As you become more sophisticated in your investing journey, you’ll want to pay closer attention to unusual options activity stocks. To briefly explain, options represent a contract that gives the holder the right – but not the obligation – to buy or sell the underlying security (or asset) at the specified strike price on or before the listed expiration date.
Many investment resources explain that options are similar to coupons. By themselves, coupons don’t have any value and they must be used before they expire. Further, the value of the coupon derives from the purchase of the underlying product or service. That’s why options are also known as derivatives. And because U.S. options typically command the right to transact 100 shares per contract, stocks with abnormal options volume warrant intrigue.
Essentially, the derivatives market represents the domain of professional and/or institutional traders; in other words, the smart money. Thus, stocks to buy from options signals can be extraordinarily powerful. Before we begin, it’s helpful to understand basic concepts via real-world analogies.
- Volume: Think of volume as the number of people going into a nightclub in a given hour.
- Open interest: Basically, open interest is the number of people still at the club after several hours have passed.
- Implied volatility: Abbreviated as IV, this metric symbolizes the waitlist at a club. While the length of the waitlist doesn’t guarantee that the club will be popping, longer waitlists imply that many patrons believe something special will occur.
- Volatility smile: Technically, a volatility smile refers to the IV at various strike prices. Think of it as the waitlist of multiple nightclubs to gauge which ones are most popular.
While the derivatives market can be complex, it’s also extremely rewarding. With that, below are unusual options activity stocks to consider.
Olin (OLN)
An odd enterprise among unusual options activity stocks, chemical specialist Olin (NYSE:OLN) suffered a sharp drop of over 10% last Friday. According to the St. Louis Business Journal, a C-suite shakeup apparently rattled investors’ nerves. Subsequently, OLN became a highlight in Barchart’s screener for unusual stock options volume. Specifically, volume hit 6,618 contracts against open interest of 15,656.
Breaking down the transactions, call volume hit 3,545 contracts while put volume came in at 3,073 contracts. This pairing yielded a put/call volume ratio of 0.87, slightly favoring the bulls on paper. However, looking at Fintel’s screener for options flow – which filters for big block trades likely made by institutions – the major traders sold $55 calls, which generally have pessimistic implications.
However, OLN may be one of the stocks to buy from options signals based on its volatility smile. While an IV of 1.75 at the $30 strike price (OLN closed at $51.98 on Friday) implies heavy risk mitigation, the IV at the $80 strike stands at 1.70. As well, the IV at strikes $65, $70, and $75 are quite elevated. It’s possible that the smart money likes OLN in the long run.
Pioneer Natural Resources (PXD)
An enticing idea among stocks with abnormal options volume, Pioneer Natural Resources (NYSE:PXD) demonstrates a heavy tilt toward bullish near-term speculation. At the same time, many traders also believe that PXD carries long-term upside potential.
Following Friday’s close, the total options volume for PXD reached 61,811 contracts against an open interest of 71,688. Transactionally, call volume hit 60,316 contracts versus the put option volume of 1,495. On paper, this pairing yielded a put/call volume ratio of 0.02.
Looking at Fintel’s options flow data, the vast majority of the options activity centered on bought calls, a classic bullish tactic. Specifically, these options comprised $220 calls with an expiration date of Sept. 15, 2023.
Turning to PXD’s volatility smile, at the $135 strike price, IV stands at a whopping 1.12. This suggests that traders may be protecting themselves against extreme downside risk. However, from a strike price of $260 to $320, IV rises from 0.19 to 0.70. Over the long run, traders potentially see long-term growth. Therefore, PXD is one of the unusual options activity stocks to consider.
Nexstar Media Group (NXST)
Part of the reason why monitoring stocks with abnormal options volume may be considered a “cheat sheet” is that you can accrue significant relevant information about a security without knowing much about it. Take Nexstar Media Group (NASDAQ:NXST), for example. I don’t know anything about it. However, I do know that options traders believe something is brewing here.
On Friday, NXST printed a total volume of 4,871 contracts against an open interest reading of 3,474 contracts. Turning to the transactional breakdown, call volume hit 2,909 contracts while put volume landed at 1,962. This pairing yielded a put/call volume ratio of 0.67.
Fintel indicates that apparently, no institutional traders are engaging NXST due to a lack of big block transactions. However, the volatility smile for NXST (which closed at $141.50) is incredibly revealing. At the $90 strike price, IV comes in at 0.95. However, at $270, the IV stands at 2.19. Also, from a strike price of $170 to $270, the IV rises from 0.44 to the aforementioned 2.19. Of course, NXST is wildly speculative. However, it could be one of the unusual options activity stocks for gamblers.
