Wednesday’s options trading saw 882 unusually active options with a 332/550 put/call spread. Of the 550 unusually active call options, 41 had closing ask prices of less than a quarter.
It’s important to note that I’ve excluded options expiring in less than a week and only those with Vol/OI ratios of 1.24 or higher were eligible.
Of the 41 call options, three in particular stand out. Here’s why each made my list.
Ford’s a Low-Risk Option
Ford (F) had one call option yesterday that was unusually active. See below for specifics.
The 11-cent ask price is a down payment of just 0.81%. Two specialty coffees at Starbucks (SBUX) cost more. So, the risk on one contract is virtually zero. The share price has to appreciate by 3.3% over the next week to consider exercising your right to buy 100 shares of F stock at $13.50.
The delta is 0.28971, which means you can double your money by selling the call before next Friday’s expiration if it appreciates by 2.9%, or 50% if its share price appreciates by 1.5%.
Ford’s stock’s been on a bit of a run the past month, up nearly 9%, so a 1.5% gain in eight days isn’t unrealistic.
The big question: Why do you want to own Ford stock? Here’s why.
Ford reports Q2 2024 results July 24 after markets close. Analysts are expecting a profit of $0.62, nearly 14% lower than a year ago. However, the company has delivered three positive earnings surprises in the past four quarters. Leading up to the earnings release, investors are betting that they’ll do it a fourth time in five tries.
Analysts are lukewarm about its stock with the 17 analysts rating it a Moderate Buy (3.59 out of 5) with a mean target price of $14.07, 7% higher than Wednesday’s closing price of $13.17.
With an analyst estimate of $2.01 a share, Ford stock trades at 6.6x those earnings. Tesla (TSLA) trades at 142x its 2024 estimate and 103x 2025.
Ford’s EV unit sales in the second quarter were 61% higher at 23,957, while hybrid vehicle unit sales were up 56% to 53,822. Together, they accounted for 14.5% of Ford’s 536,050 vehicle sales in Q2.
Slowly but surely Ford’s electrification plan is gaining momentum. That makes it a buy in my books despite soft F-150 sales.
On Holding Has Come Back to the Pack
The Swiss-based manufacturer of athletic footwear and apparel’s stock was on quite the roll until the second half of June. In the month since, it’s lost 15% of its value, and trades at its lowest point since May.
On Holding (ONON) went public in September 2021 at $24 a share, hitting $45 on two occasions in the three years since. Investors who bought at December 2022 lows have been richly rewarded for their patience and courage.
Where to next? If I had that answer, I wouldn’t be writing this commentary.
However, yesterday’s unusually active call option suggests some investors feel that its stock’s about to go on another run.
With only 36 days to expiration, volume on the Aug. 16 $47.50 strike was 3.39x the open interest. Sure, the actual volume of 508 wasn’t large by the standards of busier stocks like Tesla, or even ON’s 30-day average volume of 13,415, but by unusual options activity standards, it was above-average.
The ask price of $0.22 was a down payment of 0.46%, even lower than Ford. To double your money over the next five weeks, its shares would have to increase by $2.82 (7.6%). To consider actually exercising your right to buy 100 ONON shares, they’d have to appreciate by $11.09 (30.3%), a much more difficult hill to climb.
However, with a Strong Buy rating (4.58 out of 5) from the 19 analysts covering it, and a target price of $42.47, 15% higher than where it’s currently trading.
think you can make money on this trade. I just don’t if it’s got enough gas in the tank for you to get the opportunity to buy its shares.
The Riskiest of the Bunch
Sabre Corporation (SABR) is a travel technology company whose SaaS (software--as-a-service) products connect airlines, hotels, and car rental brands with travel agencies and tour operators in 200 countries and territories worldwide.
Sabre went public at $16 a share in April 2014. It got as high as $30 in 2015 before collapsing at the beginning of the pandemic in February/March 2020 after airlines realized how severe Covid-19 would be on their businesses.
Sabre’s revenues in 2020 fell by two-thirds to $1.33 billion. In 2019, they were a company record of nearly $4 billion. The year before in 2018 they were nearly as good at $3.87 billion with a record operating profit of $570 million.
In the trailing 12 months ended March 31, revenues were $2.95 billion, with an operating profit of $270 million. While its business isn’t back to where it was pre-pandemic, it’s getting closer every quarter.
In early May, it reported Q1 2024 revenue of $783 million, 5% higher than a year earlier, with an operating profit of $98 million, up from a small loss of $213,000 a year earlier. Further, its adjusted EBITDA margin in the quarter was 18.2%, 10.4 percentage points higher than Q1 2023.
For all of 2024, it expects to generate revenue over $3 billion with adjusted EBITDA of $520 million, 54% higher than 2023.
Its enterprise value of $5.52 billion is 10.6x its adjusted EBITDA. Should it achieve the EBITDA estimate, its total debt of $4.99 billion would fall from 16.3x EBITDA today, down to 9.6x at the end of 2024.
While there is a risk that Sabre’s business might never get back to a pre-pandemic business environment, it’s looking more likely that it will.
The Jan. 17/2025 $5 call had a closing ask price of $0.21 in Wednesday trading, a 4.2% down payment on 100 of its shares. With 191 days to expiration, there’s plenty of time to get in the money. The last time it traded above $5 was last August.
Also, you can double your money by selling the call before expiration if its share price rises by 89 cents (30%).
Now that I think about it, it’s not as risky as I first thought. With a maximum loss of $21 per contract, the risk/reward proposition is tilted in your favor.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
