Unusual Options Activity: Buy These 3 Calls As Early Christmas Presents

As I contemplated a subject for today’s edition of Unusual Options Activity, I realized that the holidays were quickly approaching. Thanksgiving is two weeks from today. Christmas follows a month later. 

Why not find some call options readers can buy for themselves as early Christmas presents? 

According to Barchart data from Wednesday, 13 call options expiring on Dec. 23 exhibited unusual options activity with volume-to-open-interest ratios above 1.0.

All of them expire in 43 days. Here are three I would buy if I were in the mood for a little early Christmas treat.

Apple 

Why buy an Apple (AAPL) product when you can own a piece of the company? 

The Dec. 23/2022 $143 call option had a volume of 2,163 on Wednesday, 15.0x the open interest. The ask of $3.80 means you’re paying a 2.7% premium for the right to buy 100 shares at $143. 

So, your breakeven on this contract is $146.80, 3.8% higher than where it’s currently trading. The markets aren’t working in our favor right now -- Mark Zuckerberg’s 13% cut to Meta’s (META) headcount didn’t help -- so it might be a big ask for a Santa Claus rally. 

The bigger question is whether Apple is worth buying at $143.

Apple’s share price is down more than 22% in 2022. Over the past year, it’s lost nearly 5% of its value, which is considerably better than the S&P 500, off 17% over the same period. You could argue that AAPL stock has been an excellent defensive play over the past year, as many tech stocks have gotten taken to the woodshed. 

The biggest worry for investors regarding Apple is the supply chain. Apple’s having severe difficulties getting its iPhone 14s made. Even though the services business continues to grow, iPhones account for the lion’s share of the company’s revenue (52% of 2022 revenue).

The difficulties have led to analysts cutting sales and earnings estimates.

Morgan Stanley analyst Erik Woodring believes Apple’s a buy despite the supply chain issues.

“[W]e believe this situation equates to more of a deferral of iPhone demand than a destruction of demand, which does not change our thesis,” Barron’s reported the analyst’s comments on Nov. 8.

Woodring has an Overweight rating and a $175 target for Apple. 

Coca-Cola

What could be more fitting than suggesting Coca-Cola (KO) as an early Christmas present? After all, the Atlanta company created the modern-day image of Kris Kringle. 

Coke stock’s been on a bit of a run lately. It’s up more than 10% over the past month and into positive territory for the year. 

In December 2021, investment banker Herb Allen joined the Coca-Cola board. At the end of October, Allen plunked down $60.18 a share for 33,200 KO shares, bringing his total holdings to 261,664. As Barron’s reported, it was his first open-market purchase since joining the board. 

As I like to say, there are plenty of reasons insiders sell a stock, but only one for buying some.

Along with reporting its Q3 2022 results at the end of October, the company raised its full-year guidance. It now expects organic revenues to grow 14.5% at the midpoint of its guidance, with earnings per share growth of 15.5%.

As a result of its strong showing in 2022, Credit Suisse analyst Kaumil Gajrawala reiterated his Outperform rating and $64 target price. 

“Coke has strong momentum...and we sense notably high conviction from the company on its ability to sustain top-line growth into next year, despite a highly volatile macro environment,” Barron’s reported about his research report comments from Nov. 4.   

The Dec. 23 $62 call had a $0.48 ask price on Wednesday, with volume 4.49x the open interest. It has to rise 4.4% over the next 43 days to break even. Given its momentum, the odds are good it will hit that target by Christmas. 

Johnson & Johnson

In July, MassDevice.com reported on Johnson & Johnson (JNJ) CEO Joaquin Duato’s intentions for its MedTech business. Mergers & acquisitions were part of the company’s strategy to grow the non-Pharma segment of its business. 

Investors found out on Nov. 1 just how significant M&A would be to its MedTech ambitions. The company announced it would pay $16.6 billion for Abiomed (ABMD), the maker of the Impella heart pump. The price was a hefty 50% premium to Abiomed’s Oct. 31 closing price. 

Should the Abiomed deal deliver certain milestones, it would pay Abiomed’s shareholders an additional $35 per share on top of the $380 it’s already paying.   

“We have committed to enhancing our position in medtech by entering high-growth segments. The addition of Abiomed provides a strategic platform to advance breakthrough treatments in cardiovascular disease and helps more patients around the world while driving value for our shareholders,” Duato stated in J&J’s press release announcing the acquisition.

The acquisition adds $0.05 a share to its 2024 earnings and more in subsequent years. 

Johnson & Johnson is looking to grow Abiomed’s revenues by 23% annually to $3.7 billion by Q1 2028. It’s a tall order but one it would gladly pay out an additional $35 a share to reach. 

As for the call option, the strike price is $180. Add in the $156 premium, and you’re looking at a 5% gain to break even on the contract. I like the low ask price. It’s just 0.9% of the cost to buy 100 JNJ shares at the strike price. 

As a long-term investment, JNJ is a must-own.  

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