Although it’s not prudent to base your investment decisions on a single informational source, if forced to make such a choice, you can do much worse than electing unusual options activity. Since options represent the arena of sophisticated market participants — particularly institutional investors — there’s a strong possibility that kinesis in the derivatives space could signal future movements in the open market.
Because put and call options can be bought and sold, the nature and details of these transactions can reveal much more than simple price and volume metrics in the open market. For example, the acquisition of call options may represent active bullishness for a particular equity. On the other hand, large orders of sold puts may indicate where support lies, as the breakeven threshold effectively determines where put sellers are comfortable owning the stock.
However, discussions about unusual options activity can get overly technical and academic. At the end of the day, you want to know what the smart money is doing and why they’re doing it. To that end, I screened all 500 securities that made up Barchart’s Unusual Stock Options Volume list on Friday to uncover potentially tradable patterns.
Steel Dynamics (STLD)
A domestic steel producer, Steel Dynamics (STLD) suffers from the uncertainties associated with the Trump administration’s economic policies. Because supply chains have become increasingly complex and globalized, few enterprises can escape the consequences of a full-blown trade war. At the same time, the underlying tariffs may help protect Steel Dynamics from outside competition.
Last Friday, STLD stock represented one of the highlights in terms of unusual options activity. Total options volume reached 6,151 contracts, representing a 128.24% lift from the trailing one-month average metric. Further, call volume greatly exceeded put volume, 5,571 contracts to 580. Options flow on Friday was also positive, with net trade sentiment standing at $60,400.
Sure enough, STLD stock appears to be charting a bullish pennant formation. If so, investors may see some choppy price action until approximately the end of April. From then on, assuming the implications of the bull pennant hold true, STLD could start marching toward the $155 level.
For an aggressive near-term transaction, a speculator may consider the 125/130 bull call spread for the options chain expiring May 16. This transaction assumes that STLD will break out of the aforementioned pennant formation, thus triggering the $130 short strike price.
Dollar General (DG)
Ranking among the more logical ideas at this economically difficult juncture, discount retailer Dollar General (DG) is itself a bargain. At the moment, DG stock trades hands at 0.45X trailing-12-month (TTM) sales. Around this time last year, the revenue multiple was closer to 0.79X. Even better, analysts expect slow and steady growth over the next two years.
Interestingly, though, options activity was unusually muted on Friday, with total volume reaching only 16,420 contracts against an open interest reading of 277,138 contracts. This metric represented a nearly 30% decline from the trailing one-month average volume. Further, the put/call volume ratio was relatively evenly matched at 0.79.
Still, options flow was positive, with net trade sentiment hitting $26,600, favoring the bulls. Delta imbalance aligned with the direction of the flow at $34,474. Thus, the big investors piling into DG may believe a recovery is in the works.
Notably, the security appears to be forming a rounding bottom formation. If so, the bulls will try to reclaim the technically significant $90 level. Aggressive traders may try their luck with the 85/90 bull call spread expiring May 16.
Las Vegas Sands (LVS)
One of the trickier ideas on this list of unusual options activity stocks, Las Vegas Sands (LVS) is best reserved for extreme speculators. As a leading international developer of multi-use integrated resorts, LVS stock would be a strong investment under a decisively robust economic cycle. Unfortunately, with trade wars erupting and gold prices skyrocketing, that’s a tough narrative to sell.
Nevertheless, LVS stock is intriguing because it has attracted attention among smart money players. On Friday, total options volume reached 12,871 contracts against an open interest reading of 358,806 contracts. This metric was almost 28% above the trailing one-month average metric. Further, call volume outpaced put volume, 9,932 contracts to 2,939 contracts.
One caveat to consider, though, is options flow, which was negative: net trade sentiment slipped almost $60,000 below parity. At the same time, the delta imbalance was $54,023 above breakeven. Put another way, the institutional money appears to be hedging for upside risk.
The above dynamic makes what could be a bullish pennant forming in the security’s five-year chart all the more intriguing. If you have the patience, you may consider buying the $50 calls expiring March 20, 2026. If LVS breaks out of the supposed pennant, the upside could be enormous.
On the date of publication, Josh Enomoto 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.
