June's job numbers are out. America's employers created 206,000 jobs last month, 12,000 fewer than in May, but still a very resilient figure given higher interest rates. However, some investors will focus on the 4.1% unemployment rate, its highest level since October 2021. It’s hard to know what this means for interest rates.
Meanwhile, I hope everyone had a nice Fourth of July celebration. For the final day of the workweek, markets are back to normal trading hours.
It’s Friday, which means I’m talking about unusual options activity. Looking at Wednesday’s action because yesterday was closed for the holiday, I’ve opted for a different storyline today.
I’ve always been fixated on single-letter stock symbols. In Wednesday’s trading, there were nine unusually active options from four companies.
Three stand above the rest for making a profitable trade heading deeper into July.
Have an excellent weekend!
A Risky Bet That Could Payoff
First up is Unity Software (U), the software platform that allows developers to create, run and monetize mobile, console and PC games. Its stock has gotten crushed in 2024, down 60% year-to-date and we’re barely through the first half of the year.
As the Motley Fool wrote on July 3, the company won’t generate GAAP (generally accepted accounting principles) profits for the next few years. However, on a non-GAAP basis, its adjusted EBITDA increased 172% from Q1 2023.
On May 15, Matt Bromberg became the company CEO. He was previously the Chief Operating Officer at Zynga, acquired by Take-Two Interactive Software (TTWO) in May 2022 for $12.7 billion. Bromberg brings over 20 years of gaming experience, including his contribution to Zynga’s turnaround.
While there’s a lot of work ahead, Bromberg’s resume looks up to the task. The potential reward is worth the risk given its shares traded near $200 in 2021.
Of the four puts, I like selling the Sept. 20 $33 strike with a $16.85 bid price at Wednesday’s close. That’s a net price of $16.15, 42 cents above its July 3 closing price of $15.73. With 78 days to expiration, you’ve got plenty of time for its shares to move higher.
The big caveat is that if it falls to $12 by September, for example, your loss will be 10x higher, from $42 to $415.
This is only for riverboat gamblers, not buy-and-hold investors.
Ford Is Back, Baby!
Ford (F) had two July 19 puts on Wednesday, one with a $13.82 strike, and in the money, and the other with a $12.50 strike, just out of the money. I’ll get back to the puts shortly.
Meanwhile, Ford appears ready to close the gap with General Motors (GM) when it comes to 2024 stock performance—GM has a five-fold lead on Ford, up more than 30%—at least that’s the thought of Barron’s contributor Al Root.
“Not much separates the two U.S. auto makers. Sales are growing at both. Ford is expected to generate some $22 billion in operating profit over 2024 and 2025, while GM is expected to generate $26 billion. Both are growing electric vehicle sales faster than the market,” Root stated in today’s commentary.
Root states that history shows that the underperformer of the two in the markets generally tends to close the gap at some point.
I like Ford’s capital allocation plan to pay out 40-50% of its free cash flow as special dividends. If it were up to me, companies would only do special dividends and share repurchases. That’s a topic for another day.
Of the two puts, I would sell the $13.82 strike. Ford stock is up 5% in the past week—it’s on a roll. With a net price of $12.97 and 15 days to work with, I think you’ll like your entry point for buying Ford stock. On the off chance, it increases above $13.82, and you're out of the money, you’ve got an annualized return of 161%.
That’s not a bad consolation prize.
The Last of the Single-Letter Bets
We’re left with three unusually active options for two companies: Visa (V) and U.S. Steel (X). It’s not hard to determine which is the better stock to own for the long haul--Visa by a mile.
As for the three options, I’m leaning toward Visa’s July 19 $285 put. In the money by 5.6% as of Wednesday’s closing, Visa’s share price hasn’t done much in 2024, up 4%, about one-quarter the returns of the S&P 500. That’s why the Barchart Technical Opinion is a Weak Sell in the short term.
So, the $285 put expires two weeks today. The net price paid is $269.60, 61 cents above where it’s currently trading, which means V stock needs to gain 2.2% over the next 14 days. It will be a close call.
Buying its shares between $268.99 (Wednesday’s closing price) and $269.60 wouldn’t be the worst move because it traded over $290 in March.
The risk/reward proposition is sound.
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.
