3 Unusually Active Strikes Under $10 to Buy Now 

It’s Friday, so it’s time for me to cover unusual options activity from Thursday’s trading. 

As I examined Thursday’s trading in preparation for today's article, I noticed three call options with strike prices under $10 exhibiting unusual options activity. 

I’ve decided to aim low. Strike-price low.

None of them you’d be hard-pressed to consider long-term buy-and-hold stocks, but each of them has some curb appeal if you’re willing to take on above-average risk. 

Let’s get after it.

A Former SPAC Gets Charged Up

The first call option with unusual options activity on Thursday was Allego N.V. (ALLG), a leading European electric vehicle (EV) network. The call option is the July 21 $7.50 contract with a $0.50 ask price. 

Allego currently trades around $3.84, about half the strike price. Volume yesterday was 30.0x the open interest with an implied volatility of 90.06%. 

So, based on its delta of 0.23514, a call buyer needed ALLG stock to increase by $2.13 over the next 182 days to double their money on the 50-cent ask. Put another way, that’s a 55% increase in its share price. 

According to Barchart.com, the three analysts that cover ALLG give it a Strong Buy rating (5 out of 5) with a mean target price of $10. So from this perspective, at least, it’s more than possible.  

Where’s Allego’s business right now?

It reported Q3 2022 results in mid-November. On the top line, revenues jumped 105% to 22.3 million Euros ($24.2 million) with a gross profit of 11.3 million Euros ($12.2 million) and a net loss of 18.7 million ($20.3 million), 77% lower than a year earlier. 

The company’s guidance for the entire year called for revenue of at least 135 million Euros ($146.2 million) and positive operational EBITDA (earnings before interest, taxes, depreciation and amortization).

The number that stands out is the average utilization rate: it was 11.5% in the third quarter, up from 6.6% in Q3 2021. It wouldn’t be hard to imagine utilization rates over 50% or more in the next five years, which translates into much higher revenue. 

While it’s losing money, it’s demonstrating that its owned public charging ports continue to have a future in Europe, where EV ownership is much higher than in North America. 

So, this call becomes much more interesting when you consider that betting $50 for a down payment on a $700 investment isn’t all that risky.

You Have to Love Footwear

In March 2019, DSW Inc. changed its name to Designer Brands Inc. (DSI) to reflect the fact that over the next three years, it would bring more of its private brand production in-house through Camuto Group, which it acquired for $375 million in October 2018, in partnership with Authentic Brands. 

While it’s been a rough four years because of the pandemic, Designer Brands appears to be doing well. 

At the beginning of December, it reported Q3 2022 results. They included two-year comparable store sales growth of 43.8%, a 25% increase in sales of its Owned Brands, and a slight increase in its nine-month operating profit to $185.3 million. 

So, it’s growing, and it's not losing money. So, that’s half the battle. 

Over the past year, DBI stock has lost 25% of its value. The company has taken advantage of its falling share price to buy back 10.7 million shares of its stock at an average price of $13.79. That’s less than where they traded before the company announced its third-quarter results. Its shares fell on lowered earnings guidance for the year. 

However, it will still earn $1.75 a share in a glass-half-full look at the situation. Based on its current share price of $9.42, it trades for 5.4x 2022 earnings.   

So, I can see why Thursday’s volume was 25.97x the open interest. Value investors shouldn’t have a problem paying $10.15 ($9 strike plus $1.15 ask)  for DBI stock.

Another EV Play

The final of three strike prices under $10 is Xpeng (XPEV), one of the countless Chinese EV manufacturers battling at home and abroad. Xpeng stock is up nearly 6% as I write this. Of course, that won’t make much of a dent in its 78% decline over the past year, but every little bit counts. 

The reversal in its share price looks to be a change of heart by investors that knocked its share price lower earlier in the week on the news Xpeng was lowering car prices in China to match Tesla’s (TSLA) cuts. 

The price drop will drive higher sales for Xpeng. At this point, scale is the only thing that will get it on a pathway to profitability.   

“The pricing adjustment is part of our approach to make smart EVs accessible to more customers,” Barron’s reported comments from a company spokeswoman in an emailed statement. “The move will increase the competitiveness of our current products.”

With 181 days left on the July 21 $7.50 call, the $2.54 ask is now $2.86, suggesting investors might be warming to the EV maker’s stock.

Of the three stocks, XPEV is the riskiest bet over the long haul.

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