Got a Quarter? Buy These 3 Call Options With Unusual Options Activity

I’m focusing on call options with low ask prices for today's installment tracking unusual options activity. I wanted to do this last week, but since it was Thanksgiving, I opted to push my idea to today.

As I write this closing in on noon on the East Coast, I see several interesting call option possibilities that are both cheap and full of potential. 

I’ve got 23 choices with ask prices of a quarter or less. Eliminating the call options expiring in two weeks or earlier, the number of selections available has fallen to six. 

From these, here are three companies that are worth betting on. 

XPO Logistics

Brad Jacobs was the CEO of XPO Logistics (XPO) until he stepped down to become Executive Chairman this fall. He’ll still be very involved in the company he built through 18 acquisitions and a handful of spinoffs, but he’ll also be looking for his next big thing. 

Over his career, he’s made more than 500 acquisitions, building three different businesses: XPO, United Waste, and United Rentals, into much larger companies. Chief Customer Officer Mario Harik officially became CEO on Nov. 1 after XPO completed its spinoff of RXO Inc. (RXO), the fourth-largest truckload broker in the U.S.

Jacobs started at XPO in June 2011 by buying a controlling $150 million stake in the Greenwich, Connecticut-based transportation company. Eleven years later, XPO stock appreciated by 1,149%, which doesn’t consider stock received from spinoffs or dividends.

I think it’s safe to say that all three companies he’s grown over the years were left in better shape than he found them.

Analysts might doubt the company’s ability to grow margins as a pure LTL (less-than-truckload) company, but I sure don’t. Jacobs wouldn’t have spun off RXO if he didn’t think XPO could make it as a standalone. 

Down nearly 17% year-to-date, investors are getting a company whose valuation has been beaten down in 2022.

Citi analysts estimate XPO will earn $3.15 a share in 2022. That’s 11.8x its current share price, a multiple far lower than its five-year average price-to-forward earnings of 25.9.

The call option I have in mind is the Dec. 16 $42.50 contract with a $25 premium. It’s got to rise 15% as I write this to get to breakeven. While the delta’s low at 0.11051, it’s been on a roll in recent weeks. If the Santa rally keeps up, I like its chances.  

RLX Technology

RLX Technology (RLX) has been on a tear. Its stock is up nearly 16% in the past five days and 73% over the past month. 

The company makes e-vapor products for customers in China. They are intended to reduce the risks caused by combustible cigarettes. The company’s shares have taken a hit in the past year as China introduced more burdensome regulations, including banning flavored vapes.  

The company reported Q3 2022 results in mid-November that included a 38% decline in net revenues to $146.8 million and a 27% decline in net income to $46.2 million. 

“During the third quarter of 2022, we remained dedicated to preparing for a smooth transition to the new national standards, which came into full effect on October 1, 2022. Specifically, we wound down shipments of our older products and gradually switched to the National Transaction Platform on a regional basis. We have now achieved full geographical coverage nationwide,” said Ms. Ying (Kate) Wang, Co-founder, Chairperson of the Board of Directors, and CEO of RLX Technology.

This is not a company that risk-averse investors should touch. The future growth is still very much in doubt. However, one big positive from its third-quarter results was the significant increase in its gross margin to 50.0% from 39.1% a year earlier from going direct to retail stores, bypassing the wholesale market. 

I like the Dec. 16 $2.50 call contract. It’s got a $0.20 ask price, so the breakeven is 17% higher than where it’s currently trading. If December’s performance is anywhere near November’s, it’s got a real shot.  

Hecla Mining 

The Barchart Technical Opinion for Hecla Mining (HL) is a Strong Buy. Four of the five analysts covering the low-cost silver producer rate it a Strong Buy against just one Hold.

Hecla reported Q3 2022 results in early November. They included the second consecutive quarter with production of more than one million silver ounces at its Lucky Friday mine in Idaho. Sales were down sequentially, and year-over-year due to lower realized prices for silver, gold, lead, and zinc. 

Despite lower silver prices, its adjusted EBITDA was $155 million on $524 million in revenue. 

B. Riley lowered its Q1 2023 estimate on Dec. 1 to $0.04 from $0.08. However, it still has a Buy rating and a $6 price target on its shares. Hecla's an interesting bet if you’re a believer in holding gold and silver assets in recessions. 

The Jan. 6/2023 $6 call option has 36 days to expiration and an ask of just $0.17. That means it’s got 36 days to rise 12% from current prices. At a $17 premium, the risk is minimal.  

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