The November jobs report came out this morning. The news was better than expected, with non-farm payrolls up by 227,000 in November, 13,000 higher than the Dow Jones consensus.
Most of the gains were in healthcare, leisure, hospitality and government. The downside was that the unemployment rate increased to 4.2% while the labor force participation rate moved slightly lower. The results suggest the Federal Reserve will cut interest rates later in December.
As I write this early in trading, all major indexes are in positive territory, looking to close out a winning week in the markets.
In today’s commentary about unusual options activity, I’m focused on June 20/2025 calls from Thursday trading that investors could buy for less than $500. Twelve of them had Vol/OI ratios of 1.24 or higher, which fits the bill. Three of them are worth considering.
Have an excellent weekend!
Walmart (WMT)
Walmart (WMT) is the first of my three calls expiring next June. You can’t go wrong with the world’s largest retailer over the long haul. In Thursday’s trading, the June 20/2025 $115 call had a Vol/OI ratio of 1.52. That’s insignificant, considering the Feb. 21/2025 $110 call had a Vol/OI ratio of 50.60, 33 times higher.
Essentially, you’re trading $5 in strike price for 120 additional days to expiration. For that trade, your ask price is 98 cents more than the February call at $1.67. However, the ask is still just 1.8% of yesterday’s closing price of $95.30.
With a 0.18891 delta, you can double your money by selling the call before the June 20 expiry if it appreciates by $8.84 (9.3%), nearly $11 shy of the $115 strike price.
According to Barchart data, the ITM (in the money) probability is 14.13%. Those aren't great odds, but they’re much better than the odds you’ll get when you play the lottery.
The one thing working against Walmart now is that it has hit a 52-week high 80 times in the past 12 months. It's trading at an all-time high, up 85% in the past year. Between December 2019 and December 2023, it traded in a tight $10 range between $40 and $50.
Can you say breakout?
Walmart is too good a company not to consider this reasonably priced call option. The risk/reward proposition is in your favor.
CF Industries (CF)
It's not often that I write about material stocks. The sector generally bores me, but options are about making money, not cheerleading for a particular sector or industry, so here we are.
CF Industries (CF) makes money from fertilizers such as ammonia, urea and ammonium nitrate. Its share price is well off its all-time high of $119.60 set in August 2022 and up 12.4% year-to-date, a decent, if not spectacular, return relative to the S&P 500.
While agricultural stocks generally underperformed leading up to the election, analysts see material stocks and agricultural-related manufacturers joining the rallying markets in 2025—CF among the names mentioned as a beneficiary of this tailwind.
“Investors can see this through the bold projections made by the Royal Bank of Canada, where analysts not only reiterated their Outperform rating on CF Industries stock but also boosted their price targets to a high of $100 a share. This new view suggests the stock has enough room to deliver a rally of up to 21% from today’s price,” MarketBeat contributor Gabriel Osorio-Mazilli wrote in early November.
That said, analysts generally are lukewarm about CF stock. Of the 14 covering it, just five rate it a Buy (3.43 out of 5) with a mean target price of $$87.90, slightly below where it’s currently trading.
Nonetheless, with analysts' highest target price currently $105, yesterday’s June 20/2025 $105 call looks attractive at an ask price of $2.80, 3.1% of its $8.37 closing price.
The calls’ ITM probability is 50% higher than the WMT call at 21.41%. It's currently 17.5% out of the money. You can double your money by selling the call before next June if the share price appreciates by $10.76 (12.0%).
CF stock is due for a double-digit move higher in the first half of 2025. Worst case, you’re out $280.
Block (SQ)
It has been so long since I've written about Block (SQ).
The last time was June 2023. I recommended selling the Sept. 15/2023 $47.50 put for a 6.4% return on an annualized basis. At the time, it was trading at $66.39, well above the OTM (out-of-the-money) put. It came close to the strike but ultimately expired without exercise at the Sept. 15 closing price of $52.83.
Selling puts is a good way to obtain a better entry point on a stock. After the Sept. 15 expiry, it did get down to a low of $40.77 on Oct. 5. Assuming that was the price at exercise and you had to buy at $47.50, you would have doubled your money in 15 months.
Yesterday's June 20/2025 $140 call had a Vol/OI ratio of 4.86 and an ask price of $4.05, 4.2% of its closing price of $95.87. Anything below 5% is reasonable.
The delta of 0.22282 means you can double your money by selling the call before expiration if it appreciates by $18.18 (19.0%). Its current ITM probability is 16.37%.
Since bottoming in August in the high $50s, it’s now testing $100, a level it hasn’t seen since April 2022, 20 months ago.
Of the 39 analysts covering its stock, 29 rate it as a buy (4.36 out of $5). The mean target price of $94.03 is slightly below where it’s currently trading.
In November, it reported Q3 2024 results. Its gross profit was $2.25 billion, 19% higher than a year ago, with an adjusted EPS of $0.88, one cent higher than the Wall Street consensus. Since then, its Bitcoin holdings have gained $200 million in value.
Block is arguably a much stronger business than when it traded above $275 in August 2021, making the $140 call a very compelling options play.
