Confession time: you’re not going to find too many people who like the idea of Geo Group (GEO). As a private prison operator – it provides evidence-based rehabilitation services, per its website – Geo offers a necessary solution. After all, people break laws and if anything, the trend appears to be moving higher since the Covid-19 outbreak, at least for certain categories of crime.
So, GEO stock is fundamentally relevant. Where perhaps most folks have a question is on the ethics involved in profiting from a function that many believe should be exclusively handled by government authorities. As I stated in late November of last year, the profit motive can introduce safety concerns for both inmates and corrections officers.
Basically, government entities provide various functions for society to serve the public good. Of course, agencies can’t run amuck as if they have a blank check – that’s part of what voting is about. Still, government-run institutions don’t have shareholders to answer to. So, if something needs to be done in the name of public safety, the proposal should, in theory, move forward.
That’s not always the case with private prisons. And GEO stock clouds the narrative because obviously, shareholder interests are involved. Therefore, a prevailing temptation exists to cut corners, a temptation that likely would never enter the picture for a government-run institution. As well, private “rehabilitation centers” carry controversy due to exacerbating racial inequities and other social challenges.
I mention these factors not to sway you into one political frame or another. Instead, you should just be aware that trading GEO stock inherently brings with it a scandalous air. If anything, investors who decide to take part in Geo’s potential upside narrative should keep it to themselves. It’s not great dinner-table conservation.
That said, it’s difficult not to notice the prospect of possibly significant upside here.
GEO Stock Delivers a ‘Two-Fer’ Opportunity for Market Gamblers
If you want to scalp a quick profit to get the new year started (ironically) on the right foot, GEO stock is difficult to ignore. Technically speaking, contrarian bulls in the open market and in the derivatives market are likely aiming to squeeze out the bears, possibly yielding a dramatic return.
First, let’s discuss the derivatives arena. Following the final day of trading in December, GEO stock ranked among the top names in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 41,046 contracts against an open interest reading of 185,587 contracts.
Moreover, the percentage difference between the Friday session volume and the trailing one-month average metric came out to 566.01%. Notably, call volume hit 36,326 contracts against put volume of 4,720 contracts. This pairing yielded a put/call volume ratio of 0.13, signifying more engagement of calls over puts.
At face value, such a skewed ratio seems bullish for GEO stock. However, according to Fintel’s options flow data – which filters exclusively for big block trades likely made by institutions – sold calls across various expiration dates (but at the same strike price of $11) dominated proceedings. Essentially, the risk underwriters are betting that GEO stock won’t materially rise above $11 prior to expiration.
However, with shares closing out 2023 at $10.83, that’s a massive risk for the bears to take. If these sold calls are naked – that is, the traders sold these contracts without owning enough of GEO stock to cover the obligation – the risks are effectively uncapped.
Adding to the pressure cooker, GEO stock features a short interest of 15.21% of its float. As well, the short interest ratio has started to pick up since Dec. 21, landing most recently at 7.46 days to cover. That means bearish traders will need over a (business) week to unwind their short positions based on average trading volume.
With the prospect of uncapped risks in both the options and open market – because short interest metrics involve shorting the actual security and not its derivative – GEO stock represents one of the tensest market ideas available.
Political Winds Favor Geo Group
Another factor that could help GEO stock not just as a speculative trade but as a longer-term investment is the current political circus. On the Republican side, former President Donald J. Trump commands unbelievable popularity. That’s not great news for the incumbent President Joe Biden, who suffers from a likeability problem.
Basically, polls show that Biden’s disapproval rating has been moving steadily higher since March of last year. When stacked against Trump, the Democrats may have perhaps an insurmountable challenge. Again, Trump is wildly popular. And while his fiery rhetoric raises questions, I’d be lying if I said it didn’t resonate with voters.
Clearly, it does. And clearly, Biden and the Democrats must make some tough choices. However, the president appears committed to run for a second term. That probably won’t end well against an energized Trump – and we all know how much he loves talking about law and order.
So, whether you like it or not, GEO stock is probably a buy.
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.
