These 2 All-Cap Winners From the Past Week Had Unusual Options Activity

As I write this midday in Friday trading, stocks are slightly down, failing to carry Thursday’s rally into the weekend. According to Barchart data, 902 NYSE and Nasdaq stocks are up more than 10% over the past week while also exhibiting unusual options activity. 

I’ve done a quick check of the 902 stocks. Approximately 42 have exhibited unusual options activity over the past week. These two call options might catch your fancy. 

Large Cap - On Holding 

On Holding (ONON) is up nearly 11% over the past five days. That’s good news for long-time shareholders. They’ve lost more than 48% year-to-date despite this week’s gains. 

What’s got investors interested in the Swiss maker of performance footwear and apparel? That’s tough to know. It reports Q3 2022 results on Nov. 16. Maybe investors feel it’s going to deliver good results. 

What we do know is that On reported Q2 2022 results in August that included a 66.6% increase in net sales to 292 million Swiss Francs ($309 million) and a 220.0% increase in adjusted net income to 44.8 million Swiss Francs ($47.4 million)/

At the time, it increased its guidance for the second half of the year. As a result, it said at the time that it expected net sales of 1.1 billion Swiss Francs ($1.16 billion) for all of 2022, 52% higher than in 2021. 

If you’re unfamiliar with On Holding, it went public in September 2021, selling 31.1 million shares at $24 a share, above its IPO price range between $20 and $22. A year ago, its shares got as high as $55.87. From its all-time high, its shares have lost 66% of their value. 

This recent move higher could be a sign ONON is ready to move back into positive territory after failing to maintain its momentum post-IPO.

On co-founder and Co-Executive Chairman Caspar Coppetti had this to say in the company’s Q2 2022 conference call:

“On grew 67% overall in the second quarter of ’22 and many key markets had outstanding growth rates, such as the U.S. and Japan, which doubled; or the U.K. and Australia, which grew by more than 60%,” Coppetti stated in August. 

“All geographies, channels and categories contributed strongly to this outstanding result, confirming On’s tried-and-tested strategy of maintaining a well-balanced product and distribution.

The call option that caught investor attention this week was its April 21/2023 $22.50 contract. As I write this, it has a volume of 1,389 on the day, nearly 11x the open interest. The breakeven of $24.55 means ONON stock has to rise 29% over the next 160 days. 

The markets appear to be strengthening. If that’s the case, I don’t see a problem with it achieving this goal and moving above its September 2021 IPO price.  

Mid-Cap - Alcoa

Alcoa (AA) had a lot of activity this week, which led to a nearly 19% gain over the past five days. The call option that catches my eye is the Dec. 16 $60 contract with a $0.94 ask price. The volume so far today is 2.780, 7.94x the open interest.

A $94 premium gives you 35 days to break even on this call. To do so, AA stock will have to rise another 24% or 5% per week. It’s doable. 

Not only has the aluminum producer been hot this week, but it’s also been on a roll for the past month, up more than 28%. 

Of the eight analysts covering its stock, most consider it a moderate buy, with a mean target of $52.55, below where it needs to get over the next five weeks.

In October, the shares tumbled as a result of a surprise Q3 2022 loss of $746 million on $2.85 billion in revenue. The decline in revenue and earnings was due to lower volumes and aluminum prices in the quarter. 

However, if you exclude the $626 million in noncash pension settlements and other charges, its adjusted loss was a more palatable $60 million.

The average EPS estimate for 2023 is $4.95. That’s a very low P/E ratio of 9.9. Alcoa is an excellent long-term buy.

The Bottom Line

As I continue to understand the options markets better, I also realize how much more I have to learn to become a real talking head for options investors. 

That said, I’m enjoying covering a part of the markets I’d neglected in the past because I didn’t think it related to stocks but it was mere speculation. It turns out that the options market is an excellent way to understand what’s happening with stocks overall. 

Of the two companies and call contracts, I’d be more inclined to go with On Holding because it’s a less cyclical business, something that should do well in most economies. Plus, I do like the 160 days to expiration versus 35 for Alcoa. 

I guess we’ll find out in the weeks ahead. 

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