Whether you trade the mainline securities or the underlying derivatives, it’s always worthwhile to consider unusual options activity if such a pathway is available. Unlike myriad other indicators of the financial markets, aberrant behaviors in the options arena often represent a forward signal.
That’s not to say that standard methodologies such as fundamental or technical analysis are worthless. Indeed, the former represents the bread and butter of public equity evaluations. If you don’t have a basic understanding of core fundamentals, it’s difficult to evaluate relative value. Further, the latter methodology provides a visual frame of reference.
However, what distinguishes stocks under the unusual options activity label is the broadcasted sentiment of the smart money. The derivatives market is the arena of sophisticated traders due to its inherent complexities. As such, many retail investors’ eyes glaze over from the myriad transactions.
Granted, it’s difficult to shuffle through the noise. Nevertheless, astute investors willing to parse through the data may be able to extract useful intelligence — intelligence that can lead to the identification of high-probability support and resistance zones. Plus, by understanding where the smart money has positioned itself, retail traders can front-run anticipated trends.
To use a sports analogy, unusual options activity is akin to getting a peek at your opponent’s playbook. It doesn’t guarantee a favorable outcome but you’ll be better prepared to make smart, relevant decisions. With that, below are three stocks to watch now.
Although the Trump administration’s tariffs and subsequent trade wars have dominated business headlines, the latest rumblings presented positive tidings for Advanced Micro Devices (NASDAQ:AMD). Specifically, a White House official stated that levies on certain industries — including the semiconductor sector — might not go through as planned. Naturally, the possible reprieve helped send AMD stock skyward to the tune of nearly 7%.
According to data from Barchart, there was unusual options activity for AMD’s $114 calls expiring this Friday (March 28). Volume clocked in at 28,783 contracts, with traders willing to pay an ask of $1.95 for the derivatives. Added to the strike price, the transaction implies that AMD stock could potentially rise to $115.95.
What’s even more intriguing, Barchart recorded net bullish sentiment for $118 calls, also expiring this Friday. In this case, the premium paid (or the ask price) was 60 cents, meaning that AMD stock would need to climb to $118.60 to break even.
Given the data from Monday’s unusual options activity screener, Advanced Micro could potentially pop 4.5%, which is not an unrealistic proposition.
An ultra-speculative idea to consider is to go somewhere in the middle and buy the $115 call expiring March 28. The bid-ask spread as represented by the midpoint is relatively attractive at 2.03%. With enthusiasm renewed for the semiconductor space, AMD stock could be a quick pickup.
A key economic concept undergirding President Trump’s overall philosophy has long been deregulation. Unsurprisingly, the White House has taken a drastic turn from the prior administration’s stance on energy. This framework is perhaps most obvious with the president’s adoring message and favorable stance toward the coal industry. Sure enough, Peabody Energy (NYSE:BTU) has been a conspicuous winner recently.
What’s more, BTU made up the ranks of Monday’s unusual options activity. In terms of the greatest demand based on the volume-to-open-interest ratio, the spotlight belonged to the $15 calls expiring April 4. Commanding a 35-cent ask price, BTU stock must rise to $15.35 to break even. This seems like a realistic target, considering that shares closed on Monday at $14.50.
Continued support from the Trump administration may help Peabody speculators see this gamble pay off. Adding to the tempting proposition, Barchart’s unusual options activity screener also identified an influx of demand for $15 calls expiring this Friday. Therefore, it wouldn’t be out of the question for BTU to continue its rally over the next few days.
Speculators who are interested in throwing their hat into the ring could consider buying the $14.50 call expiring April 4. Currently, the spread on these calls is 3.57% as represented at the midpoint.
Ending this list of unusual options activity on a controversial note, Geo Group (NYSE:GEO) invests in private prisons and mental health facilities. Obviously, this sector arouses heated debate across the political and ideological spectrum. At the same time, it’s also powerfully relevant. Thanks to the current administration’s more draconian policy on immigration, one can reasonably expect GEO stock to steadily rise.
In fact, shares have already doubled over the past 52 weeks. But if unusual options activity is any indication, GEO stock isn’t done with its rally just yet. Notably, during Monday trading, there was significant net bullish volume for $32 calls expiring April 4. Featuring an ask of 35 cents, the breakeven threshold for this transaction stands at $32.35.
In fairness, this is a very aggressive target, implying 11.1% growth in the share price in less than two weeks’ time. However, with deportations having begun, Geo Group finds itself as one of the cynical beneficiaries. Plus, President Trump has demonstrated no signals that he’s going to back off.
With this backdrop in mind, speculators could consider buying the $30 call expiring April 4. The spread is wide at 5.68%. However, GEO stock would need to rise to just under $31 to break even.
