3 Stocks With Unusual Call Option Activity

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stock with unusual options activity

Key Points

  • Call option buying sprees in these three stocks could point to higher prices, and traders could be justified. 
  • Buffett is behind Pulte's construction boom, and a takeover bid could send Spirit AeroSystems higher.
  • Hims & Hers Health stock just reaced profitability, and analysts think EPS could still be higher.
  • 5 stocks we like better than Citigroup

When traders stampede into call options, it typically means they expect an event to come, pushing the underlying stock higher soon. Because options expire at a given date, these traders must get their thesis right before expiration or risk losing their entire investment.

Today, three stocks show unusual call option activity, which could lead investors to reverse engineer these decisions and find out why stocks like Spirit AeroSystems Holdings Inc. NYSE: SPR, Hims & Hers Health Inc. NYSE: HIMS, and even PulteGroup Inc. NYSE: PHM can outperform the market in the coming months.

While part of entirely different industries, these stocks share one common tailwind created by the Federal Reserve (the Fed) and the potential interest rate cuts that could hit the market as soon as May or June 2024. Investors can watch trader expectations of these cuts following the FedWatch tool at the CME Group Inc. NASDAQ: CME.

All Part of One Machine

Because the Fed could cut interest rates later this year, analysts at The Goldman Sachs Group Inc. NYSE: GS expect a breakout in the U.S. manufacturing sector, so fat, they have been right in their 2024 macro outlook report.


According to export readings, which expanded by 6.4% in the February ISM manufacturing PMI index, foreign nations expect a lower dollar to make American goods more attractive for purchase.

Increased economic activity is synonymous with job creation and rising corporate earnings, which is where Warren Buffett expected a construction boom as he bought stocks like PulteGroup. In the Medical field, 66,700 jobs were added last month, when the entire economy created 275,000 jobs in total.

A hiring spree could help stocks like Hims & Hers, and a construction boom may be one of the reasons traders sided with Buffett in his PulteGroup play, but what about Spirit?

Spirit AeroSystems: A Special Situation

After a recent scandal regarding a Boeing Co. NYSE: BA 737 MAX 9 incident, media outlets blamed Spirit for a faulty piece of equipment.

However, Boeing quickly realized that the company wasn’t really at fault but rather a factory in Malaysia. Looking to lock in one of its most considerable supplies, Boeing is now ‘in talks’ to create a takeover bid and buy Spirit, news that sent the stock on a 25% rally in March 2024.

While still speculative ‘talks,’ chances are that Boeing could actually pull through with an offer. Now that airline stocks like Southwest Airlines Inc. NYSE: LUV provided lower guidance for the year due to delays in Boeing jet orders, the company may look to consolidate its supply chain and avoid further conflicts.

In January 2024, analysts at Citigroup Inc. NYSE: C saw a valuation of up to $39 a share for Spirit stock. Considering this price target still stands today, investors could expect Boeing to send an offer around that valuation, which is 11% higher than today’s prices.

Wall Street wants to see 466% earnings per share (EPS) growth from Spirit this year, which could still make Boeing reconsider an even higher bid. In either case, the evidence stacked up for traders to justify a call option buying spree.

Hims & Hers is On Its Way

After reporting its first profitable quarter, Hims & Hers stock rallied hard, but traders believe it can rally even harder. After a run of up to 85% since the earnings announcement, the stock could be positioned to keep delivering the type of results that other medical stocks just can’t provide.

Known for being low-beta, medical stocks typically don’t move that much. Because it is a $3.4 billion company, Hims & Hers could carry a much higher ceiling now that the company has proven to be profitable in the marketplace, especially so with analysts projecting 130% EPS growth this year.

Compared to the sector, Hims & Hers stock trades at a price-to-book ratio of 9.8x, a 177% premium to the 4.5x multiple seen in the sector. There must be a good reason for investors to be willing to overpay for the stock’s book, and that reason could be expected future growth now that the company reached profitability.

Citigroup analysts see the stock going higher to $16 a share, where before February they only had a $12 valuation. Now that the company is delivering on its promises, investors could expect to see even higher price targets ahead, supporting their call option positions.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Spirit AeroSystems (SPR)
2.8069 of 5 stars
$32.90-0.1%N/A-5.43Hold$31.39
Hims & Hers Health (HIMS)
3.3361 of 5 stars
$11.88-0.2%N/A-108.00Moderate Buy$14.85
PulteGroup (PHM)
4.825 of 5 stars
$107.02+1.5%0.75%9.12Moderate Buy$106.47
CME Group (CME)
4.5576 of 5 stars
$215.48+1.1%2.13%24.29Hold$215.70
The Goldman Sachs Group (GS)
4.5539 of 5 stars
$417.44+3.3%2.64%16.30Moderate Buy$434.93
Southwest Airlines (LUV)
4.1823 of 5 stars
$29.73+1.2%2.42%39.64Hold$31.82
Citigroup (C)
4.913 of 5 stars
$60.97+3.1%3.48%18.04Moderate Buy$62.91
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Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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