For forward-looking investors, revenge travel has been the gift that has kept on giving, which just might provide a sustaining lift for theme park operator Six Flags Entertainment (SIX). Following long stretches of isolation, consumers naturally wanted to advantage social experiences. Sure, binge-watching programs on a favorite streaming service is fun but it also gets old after a while.
However, the other factor in this tale obviously involves the economic pandemic. While fears of COVID-19 have all but faded away, a surge of inflation – a consequence of the arguably necessary monetary and fiscal measures implemented to address the global health crisis – has gradually crimped consumer sentiment. To be sure, we’re seeing evidence of the consequences of this profligacy, particularly in the form of record credit card debt.
Adding pressure to the narrative for SIX stock is the imposition of mass layoffs. Obviously, a combo of stubbornly high prices and job losses doesn’t present a great picture of economic viability. Even if it did, the natural instinct against these specific headwinds is to cut back on discretionary purchases. Entertainment is an important component of mental health but let’s be honest: there are cheaper means to achieve the goal.
So, where does that leave SIX stock? Should investors high tail it from here and rotate into risk-off assets such as boring but reliable dividend plays? Well, if you look at the latest read from the derivatives market, the answer just might surprise you.
Unusual Options Volume Favors SIX Stock
Following the close of the Sept. 26 session, SIX stock represented one of the top highlights in Barchart’s screener for unusual stock options volume. Specifically, total volume hit 10,007 contracts against open interest of 28,369 contracts. Further, the delta between the Tuesday session volume and the trailing one-month average metric came out to a whopping 1,018.10%.
However, the transactional breakdown led to a curiosity. Basically, call volume only printed a total of 126 contracts. On the other end, put volume for SIX stock options stood at 9,881 contracts, yielding an unsightly put/call volume ratio of 78.42. This stands in sharp contrast to the open interest ratio of 0.39.
Now, it’s important to avoid the “high ratio is bad, low ratio is good” narrative. Sure, a large spike in put volume compared to calls seems bearish. However, institutional investors could be selling (writing) these puts, in a way egging on retail traders to buy the puts. And that might be what’s going on here.
To be 100% clear, no one can make guarantees about options data because the information is printed anonymously. However, looking at Fintel’s options flow screener – which filters for big block trades likely made by institutions – it seems as if a major investor was involved in most of the unusual activity for SIX stock on Tuesday.
Notably, the trading entity (or group of entities) wrote 7,066 contracts of the Nov 17 ’23 20.00 Put. The premium received for this transaction came out to $22,588, which isn’t that much in the grand scheme of things. Therefore, I suspect it’s a single institutional trader.
By the “straight” interpretation of this put, the trader likely believes that SIX stock won’t dip to $20 or that much below $20 prior to Nov. 17. From the looks of things, SIX closed at $23.11 on Sept. 26. So, it seems a reasonable bet assuming that consumer sentiment for theme parks stays strong.
Not the Only Seemingly Bullish Wager
While the aforementioned writing of puts is statistically unusual based on volume trends, it’s hardly remarkable in terms of the premium received. However, that wasn’t the only significant trade for SIX stock options that lends itself to a seemingly bullish interpretation.
Again on Sept. 26, another trader (or perhaps the same one – we just don’t know for sure) wrote 1,310 contracts of the Oct 20 ’23 25.00 Put, collecting a premium of $174,420. Notably, Fintel points out that this premium represents 1.15 standard deviations above the mean.
And it’s also highly significant because it’s super-risky. At the open price of $23.11, this $25 put is in the money. So, SIX stock really needs to swing higher (assuming a straight interpretation and that it’s not part of a complex, multi-legged strategy) for the option to be profitable.
Another piece of supporting evidence comes from earlier bullish trades involving bought calls. To be fair, many of these calls have already expired. But what was significant was the premiums paid. With standard deviations ranging from 2 to 4, major traders have been surprisingly bullish on SIX stock.
Of course, Six Flags presents a heightened risk profile because of the previously mentioned economic pressure points. Still, for intrepid contrarians, SIX stock deserves a closer look. The alpha dogs apparently believe it still has some legs left.
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