The last shopping weekend before Christmas and Hanukkah is upon us. It will be a wild weekend as shoppers search for those last-minute gifts. That’s the good news.
The bad news is that the federal government could shut down at midnight tonight. Suppose the impasse lasts more than a few days. In that case, millions of civil servants will go without pay, and the federal debt could balloon if Donald Trump’s demand for a two-year increase in the U.S.’s borrowing authority is included in a spending bill without cuts.
Because it’s expected to go down to the wire, the pre-market S&P 500 E-Mini futures are lower, as I write this within about half an hour until the markets open.
As I considered what to write about today, I realized it has been a while since I accounted for some of my recommendations based on unusual options activity.
With that in mind, here is a rundown of some of my November recommendations.
My niece graduated from Indiana, so I’ll cheer for the Hoosiers to beat Notre Dame tonight. Have an excellent weekend!
Lamb Weston Got Taken to the Woodshed
On Nov. 1, I discussed Lamb Weston’s (LW) significant unusual options actity, and how some big fish were buying 3,000 or 4,000 Dec. 20 $32.50 call contracts at a time.
Lamb Weston’s business faces a full-court press from activist investor Jana Partners, potentially putting the potato and French fry producer into play. At the right price, McCain Foods or JR Simplot could be interested.
While I didn’t recommend these calls, I highlighted the pros and cons of doing so.
Well, Lamb Weston reported less-than-stellar Q2 2025 results on Thursday. It missed revenue and EPS estimates, and its 2025 guidance was significantly below Wall Street’s expectations. This caused LW stock to decline 20% on the day. It’s now down 41% in 2024.
The Dec. 20 $32.50 call had a $47.20 ask price on Oct. 31. It closed that day at $77.69. The last trade was on Nov. 1 at $43.50. The latest ask is $31.80. Chances are the buyers rolled them over into February or later.
I’ll admit that my knowledge of rolling options over is limited at best, but it would appear that buyers would have lost money on the trade.
Yeti Holdings Gains But Not Enough for a Big Win
I discussed Yeti Holdings (YETI) on Nov. 7. The outdoor products maker had five unusually active options in trading the day before. Three strangles jumped at me: two with a Nov. 15 expiry and one today, Dec. 20. I went with the later DTE.
“I’m always keen to limit my cash outlay with options. However, thanks to the earnings report, I’m moderately bullish about Yeti’s near-term future through the end of the year, so I’d go with the Dec. 20 strangle and the additional month to get over $39.25,” I wrote in November.
Based on the information above, this trade likely will breakeven or close to it based on a net debit of $4.25 and a $35 strike price. Right now, it’s trading at $39.70, up 45 cents.
It’s not a win or a loss.
Planet Fitness Has a Shot at a Big Score
On Nov. 8, I discussed Planet Fitness (PLNT), America’s leading fitness club operator, with 2,637 locations in all 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
PLNT had the highest Vol/OI ratio on Nov. 7 at 86.50. That’s always going to get my attention.
“As I look at the past five years, I see an EBITDA margin of 45.7% in the 12 months ended Sept. 30, higher than at any other time in this period. Its return on assets is 6.7%, according to S&P Global Market Intelligence, the second-highest percentage in the past five years, trailing 2019, by 290 basis points, so its operations aren’t perfect, but reasonably sound,” I wrote.
Although it had three unusually active call options, I liked the Jan. 17/2025 $100 call because it had extra time until expiry and a high Vol/OI ratio. The ask price was $2.70.
Four contracts traded on the Jan. 17/2025 $100 call this morning. The ask price is $3.70, $1.00 (37%) higher.
With 28 days to expiration, there’s still plenty of time to make even more on the trade. It’s a win in my books.
My Experiment With Procore Was a Success
My wife runs a small construction company, so writing about Procore Technologies’ (PCOR) unusual options activity on Nov. 14 was a no-brainer. The construction software company recently reported reasonably good Q3 2024 results, so I was intrigued.
In the previous day’s trading, Procore’s Dec. 20 $80 strike had a Vol/OI ratio of 35.52. The volume for this call accounted for 81% of Procore’s total options volume that day, which was 10x its 30-day average. Somebody was sniffing around.
As I said in my commentary, I’ve been developing a system for buying good stocks. This system includes selling call and put options to earn income and potentially gain a better entry point into stocks.
So, in addition to buying 100 shares for around $73.42, I suggested selling the Dec. 20 $80 call and Dec. 20 $60 put for $1.85 in premium income.
As I write this, the share price is $75.97, $2.55 higher than in mid-November. The $80 call will remain out of the money, and the same applies to the put.
The $1.85 income generated a 2.5% return [$1.85 / $73.42 share price]. Annualized, that works out to 24.7%. I’ll take that.
ELF Is Anything But Beautiful
Over the past five years, E.L.F Beauty’s (ELF) stock has gained 709%, more than eight times better than the S&P 500. However, it’s fallen back to earth in the past year, down 11%.
The maker of reasonably-priced makeup and skincare products got hit by a Nov. 20 speech from short specialist Muddy Waters at the Sohn investment conference in London. Waters suggested that the company had overstated its revenues by as much as $190 million over the past three years.
The news initially sent its shares down by 16% on Nov. 20, but they recovered and closed down by just 2.2%. The company refuted the short’s allegations. The shares have been on a wild ride in the 21 trading days since, hitting a high of $147.33 on Dec. 9, falling back to yesterday’s closing price of $129.09, up $10 from a month ago.
Due to Waters' allegations, ELF had an options volume of 163,417 on Nov. 20, almost seven times its 30-day average. The unusual options activity suggested a bull or bear call spread was in play.
“The bear call scenario reminds me of the person who lays down a $10 bet on the most heavily favored horse at the Kentucky Derby to finish in a show (3rd position or better). While it’s likely to be in the money, the payoff is inconsequential,” I wrote on Nov. 21.
There were also strangles available.
Of all the bets available, I liked the Long Strangle buying the Dec. 20 $110 call and $95 put. It’s the bottom two.
Your net debit on this bet was $18.95. That’s an upside breakeven of $126.30 and a downside breakeven of $92.35. Above that, you’re making money. As I write this, ELF is trading at $130.63, 22.8% higher than the net debit. That’s an annualized return of 277%.
It will probably close lower than where it’s currently trading, but it will likely be a decent-sized win.
