3 Unusually Active Options to Buy on Tibb’s Eve

Happy Tibb’s Eve!

For those unfamiliar with this sacred day on the calendar, it is when Newfoundlanders around the world celebrate Christmas with their friends. Not to be confused with Christmas Eve, it is a time to blow off steam from the past year with a few drinks before settling into holiday mode with your families.  

For those investors who don’t follow the Tibb’s Eve tradition, today is the last trading day before Christmas. I’ve got three call options to buy that exhibited unusual options activity on Thursday to celebrate the occasion. 

I’ve ranked them mild, medium, and hot, which indicates the level of risk of the underlying stock.

An Energy Play North of the Border    

My first selection from Thursday trading is Suncor (SU), the Canadian integrated energy company best known for its work in the Alberta oil sands. 

On November 29th, after a comprehensive review of its Petro-Canada retail business, it decided not to sell the gas stations, opting to continue working on making them more profitable.  

“Petro-Canada is a unique, differentiated, and strategic asset due to its strong national network and best in market consumer brand and loyalty program,” stated Board Chair Mike Wilson in its press release. 

Suncor acquired Petro-Canada for $15.1 billion in August 2009. The all-stock transaction saw Petro Canada shareholders receive 1.28 Suncor shares for every Petro Canada share. 

Today, Petro Canada holds a 20% share of Canadian retail fuel sales, putting it first among all gas station owners. In Q3 2022, Suncor’s Refining and Marketing segment, which includes Petro Canada, grew revenues by 51% to CAD$9.57 billion ($7.04 billion). The unit’s earnings before taxes were CAD$753 million ($554.24 million), 11% lower than a year earlier. 

Overall, the company’s adjusted funds from operations were CAD$4.47 billion ($3.29 billion) in the third quarter, 69% higher than a year earlier. 

The company increased its quarterly dividend by 11% with the Dec. 23 payment. It now yields a healthy 4.9%. Once upon a time, Warren Buffett owned Suncor shares. Berkshire Hathaway (BRK.B) got rid of its last shares of Suncor in Q1 2021.

The call option in question is the Jan.20/2023 $31.50 contract. It had an $85 premium or just 2.7% of its strike price. With 29 days to expiration, its share price has to rise by 40% to break even. However, if it does, the return on the $85 premium would be nearly eightfold. 

It Just Got a New CEO

Under Armour (UAA) announced on Dec. 21 that it hired a new CEO after a seventh-month search. Stephanie Linnartz comes to the apparel and footwear brand from Marriott International (MAR), where she served as President. Linnartz beat out 59 other candidates because of her e-commerce experience. 

“She is a proven growth leader with a distinguished track record of brand strategy, omnichannel execution, talent acquisition and development, and passion for driving best-in-class consumer connectivity, experience, and brand loyalty,” stated Under Armour Executive Chairman and founder Kevin Plank. 

Under Armour stock initially jumped on the news. However, as the week wore on, the gains disappeared. UAA stock is down 55% year-to-date and 33% over the past five years. Its shares need a major catalyst. It will take a while for Linnartz’s brand of leadership to take hold.

In the meantime, its Q2 2023 results, reported in November, were mediocre, with a 5% increase in revenues, excluding currency, and a 31% drop in its operating income from Q2 2022. 

However, on a positive note, revenues and profits were better than analyst expectations. Further, its footwear sales jumped 14% year-over-year, indicating that the business is gaining traction. 

It’s no Nike (NKE), but Lennartz might be just what the doctor ordered. 

The Under Armour call exhibiting unusual options activity is the Feb. 17/2023 $10 contract. The $0.57 ask is just 5.7% of the strike price. With 84 days to expiration, a $2 increase in its share price, based on a delta of $0.50342, translates to a 177% jump in the premium.

The risk-to-reward appears tilted in your favor.  

Using AI to Improve the Customer Experience

Soundcloud AI (SOUN) helps businesses interact with customers using voice artificial intelligence (AI) to improve conversations. An example is calling your bank to check on a credit card balance. Voice AI allows the bank’s computer to read the balance back to you in a conversational manner. 

The use cases are endless. However, like many AI-related businesses, the profits take time. 

In Q3 2022, Soundcloud AI’s revenues increased 178% YOY to $11.2 million. The company’s cumulative backlog was $302 million at the end of September, 239% higher than a year earlier. Unfortunately, its operating loss was 57% higher than a year ago, while its adjusted EBITDA loss was $16.9 million, 16% higher than Q3 2021.

Soundcloud AI’s revenue was $21.6 million through the first nine months. It expects full-year sales to be $30 million at the midpoint of its guidance, up from $0 in 2021.

To become profitable, it is cutting 10% of its workforce and reducing its discretionary expenses in the year ahead.   

Of the three stocks, this is the most speculative of the investments. Further, its shares have lost 87% of their value in 2022. Now trading under $1, the risk of delisting in 2023 enters the picture. 

All three analysts that cover its stock give it a Strong Buy rating with a $4.40 mean target price. Once trading over $18, the upside is tremendous. 

I like the July 21/2023 $1 call. The ask is high at $0.40, or 40% of the $1 strike. However, with 210 days to expiration and a delta of 0.68036, there is plenty of time to make money on this trade. 

No risk, no reward.

• Puts for Luminar Technologies (LAZR) Tops Unusual Options Screener
• Microsoft Put Option Premiums Are at High Levels, Worth Shorting for Income
• Unusual Options Activity For December 23rd
• U.S. Bancorp’s Unusual Options Activity Bodes Well for 2023