Halfway through Friday trading, markets are generally mixed, with Tesla (TSLA) leading the way with a price volume of 19.5 million, more than seven million higher than second-place Nvidia (NVDA).
Every Friday, I look to find stocks exhibiting unusual options activity. Sometimes, I seek out call options. Other times, I go for puts, and occasionally, I go for both. Today, I’m looking to the put side of the ledger to find some unusually active put options.
As I write this, the put option that is the most unusually active is natural gas producer EQT (EQT). The company’s September 15 $37 put has a volume of 7,001, 57.39x higher than its open interest.
However, in addition to seeking out unusual options activity, I’m looking for puts that should be seen as income opportunities more than anything else.
Here are three put options that are in the top 100 and will generate above-average income. To qualify, a stock’s share price should be at least 25% higher than the strike price of the put in question. That’s to ensure that the puts you’ve written don’t get exercised.
As I said, this is all about income.
Put Option # 1 - AMC Entertainment (AMC)
I've spotted two possibilities for the movie theater chain.
The first is the Jan. 19/2024 $2 put. The second is the Jan. 19/2024 $3 put. The former has a volume that is 4.22x its open interest, while the latter has a volume/open interest (Vol/OI) of 3.81x.
Both expire in 217 days. The current share price is $4.75, 138% above the $2 put and 58% higher than the $3 version.
I am not a fan of AMC stock. Just the opposite.
“In August 2022, I wondered if AMC was ready to follow Cineworld down the bankruptcy path. I argued that the gymnastics it was undertaking to strengthen its balance sheet would fail and that its business was in considerably worse shape than in June 2020, yet it was trading for 10x the value,” I wrote on March 7.
On March 7, it was trading around $6, so it’s down another 21%.
So, why am I recommending selling AMC puts? Even in the company’s sad state, it’s rarely traded below $3 over the past five years. So, the odds of having to buy AMC shares in 217 days aren’t all that high.
While the annualized yield of the $3 put is higher at 38.5% compared to 16.5% for the $2 put, your odds of not having to buy the shares at expiration are much higher.
Put Option # 2 - Block (SQ)
My second choice is a company that I like. Combining its Square e-commerce business with its Cash App gives fintech an excellent one-two punch.
Analysts are generally happy with it. Of the 31 analysts covering it, according to Barchart.com data, 20 give it a Moderate or Strong Buy (4.16 out of 5) with a mean target price of $87.64, 32% higher than its current share price of $66.39.
I’ve spotted the September 15 $47.50 put, which expires in 91 days—the current bid price of $1.03 yields 1.6%. On an annualized basis, that’s 6.4%. Sure, it’s not anywhere near AMC's yield, but having to own the fintech stock isn’t nearly as repulsive as having to take possession of AMC shares.
And, heck, Block is one of Cathie Wood’s favorite stocks.
Put Option # 3 - Norwegian Cruise Line Holdings (NCLH)
Earlier this year, a friend of mine went on a Norwegian Cruise Line ship for a 7-day tour through the Caribbean. He and his girlfriend had a blast. They’d do it again.
It’s anecdotal evidence, I realize, but cruise operators are experiencing demand like they’ve rarely seen. If they are not back to pre-pandemic conditions today, they will be by the end of the year.
Earlier this week, I wrote about why cruise lines, in general, and Royal Caribbean Cruises (RCL), specifically, were still good buys. I pointed out that the unmet demand for travel from three previous years of pandemic-like conditions was estimated at $300 billion, with cruise lines getting a significant chunk of what’s referred to as “revenge travel.”
Environmentally, cruise ships are a disaster, but financially, they continue to get stronger every month. That means higher revenues, higher profits, and higher stock prices.
The put in question is the Jan. 17/2025 $15 strike with a Vol/OI ratio of 6.70x. Expiring in 581 days (1.6 years), the bid price of $2.19 has an annualized yield of 7.1%, based on a current price of $19.25, 28% higher than its strike price.
Of the three big cruise operators, NCLH has the highest level of debt relative to its market cap. That said, they’re all around the same range.
Worst-case scenario: The shares get put to you, and you end up owning NCLH stock at a good price.
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.
