The S&P 500 has had a crazy ride this week. On Wednesday, stocks fell on the Fitch downgrade of the U.S. credit rating from AAA to AA+, the first such cut since 2011.
However, stocks opened higher Friday on good earnings news from Amazon (AMZN) and decent employment numbers. As I write this, the index is up 0.60% in early trading to 4,527.90. That’s down 1.2% on the week.
On Fridays, I tend to talk about 2-3 stocks that have exhibited unusual options activity. Using Thursday’s action, three stocks I like were unusually active yesterday. Here are three options to buy or sell to bet on these three companies.
Have an excellent weekend!
Nvidia
Nvidia (NVDA) is the current market share leader in hardware and software products related to artificial intelligence with 90%. That could be why its stock is up 215% in 2023 and 608% over the past five years, 10x the index’s return over the same period.
On Thursday, Nvidia had four unusually active options with 28 days to expiration or longer. Three of them were put options. Since I’ve already discussed two calls, I won’t bother with the call.
Of three puts, we have two with Jan. 19/2024 expiries (169 days) and one with a June 21/2024 expiry, 322 days out. The two expiring in 169 days have vastly divergent strike prices of $385 and $520. If the puts expired today, the latter would be put to you.
Fortunately, there is almost half a year before you’ll have to worry about the matter. In the meantime, the bid price for the $520 strike is $99.35, putting the net price you’d pay at $420.65, compared to $357.70 for the $385 strike.
Based on a current share price of $445.15, it would have to fall by $60.15, or 13.5%, before it is put to you. As for the $520 strike, it would have to fall by $24.50, or 5.5%, before losing money on your put, compared to a 19.6% fall in price to be in the red on your $385 strike.
The third put expires on June 21/2024. It has a bid price of $24.50 and a $335 strike. Were it put to you in 46 weeks, your net price paid would be $310.50. It’s more than possible for its share price to fall to this level. As recently as October 2022, it traded for $112, 75% lower than its current share price.
Of the three, I like the $335 strike because it gives you a 5.5% annualized yield, a reasonable return should its share price not fall far enough to be put to you. Of course, if it does fall to this level, you’re getting a much better entry point.
Why do I like the stock? CEO and co-founder Jensen Huang has always been ahead of the curve regarding Nvidia’s next big bet. The company’s current bet on AI is another example of why he’s not afraid to take risks.
Dick’s Sporting Goods
Dick’s Sporting Goods (DKS) is the country’s largest sporting goods retailer. Its stock is up nearly 20% year-to-date and 318% over the past five years, 5.4x the S&P 500’s return.
The stock had two unusually active options on Thursday with 28 days to expiration or longer. Both were calls expiring on Sept. 15. One had a strike price of $155 and a $4.20 ask. The other was a $165 strike with a $1.85 ask.
With a share price of $145.21, the latter call requires Dick’s share price to rise nearly 15% to be in the money. However, based on a delta of 0.18290, its share price must only increase by $10.11, or 7%, to double your money on the ask.
The former only has to rise by 9.6% to be in the money. However, to double your money on the call, the shares must increase by $12.34, or 8.5%, 150 basis points higher than the latter.
So, if you are bullish on the stock, as I am, the $155 strike makes more sense.
Why do I like the stock? The sporting goods industry historically experiences consistent, if not spectacular, growth. Between now and 2026, the industry’s expected to grow by 7.5% annually to $239 billion worldwide.
TJX Companies
TJX Companies (TJX) is one of the world’s largest off-price retailers, with over 4,800 stores in nine countries. Its stock is up nearly 9% year-to-date and 71% over the past five years, 20% higher than the S&P 500’s return.
The stock had one unusually active option on Thursday. It was a call, expiring in 169 days on Jan. 19/2024. It has a $92.50 strike and a $2.92 ask. With a share price of $86.02, TJX’s share price will have to rise 11% to be in the money. However, based on a delta of 0.37394, its share price must only increase by $7.81, or 9%, to double your money on the ask.
So, you only have to pay a premium of 3.4% of its current share price to lock in the opportunity to buy TJX stock 24 weeks from now. It’s a no-brainer.
Why do I like the stock? It’s a well-run company with a high return on equity (62.8%) and returns on assets (13.3%). And you can’t beat its scavenger-hunt business model, where consumers never know what they will find on every visit.
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.
