Sophisticated analytical tools and market screeners can identify dynamics such as unusual options activity, thereby directing attention to intriguing stocks to watch. An option gives the holder the right to buy or sell the underlying stock at an agreed-upon price (called the strike). Notably, options contracts feature an expiration date.
Savvy investors realize the power of leverage that the options market provides.
Therefore, if traders are particularly bullish or bearish, they may acquire call or put options, respectively, that rise above normal trading volume. That’s what analysts refer to as unusual options activity and it can represent an incredibly powerful tool for deciphering which stocks to watch and potentially trade on.
The integrated technologies that allow you to monitor stocks are also available to everyone else. In addition, just because an options contract features unusual options activity doesn’t always mean that it will follow through with the dynamic’s implications. After all, some of the best analysts get it wrong.
Still, spiked volume outside trading norms is always noteworthy. In that sense, here are some interesting stocks to watch based on unusual trading activity.
| ON | ON Semiconductor | $54.48 |
| NCR | NCR Corporation | $31.88 |
| FCX | Freeport-McMoRan | $41.84 |
| BYND | Beyond Meat | $39.82 |
| GM | General Motors | $38.75 |
| SNAP | Snap | $28.81 |
| ARR | Armour Residential REIT | $7.49 |
An American technology firm, ON Semiconductor (NASDAQ:ON) is at the forefront of next-generation solutions, ranging from the electrification of transportation networks to industrial automation to the rollout of 5G and cloud-computing infrastructures.
Naturally, ON features significant synergies with the Internet of Things, as well as technologies geared toward healthcare and the aerospace/defense industries.
In any other circumstance, ON would be one of the stocks to watch due to its relevant profile. To be completely fair, ON stock performed remarkably since the spring doldrums of 2020. But so far this year, shares are down 27%, reflecting grave concerns about future supply chain disruptions as well as the geopolitical flashpoint in eastern Europe.
Still, many traders are optimistic about ON making a near-term recovery. Volume spiked more than normal for the $59 call option with an expiration date of May 6, 2022. At time of writing, ON closed the April 27 session at $51.21.
NCR Corporation (NYSE:NCR) bills itself as the world’s leading enterprise provider of software, hardware and services for banks, retailers, restaurants, small business and telecommunications.
Inflation has been a problem for the last several months. Prices have really started to escalate — particularly for energy — due to Russia’s invasion of Ukraine.
This conflict also imposes lost revenue-making opportunities due to a crimp in international travel. If that wasn’t bad enough, China’s policy against the coronavirus may create ripple effects throughout the world.
The backdrop translates to an erosion of consumer demand, as confirmed by NCR’s year-to-date loss of 23%. However, traders seem to be bullish on a recovery, with demand for $35 calls with an expiration date of July 15, implying a recovery.
Freeport-McMoRan (NYSE:FCX) commands an enviable global portfolio.
According to the company website, holdings include the “Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; and significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.”
Unlike some other publicly traded securities that feature unusual options activity, it’s not difficult to understand why FCX has become one of the stocks to watch.
On the gold-mining front, the yellow metal enjoys significant relevance due to rising inflation and the prominence of the fear trade. For copper, it’s a crucial component for the rollout of electric vehicles, an issue that has taken on greater prominence because of its geopolitical implications.
So when volume spiked for the $49 call with an expiration date of Aug. 19, the options were only unusual in the mathematical sense. Clearly, many traders see inflation weighing on the markets and that would seem a reasonable bet.
One of the fundamental catalysts for Beyond Meat (NASDAQ:BYND) is that you can have your meat and eat it too. The company has gained traction as an alternative for people who are cutting back on meat for health or ethical reasons.
Having tried the product myself after being a staunch critic, I was taken aback by how great it tastes. Still, the problem has always been the pricing structure.
Beyond Meat is often more expensive than the real thing. When you’re in an inflationary environment, people are looking to save money. Sure enough, the result is that BYND is nearly 39% year-to-date.
Still, at least one trader is making a strong bet with the $52 call option (with May 20, 2022 expiration).
Some fundamental justification exists in that Beyond is hoping its partnership with McDonald’s (NYSE:MCD) will eventually turn into a permanent menu-item fixture. Still, this is one of the highest-risk stocks to watch with unusual options activity.
Due to myriad factors affecting broader economic stability, the automotive sector has been struggling. General Motors (NYSE:GM) is no exception.
GM shares have lost nearly 37% year to date, making it one of the stocks to watch for dubious reasons. Sadly, the conflict in eastern Europe has also plunged the automotive sector specifically into a new supply chain crisis, per the Wall Street Journal.
So, it’s not terribly surprising that investors would have a dim view on GM stock. However, the underlying company pleasantly raised eyebrows when the iconic automaker’s earnings beat analyst estimates.
This stood in sharp contrast to concerns that have been dogging its competitors. But it’s also important to point out that GM is battling inflation pressures and supply chain disruptions like everyone else.
The road will certainly not be an easy one to navigate. Nevertheless, volume for the $43.50 call option jumped much higher than normal. It features an expiration date of May 13, 2022, implying a robust near-term move higher.
Although a wildly popular platform with younger users, Snap (NYSE:SNAP) also plies its trade in an extremely competitive arena.
As yesteryear networks like MySpace can attest, social media can be fickle. If you don’t make the right moves or otherwise fail to have your finger on the pulse of (youth) society, you could be headed down the toilet in a hurry.
Now, I don’t want to speak ill about SNAP or other popular stocks to watch, recognizing the consequences to my inbox. Nevertheless, it must be said that SNAP is down nearly 42% year-to-date as I write this, indicating a severe loss of stakeholder faith.
Yet out of the blue, with Elon Musk buying Twitter (NYSE:TWTR) SNAP could be relevant.
While I don’t have the time to dive into all the nuances, the essence of the argument is that left-leaning individuals could leave the Musk-led Twitter. Thus, the unusually high volume for its $28 calls (with May 6 expiration) could be a reasonable bet.
In my view, Armour Residential REIT (NYSE:ARR) represents one of the riskiest stocks to watch that features unusual options activity.
According to Armour’s website, the company invests “exclusively in residential mortgage backed securities issued or guaranteed by a United States Government-sponsored entity.”
We’re talking about the institutions colloquially known as Fannie Mae and Freddie Mac.
To be clear, such guarantees reduce concerns about ARR stock, but by no means does it take away all of them.
For one thing, ARR is down 25% year to date. More importantly, it’s very difficult to see how the mortgage industry on balance can thrive in the current environment. Mainly, affordability has soured while mortgage businesses have been laying off thousands.
Despite the growing number of risk factors, volume for $7.50 calls with an expiration of July 15 have increased above normal levels. If you’re a bold contrarian, you may want to put ARR on your list of stocks to watch. Otherwise, this might be something to pass on.
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