7 Stocks to Watch Based on Unusual Options Activity

  • If you’re looking for companies that could surprise the market, these are the stocks to watch
  • ON Semiconductor (ON): Supply chain disruptions have clouded ON but bullish traders anticipate a near-term bump.
  • NCR Corporation (NCR): Though headwinds to the consumer economy hurt NCR, it’s become one of the stocks to watch due to bullish interest.
  • Freeport-McMoRan (FCX): One of the few stocks with unusual options activity that’s not surprising, inflationary pressures help FCX.
  • Beyond Meat (BYND): Hopes for a key partnership has led to BYND being one of the stocks to watch in the options market.
  • General Motors (GM): An earnings beat has sparked unusual options activity for the iconic automaker.
  • Snap (SNAP): Due to rumblings in the social media space, traders are betting on a quick bounce back.
  • Armour Residential REIT (ARR): One of the riskiest stocks to watch, some traders are nevertheless bullish on a housing comeback.
An electronic display shows the word "Options" next an upward green triangle.

Source: Shutterstock

Sophisticated analytical tools and market screeners can identify dynamics such as unusual options activity, thereby directing attention to intriguing stocks to watch. An option gives the holder the right to buy or sell the underlying stock at an agreed-upon price (called the strike). Notably, options contracts feature an expiration date.

Savvy investors realize the power of leverage that the options market provides.

Therefore, if traders are particularly bullish or bearish, they may acquire call or put options, respectively, that rise above normal trading volume. That’s what analysts refer to as unusual options activity and it can represent an incredibly powerful tool for deciphering which stocks to watch and potentially trade on.

The integrated technologies that allow you to monitor stocks are also available to everyone else. In addition, just because an options contract features unusual options activity doesn’t always mean that it will follow through with the dynamic’s implications. After all, some of the best analysts get it wrong.

Still, spiked volume outside trading norms is always noteworthy. In that sense, here are some interesting stocks to watch based on unusual trading activity.

ON ON Semiconductor $54.48
NCR NCR Corporation $31.88
FCX Freeport-McMoRan $41.84
BYND Beyond Meat $39.82
GM General Motors $38.75
SNAP Snap $28.81
ARR Armour Residential REIT $7.49

Stocks to Watch: ON Semiconductor (ON)

a machine manufactures semiconductor chips in a factory setting

Source: Shutterstock

An American technology firm, ON Semiconductor (NASDAQ:ON) is at the forefront of next-generation solutions, ranging from the electrification of transportation networks to industrial automation to the rollout of 5G and cloud-computing infrastructures.

Naturally, ON features significant synergies with the Internet of Things, as well as technologies geared toward healthcare and the aerospace/defense industries.

In any other circumstance, ON would be one of the stocks to watch due to its relevant profile. To be completely fair, ON stock performed remarkably since the spring doldrums of 2020. But so far this year, shares are down 27%, reflecting grave concerns about future supply chain disruptions as well as the geopolitical flashpoint in eastern Europe.

Still, many traders are optimistic about ON making a near-term recovery. Volume spiked more than normal for the $59 call option with an expiration date of May 6, 2022. At time of writing, ON closed the April 27 session at $51.21.

NCR Corporation (NCR)

The front view of an NCR Corporation (NCR) office in Prague.

Source: BalkansCat / Shutterstock.com

NCR Corporation (NYSE:NCR) bills itself as the world’s leading enterprise provider of software, hardware and services for banks, retailers, restaurants, small business and telecommunications.

Inflation has been a problem for the last several months. Prices have really started to escalate — particularly for energy — due to Russia’s invasion of Ukraine.

This conflict also imposes lost revenue-making opportunities due to a crimp in international travel. If that wasn’t bad enough, China’s policy against the coronavirus may create ripple effects throughout the world.

The backdrop translates to an erosion of consumer demand, as confirmed by NCR’s year-to-date loss of 23%. However, traders seem to be bullish on a recovery, with demand for $35 calls with an expiration date of July 15, implying a recovery.

Stocks to Watch: Freeport-McMoRan (FCX)

Freeport-McMoRan (FCX) sign on a Freeport-McMoRan office building in Phoenix, Arizona.

Source: MICHAEL A JACKSON FILMS / Shutterstock.com

Freeport-McMoRan (NYSE:FCX) commands an enviable global portfolio.

According to the company website, holdings  include the “Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; and significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.”

Unlike some other publicly traded securities that feature unusual options activity, it’s not difficult to understand why FCX has become one of the stocks to watch.