Fox Corp (FOXA)
A controversial name among unusual options activity stocks, Fox Corp (NASDAQ:FOXA) is the parent company of Fox News. Given that the conservative-leaning news arm let go of popular firebrand Tucker Carlson, the future of the network – and by logical deduction that of FOXA stock – is cloudy. Still, options traders seem to believe that there’s a speculative opportunity here.
Following the closing bell of Sept. 1, total volume reached 26,566 contracts against an open interest reading of 42,212. Transactionally, call volume hit 15,162 contracts while put volume landed at 11,404 contracts. This pairing yielded a put/call volume ratio of 0.75.
Looking at options flow, FOXA (which closed at $30.98) is a mixed bag for stocks with abnormal options volume. For the Oct. 20, 2023 expiry, many traders sold $34 puts (which is a bullish tactic). However, for the Dec. 15 expiry, institutional traders bought a large volume of $37 puts. However, IV from a strike price of $35 to $45 rises from 0.24 to 0.72. This indicates that despite traders hedging their bets (via an IV of 0.89 at the $20 strike), many market participants believe in FOXA’s long-term upside potential.
Endeavor Group (EDR)
A talent representative and event management specialist, Endeavor Group (NYSE:EDR) may be a risky enterprise among unusual options activity stocks. With the consumer economy facing pressure, the broader headwind may clash against the wider entertainment ecosystem. That said, intrepid traders may be able to snake off some near-term profits.
After last Friday’s close, the total options volume for EDR reached 34,708 contracts against an open interest of 84,633. Drilling down to the transactional data, call volume hit 13,283 contracts while put volume clocked in at 21,425 contracts. On paper, this pairing yielded a put/call volume ratio of 1.61, favoring the bears.
Turning to options flow, institutional traders indeed bought a significant amount of puts during the Sept. 1 session. However, on the prior day, traders also bought a large number of $25 calls. EDR closed at $22.71 on Friday. While the volatility smile indicates hedging, the IV rose from 0.35 at the $25 strike price to 1.22 at $35. This tells us that at least some alpha dog traders anticipate a higher move. Therefore, EDR is one of the stocks with abnormal options volume to consider.
Purple Innovation (PRPL)
An oddball idea among unusual options activity stocks, Purple Innovation (NASDAQ:PRPL) specializes in what it calls comfort tech. Basically, the company provides advanced mattresses that utilize the proprietary GelFlex Grid technology. Specifically, these mattresses provide cooling, balanced comfort, and support.
Following Friday’s close, the total options volume for PRPL reached 3,373 contracts against an open interest of 16,304. Transactionally, all 3,373 contracts were included in call volume, leaving nothing for put volume. Does this mean that everyone was bullish on PRPL stock that day? Not exactly.
Looking at options flow, a majority of the aforementioned volume represented sold $5 calls, which have bearish implications. However, a sizable chunk represented bought calls, which obviously have bullish implications. On Friday, PRPL closed at $2.30.
Turning to the volatility smile, the IV rises from 0.69 at the strike price of $2.50 to 8.52 at $30. Although it’s difficult to say with absolute certainty, this framework may suggest that the smart money doesn’t believe PRPL will fall much further from here. If you want to gamble with your stocks to buy from options signals, Purple Innovation could leave you with some green.
Weibo (WB)
With Chinese social network company Weibo (NASDAQ:WB) falling nearly 33% since the January opener, it’s perfectly reasonable for investors to be skeptical. However, for the daring market participant, WB may also symbolize one of the unusual options activity stocks.
Following the ringing of the closing bell on Friday, the total options volume reached 8,333 contracts against open interest of 27,280. Transactionally, circumstances don’t initially appear encouraging. Call volume mustered only 680 contracts while put volume clocked in at 7,653 contracts. This pairing yielded an unsightly put/call volume ratio of 11.25. However, Fintel’s options flow screener provides a different take. Out of the 7,653 puts, institutional traders sold 5,899 of them, which again generally carry bullish implications.
Turning to the volatility smile, traders recognize the possibility of extreme downside in WB stock. Specifically, IV rose from 0.40 at the $15 strike price to 2.72 at $2.50. However, the IV also increased to 1.24 at the $27.50 strike. This backdrop suggests that some members of the smart money anticipate WB marching higher, making it one of the stocks with abnormal options volume to advantage.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.