Investors Trade Corning Inc Long-Dated Call Options in Unusually Heavy Volume - Bullish on GLW

Investors have been piling into a long-dated, in-the-money (ITM) call option contract on Corning Inc. (GLW), as seen in a Barchart report today. That's a very bullish signal from investors, as Corning will benefit from data-center and AI-related demand. This could lead to strong free cash flow (FCF) forecasts.

GLW stock is at $162.09 in midday trading today. That's up from a recent bottom at the end of July ($124.05 on July 29). The company reported strong results on July 28 before the market open and has been rising since.

I discussed its prospects and FCF forecasts in a recent Barchart article on July 29, “Corning Delivers Strong FCF Results, But Investors Play GLW Stock's Drop With an Unusual Short-Put Play.”

For example, in Q2 Corning generated an astounding 31.6% adjusted FCF margin, up from 11.7% in the prior quarter, and 18.6% in the first half, up from 6.15% a year earlier.

Moreover, based on analysts' 2027 revenue forecasts ($22.8 billion), and using just a 16% FCF margin, I projected $3.658 billion in FCF, 54% higher than over the past year. That led me to project a $192 price target (using a 2.2% FCF yield metric).

However, if Corning can keep generating 18% FCF as it did in H1, the FCF next year will be $4.12 billion.

And, using an average 2.2% FCF yield metric, its fair market value (FMV) is $187.3 billion.

Wow. That's way over today's market cap. Yahoo! Finance says it is just $139.77 billion today. If that's true, expect to see Corning stock rise. It's FMV is 34% higher.

So, my updated GLW price target is now $217.20 (i.e., 1.34 x $162.09).

No wonder investors are piling into Corning longer-expiry call options. They could be a good bet.

Unusual GLW Call Option Activity

This can be seen in today's Barchart Unusual Stock Options Activity Report. It shows that one particular GLW call option contract has had unusually heavy volume.

The $140.00 GLW call option, which expires on Nov. 20, has had over 13,000 traded. That's 34x normal, i.e., relative to the prior number of contracts outstanding.

Moreover, the expiry period is over 3 months from now, so the investors buying these calls might be considered as taking a long-term view on GLW.

The way this works is this: the premium for the call is $38.15, so the all-in cost to buy GLW, upon exercise, is $178.15.

That's still higher than today's price. But the investor might be willing to do this if they believe GLW rises close to the $217.20 price target within the next 3 months.

For example, if GLW rises to $200 by then, the call options will be worth $60 (i.e., $200 - $140 strike). That would give the buyers of these calls an expected return of:

  $60.00/$38.15 -1 = 1.57.3 - 1 = +57.3% upside

Downside Risks

The worst that can happen, at least as of today, is $162.09 - $140.00, or $22.09 - $38.15 = -0.42 = 42% downside loss.

Moreover, sellers of these calls, if done on a covered call basis, make a good return as well. The $38.15 premium represents a yield of 23.536% (i.e., $38.15/$162.09) for 3 months, or 7.845% per month.

Keep in mind that buying in-the-money (ITM) call options like this, although having limited downside, can still result in significant losses.

The bottom line is that the heavy volume in these in-the-money (ITM) Corning call options is a bullish signal. Investors expect to see GLW stock rise over the next 3 months.