With America's highways and airports jam-packed on Friday as people head to various destinations around the country to visit with friends over the Fourth of July long weekend, I can’t imagine too many people will be reading today’s commentary. They'll be too busy traveling.
For those of you who can read today's article about unusual options activity, I've got three interesting opportunities, all with DTEs (days to expiration) of 100 or higher.
Happy Fourth of July. Be safe this weekend!
It’s Got a New CEO
I have a stock recommendation for a company that just hired a new CEO. The man hired generated a 681% cumulative return for shareholders at his last gig of 10.5 years.
Do I have your attention?
The man in question is Bracken Darrell. VF Corp. (VFC) announced on June 27 that it hired Darrell as its new CEO, replacing Steve Rendle, who unexpectedly stepped down last December after nearly six years in the top job.
“Steve’s commitment to the business, passion for building strong brands and focus on culture have helped VF evolve our portfolio of strong active-lifestyle brands and establish VF as a purpose-led company,” Interim CEO Benno Dorer said in a December statement.
There's no question that Rendle did a good job building the company’s brands, including Vans, The North Face, Timberland, and Supreme.
However, S&P 500 CEOs get paid for what they’ve done lately. VF wasn’t cutting it. Rendle, being a 25-year employee, dutifully stepped aside.
The incoming CEO has led Logitech (LOGI) since April 2013. The VF board believes Darrell is “a transformational and visionary business leader with a strong track record of performance across multiple industries,” stated its press release announcing Darrell’s hiring.
I look at this hiring as very similar to Hubert Joly’s engagement by Best Buy (BBY) in 2012. The electronics retailer was floundering. It needed a different viewpoint. It hired Joly away from Minneapolis-based Carlson, a privately-owned travel conglomerate.
At the time, analysts were not very keen on hiring from outside the retail industry. Joly proved them wrong. I suspect Darrell will do the same.
The unusually active option is the Jan. 1/2025 call with a $1.10 ask price. Expiring in 567 days, the volume as I write this is 1,623, 1.90x its open interest.
Sure, it’s not a big volume, but with a 0.20848 delta, VF’s share price only needs to increase by $5.28 over the next 19 months for you to double your money on the call. Maybe you get lucky, and the new CEO’s actions blow the stock into the high $30s or early $40s, giving you a great entry price.
Cruising Is Back, Baby!
The next option is the Oct. 20 $21 call for Carnival (CCL), the world’s largest cruise operator. It comes with a $1.46 ask price, giving you the right to buy 100 CCL shares 112 days in the future for just 7.8% of the current share price.
To exercise your right to buy, the share price must increase by at least 20% or $3.76 to make it worthwhile. That’s in four months. CCL stock has risen 134% over the past six months; it’s more than possible.
So, why not buy shares at $18.70, where it currently trades? That’s a good question.
My answer is that while the economy looks good right now, plenty of people suggest a recession is in the cards for late 2023 or early 2024. Cruise stocks’ momentum will come crashing down if this comes to fruition.
This way, you’re only out $146 instead of possibly more. Plus, with a delta of 0.42310, if it goes up half the amount, say, $1.88, you could sell the call before expiry and still make some money.
Still trying to figure it out; Jefferies just upgraded Carnival stock to Buy from Hold.
“Despite the strong year-to-date performance, we believe the journey from a good trade to long-term investment case remains ahead,” the Jefferies analysts wrote in a note to clients, Barron’s reported.
The Hail Mary
I won’t spend a lot of time on this last one. It’s the riskiest of the three.
I’m talking about Carvana (CVNA), the e-commerce platform for buying and selling used cars and trucks. Its stock is up 463% year-to-date. Analysts believe that its Q2 2023 profit forecast is an outlier.
“We believe the sale of receivables is likely one time in nature as CVNA pushed off sales of receivables in 4Q22 and the banking crisis in 1Q23 was a drag on receivables sales,” Reuters reported comments from DA Davidson analyst Michael Baker.
So, the Jan. 14/2024 $105 call with a $1.08 ask price is 4.1% of its $26.18 share price. You’ve got more than half a year for its shares to jump an additional 305%.
There’s no way it will do that; you’re probably thinking. True, but it only needs to increase by $8.80 (34%) for you to double your money by exiting the call early. The risk/reward seems 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.