On the gold-mining front, the yellow metal enjoys significant relevance due to rising inflation and the prominence of the fear trade. For copper, it’s a crucial component for the rollout of electric vehicles, an issue that has taken on greater prominence because of its geopolitical implications.

So when volume spiked for the $49 call with an expiration date of Aug. 19, the options were only unusual in the mathematical sense. Clearly, many traders see inflation weighing on the markets and that would seem a reasonable bet.

Beyond Meat (BYND)

bynd stock

Source: Shutterstock

One of the fundamental catalysts for Beyond Meat (NASDAQ:BYND) is that you can have your meat and eat it too. The company has gained traction as an alternative for people who are cutting back on meat for health or ethical reasons.

Having tried the product myself after being a staunch critic, I was taken aback by how great it tastes. Still, the problem has always been the pricing structure.

Beyond Meat is often more expensive than the real thing. When you’re in an inflationary environment, people are looking to save money. Sure enough, the result is that BYND is nearly 39% year-to-date.

Still, at least one trader is making a strong bet with the $52 call option (with May 20, 2022 expiration).

Some fundamental justification exists in that Beyond is hoping its partnership with McDonald’s (NYSE:MCD) will eventually turn into a permanent menu-item fixture. Still, this is one of the highest-risk stocks to watch with unusual options activity.

Stocks to Watch: General Motors (GM)

Source: Jonathan Weiss / Shutterstock.com

Due to myriad factors affecting broader economic stability, the automotive sector has been struggling. General Motors (NYSE:GM) is no exception.

GM shares have lost nearly 37% year to date, making it one of the stocks to watch for dubious reasons. Sadly, the conflict in eastern Europe has also plunged the automotive sector specifically into a new supply chain crisis, per the Wall Street Journal.

So, it’s not terribly surprising that investors would have a dim view on GM stock. However, the underlying company pleasantly raised eyebrows when the iconic automaker’s earnings beat analyst estimates.

This stood in sharp contrast to concerns that have been dogging its competitors. But it’s also important to point out that GM is battling inflation pressures and supply chain disruptions like everyone else.

The road will certainly not be an easy one to navigate. Nevertheless, volume for the $43.50 call option jumped much higher than normal. It features an expiration date of May 13, 2022, implying a robust near-term move higher.

Snap (SNAP)

Snapchat (SNAP) application on android cell smartphone. Snapchat is a mobile messaging application used to share photos, videos, text, and drawings.

Source: dennizn / Shutterstock.com

Although a wildly popular platform with younger users, Snap (NYSE:SNAP) also plies its trade in an extremely competitive arena.

As yesteryear networks like MySpace can attest, social media can be fickle. If you don’t make the right moves or otherwise fail to have your finger on the pulse of (youth) society, you could be headed down the toilet in a hurry.

Now, I don’t want to speak ill about SNAP or other popular stocks to watch, recognizing the consequences to my inbox. Nevertheless, it must be said that SNAP is down nearly 42% year-to-date as I write this, indicating a severe loss of stakeholder faith.

Yet out of the blue, with Elon Musk buying Twitter (NYSE:TWTR) SNAP could be relevant.

While I don’t have the time to dive into all the nuances, the essence of the argument is that left-leaning individuals could leave the Musk-led Twitter. Thus, the unusually high volume for its $28 calls (with May 6 expiration) could be a reasonable bet.

Stocks to Watch: Armour Residential REIT (ARR)

Image of a man holding a key chain with a key and house attached to the key ring over a office desk in the background

Source: Shutterstock

In my view, Armour Residential REIT (NYSE:ARR) represents one of the riskiest stocks to watch that features unusual options activity.

According to Armour’s website, the company invests “exclusively in residential mortgage backed securities issued or guaranteed by a United States Government-sponsored entity.”

We’re talking about the institutions colloquially known as Fannie Mae and Freddie Mac.

To be clear, such guarantees reduce concerns about ARR stock, but by no means does it take away all of them.

For one thing, ARR is down 25% year to date. More importantly, it’s very difficult to see how the mortgage industry on balance can thrive in the current environment. Mainly, affordability has soured while mortgage businesses have been laying off thousands.

Despite the growing number of risk factors, volume for $7.50 calls with an expiration of July 15 have increased above normal levels. If you’re a bold contrarian, you may want to put ARR on your list of stocks to watch. Otherwise, this might be something to pass on.

On the date of publication, Josh Enomoto held a LONG position in FCX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/7-stocks-to-watch-based-on-unusual-options-activity/.

©2022 InvestorPlace Media, LLC