Rating Thursday’s Top 5 Unusually Active Options

As I write this in late Friday morning trading, 16.2 million options have traded, with 35% puts and 65% calls. Approximately 301 stocks have a volume greater than their 30-day moving average volume. The top 10 stocks account for 47% of Friday’s total volume. 

Yesterday’s top 5 unusually active options had Vol/OI ratios ranging from a high of 179.28 down to 38.10. Some of them were good bets. Some were not. Here are the five most unusually active options from Thursday. Here’s why I like or dislike each stock and what I think about the options.   

Have an excellent weekend. Go Chiefs!

Amazon

Amazon’s (AMZN) May 17 $215 call was the most unusually active option yesterday, with a Vol/OI ratio of 179.28. With 98 days to expiration, its $0.89 ask price was a 0.5% down payment based on its closing price of $169.84.

Why I like the stock: Amazon’s advertising revenue continues to grow in importance at the Seattle company. In Q4 2023, Amazon’s ad revenue rose 27% to $14.7 billion, $500 million higher than the analyst estimate. Its annual ad revenue was $46.91 billion, 24% higher than a year ago. They now account for 51.7% of AWS’ annual revenue, up from 47.1% a year ago. 

Why I like the option play: The risk of the call is minimal. With a delta of 0.08129, Amazon’s share price must rise by $10.95 (6.4%) over the next three months for you to double your money on the call without holding to expiry. 

While I’m not sure it can reach $215 in three months, you never know. 

Kenvue 

Kenvue’s (KVUE) March 15 $20 call was the second-most unusually active option yesterday, with a Vol/OI ratio of 83.90. With 35 days to expiration, its $0.25 ask price was a 1.3% down payment based on its closing price of $19.33
Why I don’t like the stock: Kenvue became an independent company last August when it was spun off by Johnson & Johnson (JNJ). The consumer health company’s brands include Band-Aid, Aveeno, Listerine, Neutrogena and Tylenol. They’re all household names. 

Kenvue reported decidedly lukewarm Q4 2023 results on Feb. 8. Its $3.67 billion in sales were $110 million shy of analyst estimates, while its 31 cents earnings per share was three cents better than the consensus due to a lower-than-expected tax payment. The skin, health, and beauty segment, which includes Aveeno and Neutrogena, had sales of $1 billion, $70 million shy of analysts' expectations.

While it’s got a good dividend yield of 4.1%, it’s due, in part, to an 18% decline in its share price since the spinoff. Until its business in China gets moving, it’s dead money.   

Why I don’t like the option play: From a cash outlay perspective, $25 per contract is not significant in the big picture. Even if you decide to exercise your right to buy 100 shares at $20, your total outlay is $2,025 per contract. 

KVUE stock must rise 79 cents (0.31756 delta) over the next five weeks to double your money on the option. That’s a little less than 1% per week. Down nearly 12% over the past month, it’s not a sure thing given the bearish sentiment right now.  

Verizon Communications

Verizon’s (VZ) Feb. 23 $39.50 put was the third-most unusually active option yesterday with a Vol/OI ratio of 78.66. With 14 days to expiration, its $0.36 bid price was an annualized return of 23.7%.

Why I don’t like the stock: For me, it’s simply a matter of preference. T-Mobile US (TMUS) remains the best stock of the three largest wireless carriers. Regarding the balance sheet, T-Mobile had $108.0 billion in net debt in the latest 12 months, 38% less than Verizon, and 27% less than AT&T (T).  

Further, its LTM EBITDA is $37.65 billion, 31.0% of its $121.57 billion in revenue, compared to an EBITDA margin of 34.2% for AT&T and 35.8% for T-Mobile.    

Why I don’t like the option play: As I write this, VZ stock is trading in the money at around $39.31. With 14 days to expiration, if you sell the option for income, the annualized return is good, but there’s a significant chance you’ll be forced to buy the stock at a net price of $39.14. As recently as mid-October, Verizon stock was trading below $31. It likely won’t do in the next two weeks, but recent trading suggests its two-month bull run is over. 

On the other hand, if you were to buy the put at the $0.40 ask, your annualized return would be 26%, and you very well could profit off a big move lower. I don’t usually like bets against companies, but this one seems decent.  

Baxter International

Baxter International’s (BAX) March 15 $35.00 put was the fourth-most unusually active option yesterday with a Vol/OI ratio of 64.00. With 35 days to expiration, its bid and prices were $0.10 and $0.15, respectively. The put was out of the money by $5.46 based on its $40.46 closing price. 

Why I like the stock: Healthcare stocks remain excellent long-term buys despite the fact they crashed and burned in 2023 relative to the S&P 500. Last year, they gained just 0.3% compared to 24% for the index. However, in 2024, they’re up 3.5% based on the S&P Health Care Select Index.

Analysts are lukewarm about the manufacturer of kidney dialysis equipment, infusion pumps, and intravenous (IV) solutions. The 13 analysts covering its stock rate it a Moderate Buy (3.62 out of 5) with a target price of $42.55, 9% higher than its current share price.  

Baxter reported Q4 2023 and full-year results on Thursday. Its free cash flow for the year was $1.01 billion. It announced that the separation of its Kidney Care segment was progressing. Named Vantive, its independence will allow the unit to accelerate its growth better. It continues the company’s transformation, which began in 2023.  

Baxter expects 2024 EPS of $2.90 at the midpoint of its guidance. Its shares trade at a reasonable 13.5x those earnings. 

Why I don’t like the option play: From an income standpoint, there’s no money to be made if you sell the put. Based on the $0.10 bid, the annualized return would be just 2.6%. That’s less than what you’d get on a 1-year Treasury. 

Walt Disney

Walt Disney’s (DIS) Feb. 16 $105 put was the fifth-most unusually active option yesterday with a Vol/OI ratio of 55.08. With seven days to expiration, its $0.22 bid price was an annualized return of 10.4%.

Why I begrudgingly like the stock: Disney had its best day in the markets in more than three years yesterday (up more than 11%) after reporting Q1 2024 earnings that beat the consensus estimate. On the top line, its revenues were $23.55 billion, $90 million less than expected. However, on the bottom line, its adjusted EPS was $1.22, 23 cents higher than the analysts’ estimate. 

I say begrudgingly because, on Wednesday, I wrote a piece for Barchart questioning the benefits to Disney shareholders and consumers from a new streaming service with Disney, Fox Sports, and Warner Bros. Discovery’s sports properties. 

However, its announcement that it will launch its own ESPN direct-to-consumer service in late summer or early fall of 2025 suggests it’s not waiting to see if the joint venture with Fox and WBD will succeed. This proactive step indeed has energized its long-time shareholders. 

On the downside, it lost customers for Disney+ in the first quarter, making up for those losses with higher prices. As a result of the higher revenue, its operating loss for DTC was $216 million in the quarter, down from  $1.05 billion a year earlier.   

Activist investor Nelson Peltz wasn’t impressed by the quarter, stating, “We saw this movie last year, and we didn’t like the ending.”

Why I like the option play: From an income standpoint, selling the put provides a good return. Out of the money by $3.29, as I write this, it traded around $110 a year ago. 

So, it’s essentially flat over the past year compared to a 24.6% gain for the S&P 500. Over the past five years, DIS stock has lost nearly 4% of its value compared to an 81% gain for the index. 

At the very least, the latest news would appear to put a floor on Disney’s share price, making the income play a good one.    

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