The S&P 500, Dow, and Nasdaq 100 have all traded sideways over the past five days, but not without a major dollop of volatility thrown into the mix. 

Positive news included a report that fewer U.S. workers applied for unemployment benefits last week, indicating that the job remains healthy. Meanwhile, sales at U.S. retailers in January fell more than expected, signaling consumers aren’t nearly as confident as past spending indicated. 

Two reports out today should continue to increase volatility: the federal government’s inflation report and the closely-watched University of Michigan consumer sentiment index. With retail sales underperforming in January, confidence could be down from the previous month’s reading.

Whatever happens, I’m looking for unusually active options investors can sink their teeth into. Today, I’ll focus on three long-term buys whose strike prices are in the $20s. 

Have an excellent weekend!

Liberty Global 

Liberty Global (LBTYA) had a Vol/OI ratio of 33.32 on Thursday, putting it in the top 10. The option in question is the April 19 $20 put with a $1.20 bid and 63 days to expiration. 

The Barchart Technical Rating is a 40% Buy, which suggests LBTYA’s momentum is slowing. While its stock is up more than 12% over the past three months, it’s down 26% over the past five years and nearly 6% in Friday trading. More on that shortly.  

Analysts have warmed up to the international broadband provider. Three months ago, the 10 analysts covering its stock rated it a Moderate Buy (3.80 out of 5). Today, they maintain a Moderate Buy (4.11 out of 5), but its average score is higher because there’s one less analyst on the job. The target price of $24.77 is 36% higher than its current share price. 

Liberty Global reported its Q4 2023 results on Friday before the markets opened. Despite a challenging market, it delivered decent results, with a 4.3% increase in revenue to $1.92 billion and an 8.6% decrease in adjusted EBITDA to $546 million, a 28% EBITDA margin. For 2023, its adjusted distributable cash flow was $1.71 billion, $110 million higher than its guidance. 

Since the beginning of 2023, it has repurchased 18.5% of its total shares outstanding. It finished the year with $10.58 a share in cash on its balance sheet. That’s nearly 60% of its share price. 

To deliver more shareholder value, the company says it will spin off its Swiss business, Sunrise, the number two operator in Switzerland. More details will follow in the days ahead. But if you know the Liberty-affiliated group of companies, they like to slice and dice their business in pursuit of shareholder returns. 

The top shareholder is Baupost Group (Seth Klarman), which has 12.53% of its stock. Klarman’s not a billionaire for nothing. 

If you sell the $20 put, the annualized yield is nearly 35%, while your net price should you have to buy the shares would be $18.80. Currently trading around $17.93, as I write this, the bid price of $0.75 is an annualized yield of 22% with a net price of $19.25. You should wait until the shares move back to $19.

It’s a value play, for sure. 

DigitalBridge Group 

DigitalBridge Group (DBRG) had a Vol/OI ratio of 12.05 on Thursday, putting it well outside the top 10. The option in question is the Jan. 17/2025 $25 call with a $2.35 ask and 336 days to expiration. 

The Barchart Technical Rating is a 100% Buy, which suggests it’s full speed ahead for the Boca Raton-based alternative asset manager. The company used to be known as Colony Capital. In 2021, it sold off its non-digital assets and rebranded as DigitalBridge. 

The company is known for its real estate and digital infrastructure assets, such as data centers, fiber solutions, and macro cell towers. However, to get a better valuation from Wall Street, it has ditched billions in debt and operating expenses from owning these assets to focus on asset-light, high-margin portfolio management, leaving much of the ownership to its investors. 

The nine analysts covering its stock rate it a Strong Buy (4.78 out of 5) with a $22.17 target price, 9% higher than its current share price. 

Its top shareholder is Vanguard, with 14.09% of its stock, followed by Wafra Inc., a New York investment firm owned by the Public Institution for Social Security of Kuwait (PIFSS). It owns 8.83%.  

If you buy the $25 call, the down payment is 9.4%, which is high. However, I could easily see a 33% move over the next year if AI continues to be all the rage.  

Barron’s had this to say about the company’s potential valuation as an alternative asset manager, not a REIT. 

“Raymond James analysts have taken a stab at valuing DigitalBridge as an alt manager. Assuming it reaches its ambitious goal of $205 million in fee-earning assets in 2025, a 16-times multiple would value those at $3.3 billion,” stated Barron’s contributor Bill Alpert. 

“Performance fees could be worth another $560 million. And the company’s continuing stakes in portfolio companies such as Vantage would add another $2 billion. Subtract corporate overhead, debt, and preferred shares, and Raymond James sees the stock worth $4.4 billion, or $24 a share.”

I realize I’m recommending a $25 call and a net price of $27.35, well above the analyst’s, but I’ve always found that the easier it is to understand a stock, the quicker its share price rises. 

In the worst case, you’re out $235.