Wednesday’s options trading wasn't a frenzy, with a volume of just 26.03 million, considerably less than the 30-day average of 47.11 million. Further, the highest Vol/OI ratio for call options was the Visa Feb. 21 $355 strike price, at 75.21. If that’s not over 100, you know it’s a slow day in the options pit.
As I looked at possible unusually active options to cover in today's commentary, the July 22 call options, which expire in 170 days, caught my attention. I can’t say why they jumped off the page at e, but the Corebridge Financial (CRBG) stock symbol intrigued me. I don’t think I’ve ever discussed the financial services firm’s stock before, but I couldn’t tell you that’s the case.
Anyway, the 11 calls with Vol/OI ratios over 1.24 included some up-and-coming names and some popular names with buy-and-hold investors.
Corebridge, along with two others, are worth considering. Here’s why.
Corebridge Financial (CRBG)
Corebridge was American International Group’s (AIG) life insurance and retirement solutions business until it spun off in September 2022 at $21 a share, raising $1.68 billion in its IPO. It was only the second IPO in 2022 to generate over $1 billion from its initial public offering. All the proceeds went to AIG and none to Corebridge.
After the IPO, AIG held 78% of CRBG stock. As of March 2024, it had fallen to 52.3%.
At its IPO, Corebridge had over $350 billion in assets under management and administration (AUMA). At the end of Q3 2024, these had increased to more than $410 billion.
The company has four healthy operating segments: Individual Retirement (57% of adjusted pre-tax operating profits), Group Retirement (17%), Life Insurance (13%), and Institutional Markets (13%).
Overall, its adjusted after-tax operating income in Q3 2024 was $810 million, 20% higher than a year earlier. Yet its shares trade at 0.92 times their adjusted book value per share of $37.32. A 2.7% dividend yield is an excellent combination of growth and income.
The $33 call had a Vol/OI ratio of 40.23 yesterday, the highest of the 11. Its ask price of $4.80 is 14.1% of its $34.13 closing price, which is not insignificant. However, with 5.5 months until expiration and already in the money, your odds of staying there are 57.8%.
Sony Group (SONY)
Sony Group (SONY) has been volatile for most of the past five years. Although it has gained 59% over the past 60 months, this period has been a roller coaster.
For example, from March 2020's bottom ($10.61) in the COVID-19 correction to the end of 2021 ($25..28), Sony's stock gained 138% over 21 months. It then lost 50% of those gains in the next nine months, and over the next 28 months, Sony stock gradually moved back into the $20s, where it currently trades.
The entertainment and electronics giant has been in a turnaround for the past six years, and that’s seen it move to a content creation business model from distribution. Once primarily known for its electronics products, Sony has spent over $10 billion in its transition. Games, music, and movies now account for 60% of its revenue.
On Wednesday, Sony announced that Kenichiro Yoshida, the CEO behind Sony’s turnaround, would step down as chairman and be replaced by Hiroki Totoki, his finance chief. Yoshida will remain chairman.
Analysts are enthusiastic about its future. Of the 28 analysts covering its stock, 25 rate it a Buy. Their target price is $24.56, 10% higher than its current share price. The stock trades at a reasonable 19.2; its 2026 EPS estimate is $1.16.
The July 18 $22.50 call is just out of the money. The $1.70 ask price is a reasonable 7.6% of yesterday’s $22.25 closing price. With a delta of 0.51335, you can double your money by selling before expiration if it appreciates by $3.31 (15%) over the next 5.5 months.
The news from yesterday suggests that the board and Yoshida are confident that succession is in good shape. For this reason, a profitable trade seems feasible.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (CMG) stock is up less than 7% since Aug. 13, 2024, the day Chipotle’s former CEO, Brian Niccol, was named CEO at Starbucks (SBUX). Analysts wondered if the departure of Niccol, who successfully turned around Chipotle’s business starting in 2018, would lead to another stretch of mediocre performance, both financially and in the markets.
In the five months since Niccol left, its shares have been less than stellar, and its financials are struggling. At the end of October, it reported disappointing Q3 2024 results, including 6.0% same-store sales growth, 30 basis points less than Wall Street’s estimate. However, it expects mid to high-single-digit same-store sales growth for 2024, which isn’t half bad.
At the midpoint of its guidance, it expects to open 330 new locations in 2025, most of which will have Chiptolane drive-thru lanes. Growth remains on the agenda.
It was time for a change in management after six years at CMG. It will be fine.
The $60 call is just out of the money. Its $4.95 ask price is 8.5% of yesterday's $58.27 closing price. Anything under 10% is a good use of leverage. It has a 46.35% chance of being ITM by July.
CMG shares must appreciate by $9.39 (16%) to double your money by selling before July 18. It reports Q4 2024 results on Feb. 4. If the news isn’t good, the ITM probability drops considerably. I don’t think that’s going to happen.
And even if it does, the news of a new CEO should help offset this. It’s a reasonable risk/reward.
