There were 825 unusually active options in Wednesday's trading. None had Vol/OI ratios above 100. That’s often indicative of light volume.
Sure enough, that was the case, with a total options volume of 44.45 million, 13% below the average daily volume, with calls representing 58% of the options traded yesterday. That’s a positive.
One stock I haven’t written about in quite some time is Five Below (FIVE), the Philadelphia-based specialty discount store whose share price has fallen on hard times in recent years. It’s down 28% in 2025 and 62% over the past 12 months. In August 2021, it traded over $221, nearly 3x higher than currently.
The latest hiccup in its bid for relevance is the tariffs on imported goods from China and elsewhere. I don’t know how much it imports, but it’s got to be a lot to sell at prices of $5 or less.
For many, this makes it uninvestable, but yesterday, the stock had three unusually active options, so darn it, I’m devising three ways for aggressive investors to play them.
Here goes.
The Unusual Options Activity in the Spotlight
As I said in the intro, Five Below had three unusually active options yesterday. I define these options with Vol/OI ratios of 1.24 or higher and expiring in seven days or more. Two calls and one put expire in 29 days on April 17.
With the Vol/OI ratios of the two calls above 30 and the put in double digits, they were very attractive to options investors yesterday. All three were in the top 100.
Figuring out three strategies depends on one’s outlook. I will assume that one-third of investors are bullish, one-third bearish, and one-third are neutral about its prospects, both near-term and long-term.
Based on these assumptions, I’ll present my strategies for each.
The Damage Is Overdone
In this scenario, you recognize that Five Below has issues, but the beatdown its share price has faced over the past 15 months is overdone, providing a potential entry point to buy its shares.
The last time FIVE traded this low was in August 2024. It went on a big run over the final five months of the year. In 2025, it gave almost all of the gains back.
On Wednesday, Five Below reported its Q4 2024 results after the close. They were better than expected and provided upbeat guidance for Q1 2025. Five Below's shares were up 12% in pre-market trading. As I write this in the first hour of Thursday’s trading, they’re up 6%, which is a healthy early move.
Five Below earned $3.48 a share in the fourth quarter, 11 cents higher than Wall Street’s consensus estimate. Revenues were $1.39 billion in the quarter, $10 million higher than analyst expectations. In Q1 2025, it expects EPS of $0.56 at the midpoint of guidance, eight cents better than the estimate.
The only weak point is that its 2025 guidance for revenue and EPS was $4.27 billion ($20 million higher than analysts' estimates) and $4.41 (66 cents shy of analysts' estimates of $5.07), respectively.
Management is spooked about the trade war because its EPS guidance is 63 cents lower than in 2024.
However, looking at the glass half full, it still plans to earn $4.41 a share. Based on its current share price, it trades at 18.2x these earnings. That’s the lowest multiple since going public in July 2012, according to S&P Global Market Intelligence.
If you believe the selling in the past year is overdone, here’s what I might consider.
The first strategy would be to buy one of the two calls. With the stock up today, the numbers have changed. However, with 28 days to expiration, you should go with a lower ask price and net debit. That’s the $95 strike.
The ask price is $1.00, or 1.3% of the last trade at $79.60. While the ITM (in the money) probability is only 13.7%, you can double your money if it appreciates by $6.20 (7.8%) by April 17. It’s doable.
Worst case, you’re out $100.
The second strategy would be a bull call spread. This is when you expect the share price to increase in value. In this scenario, you’re buying an $80 call and selling a $95 call.
The above table shows that the $80/$95 bull call spread has a 38.0% profit probability and a maximum profit percentage of 222.58%. It’s not the highest of the four possibilities. Still, it involves unusually active calls from yesterday, which suggests that investors think this is a reasonable risk/reward.
You Believe FIVE Stock Is in for a World of Hurt
The most apparent strategy is the $75 long put. However, due to the rising share price, the ask price has decreased by 57% since yesterday’s close to a reasonable 3.3% of the share price.
The other option is to do a bear put spread, which is the opposite of the previous section. In this scenario, you buy the $75 put and sell a put with a lower strike price. Based on the examples below, the $70 put is your best bet, given your profit probability is highest at 27.0% and your maximum loss is lowest at $1.50.
However, if you’re really bearish, the $60 put has the best risk/reward ratio at 0.21 to 1, and your maximum loss is only $1.10 higher.
You’re Switzerland When It Comes to Five Below
In this instance, you expect FIVE stock to stay within a specific range with little volatility. When you feel this way, three strategies come to mind: Short straddle, iron condor, and calendar spread.
While all of them are possibilities, I will go with a long call calendar spread. This is when you sell a call with a near-term expiration and buy a call at the same strike price and a longer DTE (days to expiration).
Here are four examples based on the April 17 $80 call.
I’m always concerned about the outlay per bet, so I immediately look to the first example, with the $2.20 net debit [$7.30 ask price to buy call - $5.10 bid price to sell call].
In this case, you want the share price to remain around $80, expiring worthless in one month. Then, you want the share price to jump higher over the next 30 days. Let’s say it jumps up to $90 by expiration. Your profit is $7.80 [$90 share price - $80 strike price - $2.20 net debit], a 9.6% return.
On an annualized basis, that’s nearly 58% [12 months / 2 months (two-month bet) * 9.6% return], while your maximum loss is just $220.
Choices. Choices. Choices.
