Unusual Options Activity: Strategies for Success with Three Single-Letter Stocks

Happy Black Friday to Barchart readers across the country. If you’re crazy enough to fight the maddening crowds to do some early Christmas shopping today, I wish you nothing but the best. Stay safe out there. 

Yesterday, families and friends celebrated Thanksgiving. I hope it was a good one. Sorry, Bears fans. Maybe next year. 

As for today’s piece, I have to confess that I’ve always had an obsession with single-letter stock symbols. There can only be 26 of them, although if you expand the possibilities to Alcoa (AA), 3D Systems (DDD), and C4 Therapeutics (CCCC), your pool of candidates broadens significantly. 

In Wednesday's trading, 1,211 unusually active options were traded. Of those, 22 calls and puts were for companies with single-letter, single-character stock symbols. 

It might not seem like a great investment strategy, but single-letter stocks can be surprisingly profitable.   

Here are three examples of this. 

Have an excellent weekend!

Citigroup 

One of America’s largest banks, Citigroup (C), had five unusually active options in Wednesday’s trading with four puts and one call with DTEs (days to expiration) ranging from nine days on the low end to 415 on the high end. Note: I define unusual options activity as those with Volume to Open Interest (Vol/OI) ratios of 1.24 or greater, excluding those expiring in less than seven days. 

I’m not a big bank stock investor, so my apologies to any Citigroup shareholders I offend by saying it’s not in the same league as JPMorgan & Chase (JPM) or even Bank of America (BAC). Don’t get me wrong, it still made $9.23 billion in 2023 on nearly $157 billion in revenue, but it’s not nearly as substantial as the $50 billion JPM made last year.

Of the three stocks, Citigroup has had the worst performance in 2024, up a measly 32% with a month left on the calendar. The glass-half-full view is that it’s nearly six percentage points better than the S&P 500. However, over the past five years, none of these banks has matched the index’s performance, so none can toot their horns too loudly. 

Nineteen analysts cover C stock. Of those, 11 rate it a Buy (4.11 out of 5), with a mean target price of $75.81, 8% higher than where it’s currently trading. 

The bank is expected to earn $5.85 a share in 2024 and $7.17 in 2025. Based on this estimate, it’s trading at 9.8x next year’s EPS estimate. JPM and BAC trade at 15.0x and 13.1x their respective 2025 estimates. Citigroup remains the cheapest of the three for good reason.

A sign of better things to come: Citi Wealth boss Andy Sieg announced on Nov. 26 that BlackRock portfolio manager Kate Moore, in charge of the asset manager’s thematic investing strategy, would join the unit as Chief Investment Officer, another move by Sieg to boost its wealth business. 

The highlighted Dec. 6 $68 put is out of the money. Selling a put would generate an annualized return of 14.6%. Given its momentum, its share price will unlikely fall below $68 in the next nine days.     

Dominion Energy 

Richmond, Virginia-based Dominion Energy (D) provides electricity to 3.6 million homes and businesses in Virginia, North Carolina, and South Carolina. It also provides natural gas to 500,000 customers in South Carolina. In addition, it has 12 GW (gigawatts) of renewable energy in service or under development.  

The utility expects to earn $2.75 a share in 2024 and $3.40 in 2025. It trades at 17.6x the 2025 estimate. That compares to 21.4x its 2025 estimate of $3.67 for NextEra Energy (NEE), so it’s a better valuation from a value perspective.

Analysts generally like it, with 11 out of the 20 covering it rating D a Buy (4.00 out of 5) with a mean target price of $87.84, 12% higher than where it’s currently trading. 

The company’s Coastal Virginia Offshore Wind (CVOW) project—the largest offshore wind project in the U.S., with 176 turbines providing 2.6 GW in offshore power when completed in 2026—is 43% completed on time and within budget. 

It’s a winner. 

Wednesday’s unusual options activity was all about the Jan. 17/2025 expiry, with six of seven calls expiring in 51 days. The action suggests $60 or higher is all but a lock by mid-January. The Barchart Technical Opinion is a Strong Buy, but it has a long way to go to hit an all-time high of $90.89 in February 2020.

The $50 strike is the most compelling of the six 51 DTEs. You’re putting up 17% of the $60.20 total cost, significantly less than the 40% down for the $45 strike with a total cost of $60.

2025 could be the year utilities strike back. 

Realty Income 

Realty Income (O) has hit 25 52-week highs in the past 12 months. The retail REIT hit its latest 52-week high of $64.88 on Oct. 21. It hit its all-time high of $84.92 in February 2020. 

That said, investors still have an opportunity to profit from O. The iShares Cohen & Steers REIT (ICF) is up nearly 12% in 2024, and Realty’s share price is down about 0.5%. O is trailing ICF by almost 10 percentage points on a total return basis. Realty is the ninth-largest holding of ICF at 4.21%. It can contribute more. 

While analysts are lukewarm about its stock--just seven of the 21 analysts covering it rate it a Buy (3.62 out of 5) with a mean target price of $63.62, nearly 10% higher than its share price.

The REIT’s total return since 1996 is 5,021%, 144% higher than the S&P 500. Approximately 35% of this return comes from monthly dividends and 65% from capital appreciation. It might not seem like a winner based on its performance in the past five years (-0.79% annual total return), but it’s delivered for shareholders who’ve held it since it went public in 1994. 

Its business is simple but challenging. It focuses on single-tenant triple net lease properties with over 15,450 in 50 U.S. states, the U.K., and six other European countries. 

In February, it closed its 527 million euros ($) sale-leaseback purchase of 82 European properties from Decathlon, one of the world’s largest sporting goods retailers. Realty estimates the total addressable market in Europe is $8.5 trillion, 57% larger than the U.S. TAM.

Realty had only one unusually active option in Wednesday’s trading. However, it was a good one. 

The total cost to buy 100 shares of O stock through the June 20/2025 $67.50 call is $88.05. The $0.55 ask price is 0.8% of the total cost. That’s a nothing burger. 

The best part is you have nearly six months for it to appreciate $9.73 (16.7%). Further, if you decide it’s not working, you can double your money by selling before June if it appreciates $3.74 (6.4%). It’s virtually a lock.