The three most unusually active options in Wednesday’s trading had an average Vol/OI (volume to open interest) ratio of 133.89. In my experience writing about unusual options activity, that’s relatively high for options expiring in a week or more.
As a result, I thought I’d explore the “why” behind each of the three stocks’ unusually active options. It could be a fluke for the trio, or it could point to something more meaningful.
Let’s dig into it.
The Options in Question
The three stocks behind the options are ZipRecruiter (ZIP), Carrier Global (CARR), and PG&E (PCG). So, we’re looking at a business services company, an HVAC manufacturer, and a California utility.
I suppose you could argue that Carrier and PG&E are tied together because air conditioning has become necessary with climate change. After all, the utility must provide additional electricity for increased usage.
I’ve not covered ZipRecruiter much in recent years. I’ll discuss its situation last.
Carrier Global
Carrier stock is up over 30% year-to-date and 478% over the past five years. I last covered the stock for Barchart in April. The company has been transforming its conglomerate-style business into one focused on the HVAC industry, and I think it’s a wise decision.
“Carrier is a sensible long-term investment for anyone who thinks climate change is real. It provides commercial and residential HVAC products,” I wrote on April 26.
The unusually active option that caught my attention then was the Sept. 20 $67 strike with a $2.00 ask price. I must have gotten the strike price wrong. There is no $67 strike, just $67.50. That’s up 305% in the past five months, an annualized gain of 732%. Its shares trade at $73.60 in pre-market trading.
So, Carrier’s Dec. 20 $80 call had the second-highest Vol/OI ratio in Wednesday trading (excluding options expiring tomorrow) at 131.94. With 101 days to expiration, the $2.60 ask is a 3.3% down payment. Anything below 5% is reasonable.
This call expires in 101 days, whereas the one from April had 147 to make something happen. However, that’s still a reasonable amount of time. Based on a delta of 0.34894, you can double your money by selling the call before it expires if it appreciates by $7.45 (10.1%) over the next 14 weeks.
It’s currently trading within 47 cents of its all-time high—it was spun off from United Technologies in April 2020—and the Barchart Technical Opinion is a 100% Strong Buy.
Yesterday, there was a trade of 20,798 Dec. 20 $80 calls at 3:36 p.m. EST at $2.60 per call. That’s 97% of the calls for this strike. I’d say somebody thinks it’s a buy.
I liked the Sept. 20 $67.50 call. I also like the Dec. 20 $80.
Pacific Gas & Electric
Pacific Gas & Electric, better known as PG&E, is the company made famous, or perhaps infamous is a better word, by the 2000 movie Erin Brockovich, a true story which starred Julia Roberts and Albert Finney as two crusaders seeking justice for people sickened by polluted wastewater from PG&E’s compressor station in Hinkley, California.
Anyway, the settlement was significant, and it happened nearly 30 years ago, so it’s in the rearview mirror. Today, the utility is rated a Strong Buy by 11 out of 14 analysts (4.50 out of 5) with a $21.73 target price, 10% higher than where it’s currently trading.
Thanks to increased electricity demand for AI-driven data centers, utilities stocks are doing well in 2024. The Utilities Select Sector SPDR Fund (XLU) is up 20% year-to-date. Although PG&E is underperforming S&P 500 utilities stocks, it still has managed to gain over 9% in 2024 and 16% over the past year.
It’s a stable investment.
The unusually active option for the utility was the March 21/2025 $16 put. It had a Vol/OI ratio of 76.51, which is still high. The volume for the put was 12,548, more than the 30-day average of 10,955 for all its options activity. The put accounted for 71% of yesterday’s activity. Most of the volume for the put was from five trades over 1,000. Four of the five traded at $0.27, with the fifth at $0.29.
If you’re bullish about PG&E, the annualized return generated by selling the put is just 2.5% based on yesterday’s $19.65 closing price and $0.25 bid. That’s too little return for most investors.
It’s more likely someone bought puts to protect against an unexpected correction in the markets, generally, and PCG, specifically. With an ask price of $0.30, it’s an inexpensive way to protect your downside.
ZipRecruiter
ZipRecruiter had the highest VOL/OI ratio yesterday at 193.21. The volume of 35,937 on the Jan. 17/2025 $12.50 call was 20 times the 30-day average volume for all of its options. Somebody knows or thinks they know something about the online job matchmaker’s fortunes turning positive.
The trade: 32,277 Jan. 17/2025 $12.50 calls at 3:04 EST on Wednesday at $0.10 a contract. That’s a 0.8% down payment on ZIP shares at $12.50. Based on the delta of 0.15646, the share price only has to increase by 64 cents (7.2%) for you to double your money by selling the calls before expiration in a little over four months.
With the stock down 34% year-to-date and 57% over the past five years, the call buyer is betting that the company’s sequential quarterly revenue declines over the past year have bottomed.
In Q2 2024, its revenues were $123.7 million, 1% higher than Q1 2024. Its revenues had fallen for three consecutive quarters since Q2 2023. However, its gross margin remained high at 90%, leading to an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin of 23%, 600 basis points higher than the first quarter.
Considering its shares traded above $31 less than three years ago, the $322,770 bet on them rebounding is an excellent risk/reward.
Of course, it’s also possible that the owner of 3.23 million ZIP shares was selling covered calls for income. As long as the shares don't rise above $12.50, the annualized return of 4.7% could be had.
If they do, they would be obligated to sell those shares at $12.50, capping the profit. It’s not a bad trade-off if they bought near the 52-week low of $7.21 in August.
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.
