Easily one of the most controversial companies available for trading, Geo Group (GEO) represents a private prison. Officially, the company utilizes more clinical language, billing itself as a government service provider for the development of secure facilities and processing centers. However, human rights advocacy groups have consistently identified GEO stock as a problematic investment.
I’m not going to take sides on the issue; however, it’s important to realize what you’re getting involved in before signing on the dotted line. Still, despite the controversy surrounding the concept of private prisons, the industry can be cynically lucrative. For example, famed hedge fund manager Michael Burry invested in GEO stock and that wager is now paying off handsomely.
Further, as Barchart content partner The Motley Fool pointed out, short-selling specialist Citron Research stated a few weeks ago that it anticipated that Geo was positioned well. The reason? Basically, Citron cited the flood of immigration into the U.S. from abroad. As a result, the private-sector firm can offer alternatives to traditional detention centers for migrants.
Just to clarify again, I’m not here to make a political point. However, it’s critical you realize the cynical nature of the bullish narrative for GEO stock. We’re not talking about a biotechnology firm with the cure for a terrible disease afflicting billions across the globe.
Nevertheless, it’s been a hot topic in the derivatives market, thus driving substantial interest.
A Tug-of-War Erupts in GEO Stock
Following the close of the Sept. 29 session, GEO stock ranked among the top highlights in Barchart’s screener for unusual options volume. Specifically, volume hit 18,331 contracts against an open interest reading of 118,445. Further, the delta between the Friday session volume and the trailing one-month average metric came out to 405.68%.
Transactionally, call volume reached 16,714 contracts against put volume of only 1,617. On paper, this pairing yields a diminutive put/call ratio of only 0.10, implying bullish sentiment. Also, Barchart points out that the put/call open interest ratio is only 0.77, further supporting the optimistic tilt.
However, investors need to be careful about the face-value reading of the put/call ratio. Primarily, options trading often involves complex trading tactics and investment strategies that don’t get reflected in a “one-size-fits-all” metric. As well, when major entities write (sell) options, they tend to carry the opposite implication of buying them.
To get a better understanding of what’s going on, investors should consider options flow data which screens exclusively for big block trades likely made by institutions. Per Fintel, the transactions since late August generally favor the bulls, not the bears. Thus, a face-value reading of the put/call ratio happens to be appropriate.
Still, some nuances exist. For example, the most recent transaction for GEO stock represented a major trader (or traders) writing 3,747 contracts of the Oct 20 ’23 9.00 Call. From a bird’s-eye-view of this trade, it appears that the transacting entity doesn’t believe that GEO will rise up to – or that much above – the $9 level.
Coincidentally, the 200-day moving average (which has acted as upside resistance against GEO stock) stands at $8.46 at time of writing. Also, the $9 strike price coincides roughly with the peak price posted earlier in May. As well, the 200 DMA represented upside resistance back then. So, it’s not a sure thing that GEO’s rally will continue unabated.
A Possible Nod to the Bulls
In deciphering the big block trades, it may be that the bulls have the slight edge. I say that because of the non-zero possibility that a delta hedge or similar trading action may materialize. It’s not a surefire forecast but if GEO stock continues to move higher – thanks to prominent investors like Michael Burry investing in it and other catalysts – a panic could set in.
Interestingly, a major trader or traders wrote 1,026 contracts of the Oct 20 ’23 7.00 Call. At the time, the premium received came out to $56,112, representing a transaction 2.25 standard deviations above the mean. However, with GEO stock gaining 7.49% in the trailing five sessions to $8.18, said trader(s) has a serious decision to make.
If shares continue rising, there’s a risk that the sold call will not only be unprofitable but lead to significant losses. Therefore, it wouldn’t be surprising to see a delta hedge, where the call writer buys the underlying security to prevent further damage from adverse price movements. Of course, these purchases should bolster GEO stock even more, thus boding well for the cynical bulls.
While speculative and controversial, Geo Group may be an enticing gamble for sophisticated market gamblers. If you don’t mind the heat, GEO stock should be on your radar.
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.
