Several stocks made big moves in Wednesday trading despite a flat day for the index. Leading the charge was MillerKnoll (MLKN). It gained 27% on the day with 7.6 million shares traded, nearly 8x its 30-day average.
As for unusual options activity Wednesday, Apple’s (AAPL) Oct. 20 $195 put wins the highest Vol/OI ratio award at 243.84x, nearly 3x the second-highest, also an Apple put.
As I write this on Thursday morning, the usual suspects lead the way in the options market. Tesla (TSLA), Apple, and Nvidia (NVDA) occupy the top three spots for options volume with 549,250, 397,838, and 366,847, respectively.
Regarding unusual options activity, Palantir (PLTR) leads the way with a Vol/OI ratio of 28.71x.
Scanning the top 100, three unusually active options to play have caught my eye.
Oh, Canada!
As a Canadian, it warms the cockles of my heart that the Royal Bank of Canada (RY) has one of the top 10 most unusually active options on Thursday. A Canadian bank would qualify as a mild selection.
The option in question is the April 19/2024 $90 call with volume of 1,750, open interest of 130, and a Vol/OI of 13.46x. It currently has an ask price of $4.40, less than 5% of the strike price, and a reasonable down payment to secure the right to buy 100 shares of its stock at $90.
So, in the next 7.5 months, its shares would have to appreciate by at least 6.8% for you to seriously consider exercising your right to buy shares. However, you’ve got a bit of an escape value: the delta is 0.47771, which means you could generate a 33% return on your money by selling the call before expiration if RY stock increases in value by $3 over the next 204 days.
That’s very doable.
As for the bank’s business, Canada’s Competition Bureau approved its deal to buy HSBC’s (HSBC) Canadian operations for $10 billion on Sept. 1. The HSBC assets were one of the few remaining opportunities to move the needle in Canadian domestic banking.
HSBC, the seventh-largest bank in Canada by assets, is merging with the largest. Together, the top six banks in Canada control 80% of banking assets. While Royal Bank’s growth is in the U.S. market, the HSBC acquisition solidifies its position as Canada’s largest bank.
Yielding 4.5%, it’s an excellent way for American investors to generate higher income on their bank investment.
AI Remains a Big Focus
Nvidia (NVDA) is my medium selection because the chip stock provides a front-row seat to the global growth in artificial intelligence. However, even with the stock’s cooldown over the past month (-7.5%), it’s still up 203% year-to-date and 517% over the past five years.
It’s bound to have an even more significant correction in the weeks and months ahead. Isn’t it?
After all, from November 2021 highs ($315) to its October 2022 lows ($112), it lost 64% of its value. It could happen again.
But will it? The company’s Q2 2024 results announced in August were off-the-charts good.
Revenue in the second quarter was $13.51 billion, 88% higher than Q1 2024 and 101% above Q2 2023. Its Data Center revenue, which includes AI, was $10.32 billion (76% overall), 141% higher than the previous quarter and 171% better than a year ago.
That’s the top line. On the bottom line, it had a net income of $6.19 billion, 203% higher than Q1 2024 and 843% higher than a year ago.
Its free cash flow for the first six months of fiscal 2024 was $8.69 billion, more than 4x the amount from the same period a year ago. It could easily hit $20 billion for the entire year, more than 5x what it was in 2023.
There’s no way to candy-coat just how well Nvidia, the business, is performing right now. It’s exceptional.
As for Nvidia’s unusual options activity, I’m looking at a bit of an income play.
The Feb. 16/2024 $345 put expires in 141 days. If you sell the put, your premium is $11.60, an annualized yield of 7.0% based on the $432.31 share price. The Feb. 16/2024 $340 put has a bid price of $10.55 for an annualized yield of 6.2%.
From that perspective, you have to go with the first one. However, what happens if NVDA does go on that big correction? The net price of the $340 is $329.45, $3.95 less than the $345.
Those four bucks could be the difference in a market meltdown that takes Nvidia with it.
A Lot of Spice
Finishing with my hot selection is Palantir. I mentioned in the intro that the developer of data analytics software platforms for government and commercial customers had the most unusually active option on Thursday.
However, rather than the Oct. 27 $16 put, I like the Oct. 13 $16 put. It expires two weeks earlier, yet its bid price of $1 is only 21 cents lower. As a result, if you sell the Oct. 13 put, the annualized yield based on a $15.50 share price is 158.2%. In the money by 50 cents, you won’t be losing money unless it falls to $14.99.
Given Palantir is up nearly 10% in the past five days and 95% over the past six months, it is a stock that remains on a roll. Barring some unforeseen lousy news, its business is doing fine.
In yesterday’s news, William Blair analyst Louie DiPalma said that the $250 million, three-year contract awarded to Palantir by the U.S. Army on Tuesday was excellent news for its Q4 2023 results and into 2024.
“While this contract adds fuel to the argument that Palantir is more like a government service provider, this contract bodes well for Palantir's fourth-quarter and 2024 revenue,” Investor’s Business Daily reported DiPalma’s comments to clients.
Analysts are very mixed about the stock -- of the 20 that cover it, only four rate it a Buy or Moderate Buy with a target price of $15 -- which suggests they believe that all of the momentum gained by PLTR in the past year is likely to come to an end in the next 12 months.
Palantir has put together three consecutive quarters of GAAP profitability. Something tells me it continues throughout the remainder of fiscal 2023.
It’s a risky bet, but the rewards could be oversized.
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.
