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Unusual Options Activity: The 3 Best Call Options 42 Days Out

Barchart - Fri Sep 9, 2022

For today’s edition of Unusual Options Activity, I noticed that of all the expiry dates exhibiting unusual options activity on Sep. 9, Oct. 21 had the most possibilities outside a week until expiry. 

As I write this, I’ve got 17 different call options exhibiting unusual options activity and expiring in 42 days. More importantly, the diversity of industries available is impressive. 

If I wanted to, I could buy all 15 -- Albertson Companies (ACI) and Elanco Animal Health (ELAN) have two calls expiring on Oct. 21 -- building myself a decent portfolio.

However, I won’t do that. Instead, here are my three best buys exhibiting unusual options activity on the last trading day of the week.

Axsome Therapeutics

Axsome Therapeutics (AXSM) develops therapies for the central nervous system. On Aug. 19, the U.S. Food & Drug Administration (FDA) approved Auvelity, the company’s rapid-acting oral treatment for major depressive disorder (MDD).  

For people suffering from MDD, Auvelity is a game-changer, reducing the time it takes for an antidepressant to deliver results from 6-8 weeks down to one or two. 

“‘With symptom improvement happening at week one and then remission happening by week two, the combination of those two is incredibly differentiating in the marketplace right now,’ Lori Englebert, Axsome’s EVP, commercial and business development, said. ‘If you look at the high unmet need that remains in the market—two-thirds of patients don’t achieve remission and physicians are now moving toward remission as the goal of treatment—we’re pretty excited about the product,’” FiercePharma reported in August. 

Depression is the number one contributor to disability worldwide. According to Axsome’s August presentation, 85 million U.S. adults live with elevated depressive symptoms, while 21 million U.S. adults had at least one major depressive episode in 2019. 

Auvelity could see annual global sales of $1.3 billion by 2029. With other therapies in the development pipeline, Axsome’s valuation could skyrocket in no time.

Meanwhile, the Oct. 21 $80 call is experiencing a volume of almost 20x the open interest on the call option. With an ask price of $2.80, AXSM has to gain 33% over the next six weeks to break even. 

Given Auvelity’s importance, I’d say a $280 premium is a small price to pay.


Gerdau (GGB) began its long corporate history in 1901, making nails. Founded by the Gerdau family -- the family remains the company’s controlling shareholder -- it has become Brazil’s largest producer of steel and one of the world’s largest producers of long steel.

Gerdau shipped 3.25 million tonnes of steel in the second quarter, 8.2% higher than in Q1 2022. As a result, its revenues increased 13% to 23 billion Brazilian Real ($4.46 billion). On the bottom line, its adjusted net income increased 46.2% to 4.3 billion Brazilian Real ($830 million).

The highlight of the second quarter was its North American business, which increased 4.3% from Q1 2022, and 29.7% over a year ago. Its revenues accounted for 36.2% overall in Q2 2022, only 380 basis points less than Gerdau’s Brazil unit. 

According to Barchart’s average analyst rating, GGB is a strong buy, although that’s only from two analysts. The mean target is $6.80, 45% higher than where it’s currently trading. 

The estimate for Gerdau’s 2022 earnings is $1.53 a share. It drops to $0.72 in 2023. That’s still a reasonable 6.5x 2023 earnings. Furthermore, its free cash flow in the trailing 12 months ended June 30 was 12.84 billion Brazilian Real ($2.49 billion). Based on a market cap of $7.84 billion, it has a free cash flow yield of almost 32%. I consider anything above 8% to be in value territory. 

CEO Gustavo Werneck said the following about the future in its Q2 2022 conference call:

“I would like to point out that the infrastructure investment package valued

at $1.2 trillion should begin to generate starting in Q4 ’22 and in early 2023, an additional demand for steel of up to 5 million tonnes per year in the domestic market over a period of up to 8 years. In this context, we continue to invest in improving the productivity and profitability of our capabilities in North America, delivering even more value to our customers.”

Gerdau’s Oct. 21 $5.00 call has an ask price of $0.20, meaning GGB stock has to rise by 11% for the trade to break even. At a $20 premium, Gerdau’s call is a reasonable way to bet on one of Latin America’s healthiest companies.

Johnson Controls

Johnson Controls (JCI) is getting hammered in 2022. Its stock is down nearly 30%. 

The company, probably best known for inventing the first building thermostat in 1883, does a lot more. It’s also into heating and cooling solutions, industrial refrigeration, fire detection, security, and even software. Its brands include York, Frick, Tyco, Grinnell, Simplex, and Sensormatic. 

Johnson Controls made news in 2016 when it acquired Ireland-based Tyco International for $16.5 billion, moving its head office to Ireland to reduce its tax burden. Called a tax inversion, the merger is estimated to have saved the company $150 million in annual tax payments. 

Johnson Controls remains an excellent business regardless of how you feel about this kind of tax avoidance. 

In Q3 2022, its organic sales rose 8% to $6.61 billion, while its adjusted earnings per share increased 3% over Q3 2021 to $0.85. More importantly, its field backlog grew 11% to $11.1 billion. As a result, shareholders won’t have to worry too much about business drying up in the near term. 

As for the company’s business segments, its Global Products unit did exceptionally well in the third quarter, growing revenue by 9% year-over-year to $2.57 billion or 39% overall. The unit’s EBITA margin in the quarter is most notable. It was 22.2%, 110 basis points higher than a year ago, and more than double its margin in North America. This segment is driving Johnson Controls’ overall business. 

According to Barchart’s analyst ratings, JCI is a strong buy, with a mean target price of $65.42, 12.5% higher than its current share price. 

The company’s Oct. 21 $62.50 call has a $63.05 breakeven, slightly below the analysts’ mean target price for the next 12 months. At just a $55 premium, JCI is a company worth betting on over the long haul. 


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