Unusual Options Activity: 3 Tempting In-the-Money Call Options

As I write this, the Sep. 28 trading day has come and gone. There were several interesting in-the-money call options exhibiting unusual options activity on the day. 

I tend to look at options with more than a week until expiry. Sometimes, that limits my choices. However, today’s trading has given me many possibilities that have both high volume to open interest, more than seven days to expiry, and whose share prices are in-the-money. 

That said, at least one of them will take an above-average amount of courage and things will go your way. 

On to my three selections. 

Hive Blockchain Technologies 

I must admit since crypto went into its deep winter freeze, I haven’t spent a lot of time following companies like Hive Blockchain Technologies (HIVE) which are the backbone of this nascent industry. 

In early September, Hive entered into a $100 million at-the-market (ATM) offering with H.C. Wainright & Co. Year-to-date, the company’s stock has lost almost 70% of its value. A year ago, the ATM would have been a lot more attractive, both in terms of the funds raised and the reduced dilution to its existing investors. 

The company’s Q1 2023 report was actually reasonably good. On the top line, its revenue was $44.2 million, 13% higher than Q1 2022 and only slightly lower than Q4 2022. On the bottom line, its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $11.2 million, down from $11.8 million in the previous quarter, but still well into non-GAAP profitability. 

As of June 30, it had $71.4 million in digital currencies on its balance sheet, down from $170.0 million in March, most of the value derived from 3,231 Bitcoin. That’s up from 2,596 in March. It mined 821 coins in the first quarter and sold 186. 

Should Bitcoin reverse its slide and move higher over the next year, Hive shares will appear very cheap in hindsight. 

The March 17/2023 $3.00 call is 25.0% in-the-money with 170 days till expiry. Even with the $1.60 premium, $4.60 is only 15% higher from where Hive’s shares are currently trading. 

I can see why the volume is 12.1x the open interest. The risk/reward proposition is pretty high. 

Five9

The provider of cloud software for contact centers hasn’t lost as much as Hive in 2022. However, Five9 (FIVN) is still down 43% YTD. 

Analysts seem to like the company’s prospects. Of the 18 covering FIVN stock, Barchart’s data suggests it’s a strong buy with a rating of 4.5 out of 5. The mean target price is $138.11, 78% higher than its current share price. 

Five9’s revenue and profitability (non-GAAP) seem to be holding up. 

In the second quarter ended June 30, its revenues increased 32% to a record amount of $189.4 million, up from $143.8 million a year earlier. Its non-GAAP net income in the quarter was $24.3 million, 52% higher year-over-year. 

As a result of its healthy quarter, it now expects annual revenue in fiscal 2023 of at least $780.5 million and non-GAAP net income per share of $1.39 at the midpoint of its guidance. 

The company’s key financial performance metric is the Annual Dollar-Based Retention Rate, which demonstrates its ability to retain and grow its recurring net revenue. Anything above 100% is ideal. Its Annual Dollar-Based Retention Rate in the 12 months ended June 30 was 118%, down five percentage points from June 30, 2021, but still well above 100%.

At the end of the day, Five9 continues to grow its Enterprise subscription revenue. Up 41% over the past 12 months, its business from non-U.S. companies over the 12 months ended June 30 grew 45% with partnerships with Kyndryl Holdings (KD) and Worldwide Technologies helping out its international expansion.

As for the call option that caught my attention, it is the Oct. 21 $70 call. It’s got a little over three weeks until expiry with a $10.50 ask price. The breakeven of $80.50 is currently only 3.7% higher than where it’s currently trading. 

A quick bump in the share price and you’ll be well in the money.

Norwegian Cruise Line Holdings

Over the past three months, Norwegian Cruise Line Holdings (NCLH) has recovered some of its losses in 2022, notching a nearly 15% return. Interestingly, Royal Caribbean Cruises (RCL) has also done well over the past three months while Carnival (CCL) has struggled.

Executives at all three companies say bookings and prices for their cruises are very strong and don’t see the black clouds on the horizon that some CEOs are forecasting.

NCLH CEO Frank Del Rio was very upbeat about the company’s Q2 2022 results. 

“We are encouraged by the continued strong consumer demand we are experiencing which is reflected in our record pricing, accelerating booking volumes, especially for 2023 and beyond, and highest ever onboard revenue generation,” Del Rio stated in its Q2 2022 press release.

In the second quarter, its fleet-wide occupancy rate was 65%. The company expects an occupancy rate of 80% in the third quarter. July’s occupancy rate was an impressive 85%. On the pricing front, its total revenue per Passenger Cruise Day increased by nearly 20% in Q2 2022 versus Q2 2019, before the pandemic. 

As of June 30, the company’s advance ticket sales balance was $2.5 billion, an all-time record for Norwegian Cruise Lines.  

The Oct. 21 $13.50 call is currently a little more than 8% in the money. Add in the $1.89 ask price and its share price only needs to rise 5% to break even. 

Of the three stocks mentioned here, it’s a toss-up between Five9 and Norwegian Cruise Line Holdings for the best stock of the bunch. I really like the cruise industry’s potential, but Five9 continues to scale its business to GAAP profitability. 

I’ll leave the final decision to you. 

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