profit for you in the future. 

Have an excellent weekend!  

What Am I Looking For?

Before breaking out the three call options in question, I’ll explain my search criteria for selecting these particular calls. 

First, I was looking for cheap calls. By that, I mean those with ask prices of less than 3% of the strike price and under $1. Secondly, they should exhibit unusual options activity with a volume-to-open-interest (Vol/OI) ratio of at least 1.25, preferably 5.0 or higher. Lastly, they should be stocks that I would own. 

One more thing: All three call options were selected from Thursday’s options trading. Eligibility was limited to options with 35 days to expiration or longer. 

Valvoline 

The Valvoline (VVV) call option is the Jan. 19/2024 $40 strike. The ask price of $0.20 is a down payment of 0.50%. Based on its Thursday closing price of $35.11, it was out of the money by $4.89. For you to consider exercising your right to buy 100 shares of VVV stock in 42 days, its share price will have to increase by 14.5% over the next six weeks. 

Is it possible? Will the sun come up tomorrow? Sure, it’s possible. The probability, however, is another thing entirely. Its shares have never traded over $40, with an all-time high of $39.67. That said, VVV stock is up nearly 18% in the past month. It’s on a big roll.

For those unaware, Valvoline operates a large chain of oil change and car repair stores under the Valvoline Instant Oil Change and Valvoline Great Canadian Oil Change retail brands. It has more than 1,800 locations across North America. 

In October 2021, after completing a strategic review of its entire business, it announced that it would separate into two businesses: Retail Services and Global Products. The former was the oil change business, while the latter was its Valvoline oil lubricants business. It concluded that both companies would be better served pursuing their growth strategies. 

In August 2022, Valvoline announced the sale of the Global Products business for $2.65 billion to Aramco, the Saudi Arabian oil giant. The sale was completed on March 1, 2023. Valvoline will use the net proceeds to buy back $1.6 billion of its stock by September 2024. 

The repurchase is a big reason VVV is up in 2023.

The other reason is the retail business’s performance in 2023. In early November, Valvoline reported Q4 2023 results. For 2023, its revenues were $1.4 billion, 17% higher than a year earlier, with an adjusted EBITDA of $380 million, 20% higher than 2022. Its system-wide same-store sales have grown for 17 consecutive years. 

It’s an excellent asset-light business to own for years to come. As we’ve seen with slowing electric vehicle sales, the demise of the oil change is greatly exaggerated. 

Oh, and one more thing. If the shares rise by $2.61 over the next six weeks, the delta of 0.07659 means you could double your money by selling the call before expiration. That’s about half the amount to consider buying the shares. 

APA Corp. 

APA Corp. (APA) is an independent oil and gas producer with operations in the U.S., Egypt, and the UK North Sea. Its shares are down 21% in 2023, about 3x worse than Exxon Mobil (XOM).   

The call option I’m interested in is the April 19/2024 $50 strike. It had an ask of $0.18 on Thursday, a down payment of just 0.4%. The shares are currently well out of the money at $34.42. They closed yesterday’s trading at $33.83. The Vol/OI ratio was 6.72. 

It’s got a little more than a third of a year to appreciate by 46% over the next 19 weeks for you even to consider exercising your right to buy at $50.18 a share. That’s quite a run. 

Oil prices must move off their current lows below $70 a barrel. Unless China gets moving economically early in 2024, it will be tough for prices to get back near $100 where they were in September.

Analysts are lukewarm about APA. Of the 20 that cover it, nine rate it a Buy (3.70 out of 5.0) with a mean target price of $47.90, considerably higher than where it’s currently trading. 

So, why bother?

With a delta of $0.5897, the shares only need to increase by $3.05 (9.0%) over the next five months for you to double your money. Further, the $18 down payment is so low the risk/reward is tilted in your favor. 

Harley-Davidson

It's safe to say that my final selection is the riskiest stock to buy in these uncertain economic times. 

BRP Inc. (DOOO) stock is down nearly 20% over the past year as large-ticket discretionary buys have slowed due to higher interest rates. The maker of Sea-Doo personal watercraft, Ski-Doo snowmobiles, and Can-AM on and off-road vehicles reported lower sales and earnings on Nov. 30, along with lower guidance for 2024.

While Harley-Davidson (HOG) doesn’t compete with BRP, it illustrates what’s happening in certain areas of the economy that were flying through the first half of 2023 but have hit significant headwinds. 

Long-time shareholders will have to hold on tight. 

The call is the Jan. 19/2024 $36 strike with a $0.35 ask price. That’s a down payment of slightly less than 1.0%. The delta is 0.17706, which means HOG stock has to increase by $1.97 for you to double your money before expiry in 42 days.  

As I look at the option and share price today late in morning trading, shares are down 17 cents from yesterday’s close, and the Jan. 19/2024 $36 ask is precisely the same at 35 cents. 

So, the same bet applies today as yesterday. The only difference is the delta at 0.19052, so to double your money, the shares have to rise by $1.84 in the next 42 days. Your work just got a little easier.   

Like BRP, Harley’s Q3 2023 results were negative over last year. However, through the first nine months, sales were $4.05 billion, 2.0% higher year-over-year, with operating income slightly lower than a year ago. 

Why make this play?

It’s looking increasingly like the Federal Reserve will lower interest rates in 2024 as inflation moderates. Were that to happen, interest-rate-sensitive stocks such as HOG would rocket higher. 

While there are only seven weeks to expiry, a lot can happen between now and then. The only downside is that the Fed doesn’t meet next until Jan. 30-31, nearly two weeks after the call expires. 

At a $0.35 ask, you have to expect a little more risk.

 

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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.