3 Unusually Active Options to Play for Long-Term Income Into 2025

Good afternoon. We're into the final hours of the third trading week in 2024. The markets are up a decent amount, nearing the midway point on Friday. The markets didn't start the week in grand fashion, but the major indexes will finish in positive territory on the week.

The big news for investors is that the S&P 500 is nearing its all-time high of 4,818.62, set on Jan. 3, 2022. FactSet Vice President and Senior Analyst John Butters said in December that the average industry analyst expects the index to close at $5,068.41 in 2024, a 6.3% gain.

While that might not match its gains from 2023, it’s better than a predicted loss for the year. 

Anyway, enough about the index. I’m here to discuss unusual options activity and I will do that. 

I thought I’d finish the week by looking at long-duration options for income investors. While there’s quite a debate about when the Federal Reserve will start cutting interest rates in 2024, I’d be shocked if it didn’t happen at some point in 2024. As a result, the rates investors are getting for cash balances will likely drop in the next 12 months. 

Here are three usually active options from Thursday’s trading that expire at some point in 2025 and will generate reasonable long-term income. 

Have an excellent weekend!

Estee Lauder

First up is Estee Lauder (EL), the iconic manufacturer of skincare, makeup, fragrance and hair care products. It’s not had a good time the past year, losing nearly 52% of its value. 

Long-time shareholders have China to blame for the nosedive. With China’s recovery failing to gain traction in 2023 and flat U.S. sales, there was nowhere to go for EL stock except lower. 

Toward the end of 2023, Estee Lauder stock began to get some help from analysts. In early November, EL stock got something like eight buys from analysts, according to MarketBeat’s staff. 

Analyst data from Barchart.com says that the analysts rate EL a Moderate Buy (3.79 out of 5) with a mean target price of $140.68, 12% above where it’s currently trading. Given its share price is down 70% from its January 2022 peak, value investors will warm up to its stock as the year progresses. 

Estee Lauder’s Jan. 16/2025 $100 put had a Vol/OI (volume-to-open interest) ratio of 4.14 on Thursday. Sellers of the puts would receive $11.50 premium income for an annualized yield of 5.8%.

It’s not a massive amount. However, should interest rates fall as expected, it will be better than you might get in a savings account, etc. 

Uber 

Now that Uber (UBER) is profitable -- it made its first GAAP operating profit of $326 million in Q2 2023 and followed that up with a $394 million operating profit in Q4 2023 -- the company’s stock has become more attractive for risk-averse investors. 

Analysts love UBER stock. The 37 that cover it rate it a Strong Buy (4.81 out of 5) with a mean target price of $65.48. While that’s not much higher than its current share price, I expect that Wall Street will push the targets higher at some point in the first half of 2024. 

The ride-hailing app is expected to earn $0.37 in 2023 and $1.09 in 2024. It will be interesting to see if the company delivers a positive earnings surprise when it reports Q4 results in February. The average estimate is $0.15. 

As of Sept. 30, it had a net debt of $3.14 billion, down 40% from $5.23 billion at the end of 2022. Expect its net debt to fall below $3 billion in Q4 2023. 

The option I’m looking at is the June 20/2025 $90 call. They expire in 518 days (~17 months); the ask price was $5.85, a 6.5% down payment on UBER stock. With a delta of $0.36347, you would double your money if its share price increases by $16.09 between now and then.  That’s a 25% gain over nearly a year and a half. It’s more than doable.

First Solar   

The Barchart Technical Opinion rating for First Solar (FSLR) is “a 72% Sell with a Strengthening short term outlook on maintaining the current direction.” Its stock is down 18% in the past month. 

However, analysts see a better long-term picture, rating it a Strong Buy (4.60 out of 5) with a mean target price of $229.07, 62% higher than where it’s currently trading.     

As its website states, the maker of eco-efficient solar modules utilizes an advanced thin film that is a lower-carbon alternative to conventional crystalline silicon (c-Si) PV panels. 

More importantly, it’s doing a lot of manufacturing in the U.S. It has a fourth U.S. plant that will be online in Alabama in 2025. By 2026, it will have a manufacturing capacity of over 21 gigawatts (GW). 

Highlights of its third quarter included a $273 million operating profit, up from a $68 million loss a year earlier, on $801 million in revenue. Its gross margin in Q3 2023 was 47.0%, 870 basis points higher than Q2 2023. It finished the third quarter with net cash of $1.28 billion. Lastly, it’s got an 81.8 GW sales backlog. 

Renewable energy faced an uphill battle in 2023, and investors cooled on the trend. It’ll be back. 

In the meantime, FSLR had two put options that were unusually active yesterday and were expiring at the same time on Jan. 17/2025, 364 days from now. The strike prices were $120 and $125, with bid prices of $12.80 and $14.60, respectively. 

Barring a recession worse than a mild one, I doubt its shares will fall to $107.20, the net price you’d pay for the $120 strike should you sell the put and have to buy the shares. Based on Thursday’s closing price of $147.45, it is a 27% decline over the next year and 53% from the analyst’s 12-month target. 

Assuming the shares don’t fall to $120, and they’re put to you, you’re looking at an annualized yield of 8.9%, even better than the 5.8% for Estee Lauder.

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