Popularized by the meme-trading phenomenon that catapulted during the worst of the COVID-19 pandemic, the concept of bold contrarianism has taken on a life of its own. However, when it comes to certain market ideas like Apartment Investment and Management (AIV), it’s better to go with the obvious approach, even if it is incredibly boring.
Still, what makes AIV stock quite appealing is that it appears the smart money is the one rolling the dice. Based on both unusual stock options volume and options flow data, the bulls apparently believe a recovery in Apartment Investment – better known as Aimco – is in order. It’s a worrisome proposition if I’m being perfectly honest.
While shares gained 11% since the January opener, the Barchart Technical Opinion indicator rates AIV stock a 24% sell. Essentially, a combination of moving average indicators point to a weakening of the current direction. Notably, in the past one-month period, AIV slipped more than 5%.
Of course, the other side to the story is that the U.S. economy for now remains robust. Evidence such as the rising dollar imply that maybe – just maybe – the Federal Reserve can pull off its targeted soft landing following its hawkish monetary policy.
Let’s dive into the details.
Unusual Options Activity Rings Strongly for AIV Stock
As stated above, AIV stock ranked among the top highlights in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 12,435 contracts against an open interest reading of 154,295 contracts. Further, the delta between the Monday session volume and the trailing one-month average metric came out to 1,204.83%.
Looking closer at the transactional breakdown, call volume hit 12,425 contracts while put volume only printed 10 contracts. Given the wide disparity, it’s pointless to state the put/call volume ratio, which on paper overwhelmingly favors the bulls. Likewise, the put/call open interest ratio sits at 0.02, again tipping the scale well toward the optimists.
Of course, just looking at the difference between puts and calls can’t tell you everything because it’s possible to transact options contracts in a way that contradicts their native implication; for instance, buying calls is generally bullish but selling calls is generally bearish. And buy or sell, the transaction will show up as call volume.
To better decipher the wider context of unusual options activity, I like looking at options flow. Specifically, Fintel’s screener filters for big block trades likely made by institutions. Here, we see significant volume and open interest since June 27 for bought calls – a classic bullish tactic – with most of the options expiring on Dec. 15, 2023.
Notably, Fintel notes that all the big block trades since late June are bought calls. Further, all but one – $7.50 contract expiring on Dec. 15 – are out-of-money (OTM) calls. Keep in mind that AIV stock closed at $7.88 on Monday.
Since the other big block trades prior to June 27 have already expired, it appears the smart money is going for it. Should you?
Aimco Warrants Caution
Naturally, AIV stock presents an enticing proposition. While big-picture economic data suggests circumstances are robust, pain on Main Street appears to paint a completely different narrative. For example, credit card debt exceeded the $1 trillion mark. Still, the smart money usually knows what it’s doing. Therefore, AIV may tempt on the basis of not wanting to miss the boat.
However, if there was a time to miss a boat, AIV stock might be it. One clue stems from Aimco’s revenue haul of $45.67 million in the second quarter. This tally represented a nearly 10% decline from the year-ago quarter’s revenue of $50.7 million. If the economy was really that hot, Aimco is presenting a strange picture of a sharply reduced top line.
More importantly, management offered this note: “Operating proportionate property net operating income increased by $2.3 million, or 9.8%. The increase was attributable primarily to a $3.2 million, or 9.5% increase in rental and other property revenues due to higher average revenues of $230 per apartment home, offset with a 140-basis point decrease in Average Daily Occupancy to 96.2%.”
And why might average daily occupancy rates be declining? Simply, people can’t afford rising rents.
As the New York Times bluntly stated in its headline for one of its articles, “Gen Z Can’t Afford the Rent.” The report goes on to detail young people whose rental costs often hit or exceed 50% of their monthly income. That’s a significant leap from the preferred rule-of-thumb ratio of 30%.
Obviously, you should conduct your own research before making a decision on AIV stock or any other investment. If you want my opinion, though, I believe the smart money is wrong on this one.
On the date of publication, Josh Enomoto 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.
