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Looking for Income? These 3 Unusually Active Options Should Generate Income Over the Next 7 Days

Barchart - Fri Dec 1, 2023

The S&P 500 gained 8.9% in November, the second-best November performance since 1980. Only November 2020 did better. The penultimate month of the year is starting to look like a sure-fire winner. In the past decade, the index has finished in negative territory on just one occasion, in 2021. 

The Federal Reserve is expected to leave interest rates alone when it meets for the last time in 2023 on Dec. 13. That should be good for stocks in December, prompting many to suggest that a Santa rally is here and could continue for weeks.

However, PNC Asset Management Group chief investment officer Amanda Agati told Yahoo Finance on Tuesday that a Santa Claus rally is unlikely. 

“I think what we're left with is a bit of a rangebound kind of choppy market from here through year-end,” Agati said. 

So, with uncertainty about the markets’ momentum, it might be time to look for a few income plays heading into December. These three unusually active options from Thursday should help get you started. 

Have an excellent weekend!

Snowflake

Snowflake (SNOW) stock gained more than 26% over the past month. The data-as-a-service (DaaS) cloud computing company is now up 35% year-to-date, with one left in the year before closing the books on 2023 trading. 

Although I wouldn’t sneeze at a 26% gain in a single month, SNOW stock has traded near $400 on two occasions in the past five years -- November 2021 and December 2020 -- so there’s plenty of room for Snowflake’s share price to run in the months ahead. 

Berkshire Hathaway (BRK.B), Warren Buffett’s holding company, owns 1.9% of Snowflake, a position taken in 2020’s third quarter at an average price of $238.10, well above where it’s currently trading. He can afford to be patient with his investments.

Analysts generally like Snowflake. Of the 34 that cover its stock, 24 rate it a Moderate or Strong Buy (4.29 out of 5). However, the target price of $187.24 is only a few dollars higher than where it’s currently trading.

The company reported Q3 2024 results on Wednesday. They were very healthy, with revenues of $734 million, 32% higher than a year earlier and more than $20 million higher than the analyst estimate. On the bottom line, its adjusted earnings per share were $0.25, nine cents higher than the consensus. 

It finished the quarter with remaining performance obligations of $3.7 billion, 23% higher than a year ago, with 436 customers generating more than $1 million over the trailing 12 months. 

For 2024, it expects revenues to grow by 37% to $2.65 billion, with an operating margin of 7%, both higher than analyst expectations. 

The income play is the Dec. 8 $180 put. If you sell one of those bad boys, you’ll pocket $140 per contract should its share price remain above $180 for the next week. The annualized yield of 42%. Should it fall to $180, your net price would be $178.60. 

Given the latest results, it’s hard to see its shares retreating much between now and next Friday. 

Apple

Apple (AAPL) had seven unusually active options on Thursday, with Vol/OI ratios ranging from a low of 1.30 to a high of 8.87.

I’ve narrowed it down to two calls: Dec. 8 $187.50 and Dec. 8 $197.50. The former Vol/OI was 8.87, while the latter’s was 1.99. Their ask prices were $3.55 and $0.11, respectively. 

Ok, first, I’m going to assume you know why Apple is Berkshire Hathaway’s largest equity holding by a country mile, accounting for 48.2% of its $363 billion equity portfolio. 

So, based on yesterday’s closing price of $189.95, AAPL stock has to rise by 2.6% or $5.02 in the next week to double your money on the $187.50 call. For the $197.50 call, the share price has to rise by 1.0% or $1.92 by next Friday to double your money. 

As I write this, AAPL stock is up $1.40 in Friday trading, getting you nearly three-quarters of the way to the $1.92 bump needed on the $197.50 call. Today's ask price is up a penny to $0.12, with a $1.88 increase required to double your money. 

This would be the safest of the three bets. 

Beyond Meat

There is a good possibility that the struggling plant-based food company’s stock bottomed in late October at around $5.58. Since hitting a 52-week low, Beyond Meat (BYND) is up 34%. While it’s got a long way to go to get back to $235, where it traded in 2019, I think there are brighter times ahead for the company and its stock.

As I write this, halfway through Friday trading, Beyond Meat’s options volume is already at 16,402, nearly 80% of its 30-day average. The number of shares traded is relatively decent at 1.14 million, roughly half its 30-day average. 

So, BYND had five options with unusual options activity on Thursday. I’m interested in the one with the highest volume-to-open-interest (Vol/OI) ratio. That would be the Dec. 8 $6.50 put with a 9.30 Vol/OI. 

If you sell this contract, the bid of $0.35 is an annualized yield of 250%. It’s that high because of the risk associated with owning BYND stock. 

While I understand one’s apprehension about making this bet -- it’s definitely an aggressive play -- I wouldn’t suggest it if it were longer than a week or two. 

Beyond Meat reported its Q3 2023 results in early November, which were awful. Revenues fell 8.7% to $75.3 million, while it lost $57.5 million on an adjusted EBITDA basis, down from $73.8 million a year earlier. 

“As we shared last week, we are conducting a review of our global operations for purposes of further and significantly reducing our operating expense base as we seek to accelerate our transition to a sustainable and, ultimately, profitable business,” stated CEO Ethan Brown.

Beyond Meat’s operating expenses fell by 29% to $182.3 million through the first nine months of the year. As it continues to hack away at its costs, the cash saved gives it more time to figure out a way out of the deep hole it’s dug for itself. 

The company’s $1.15 billion in 0% convertible senior notes due March 15, 2027, have a fair value of $299 million, or just 26% of the face value. I’m not a credit expert, but those would be a possible contrarian buy, possibly a much better opportunity than its stock.

But that is a subject for another day.  


 



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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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.