Rating the Top 4 Unusually Active Call Options From Thursday’s Trading

It’s Friday, the final day of the trading week. TGIF.

As I write this in late morning trading, the major indexes are down more than 1%, with the Dow at a two-month low. According to Barchart reporting, investors are moving to risk-off assets as tensions rise in the Middle East. 

Other items nagging investors include weaker-than-expected bank earnings from bigger banks, including JPMorgan Chase (JPM), concerns over Chinese trade, and news that the Chinese government has asked domestic telecoms to replace foreign chips in their networks by 2027. 

Unless something changes in afternoon trading, it looks like a losing week for investors.

In Thursday’s options trading, the top four call options by Vol/OI ratios averaged 52.25, which seems low in my experience. Some days, I’ve seen multiple options with ratios over 100. 

Nonetheless, on Fridays, I write about unusual options activity, so here are my thoughts on yesterday's top four unusually active call options. 

Have an excellent weekend!

Frontdoor 

Frontdoor (FTDR)offers home service plans under the American Home Shield, HSA, Landmark, and OneGuard brands. 

The May 17 $35 strike had a volume of 11,028, 108.12x its open interest. In total, the FTDR options volume on Thursday was 21,270. The next highest daily volume was 8,396 on Aug.24, 2023. It hasn’t been over 1,000 since November. Something’s going on. 

I don’t see any news that explains the sudden interest in the company’s stock. 

According to data from yesterday, there was a trade for the $35 strike of 10,000 at $0.50 at 2:28 p.m. That’s a down payment of just 1.4% with 35 days to expiration. With a delta of 0.22698, the buyer could double their money by selling before expiry if the shares appreciate by $2.20 (7.2%) over the next five weeks. 

Frontdoor reports its Q1 2024 results on May 2. If they’re halfway decent, this could be a slam dunk despite the strong sell rating from the Barchart Technical Opinion.

While there is no question that FTDR stock's trend in 2024 is down, the company’s business appears to be in good shape heading into earnings.

Rating: 8/10

Galectin Therapeutics

Galectin Therapeutics (GALT)is a drug development company developing new therapies for fibrotic disease (tissue scarring) and cancer.  

The July 19 $5.00 strike had a volume of 10,213, 41.35x its open interest. GALT’s options volume on Thursday was 10,593, meaning that particular call accounted for 96% of the daily volume.  

Yesterday, there were five trades of the July 19 $5.00 strike. One of them was 9,998. It occurred at 10:04 a.m., early in the day’s trading, at $0.25 a contract. That’s a down payment of just 5.0% with 98 days to expiration. 

With a delta of 0.44876, the buyer could double their money by selling before expiry if the shares appreciate by $0.56 (13.3%) over the next 3.5 months.  

The company’s shares are up 130% year-to-date, so anything’s possible. However, it has no revenue and is losing about $40 million annually developing its Belapectin complex carbohydrate drug in Phase 2b/3 clinical trials.

Rating: 6.5/10

KKR & Co.

KKR & Co. (KKR) is one of the world’s largest alternative asset managers. It finished 2024 with $553 billion in assets under management. 

The April 26 $110 strike had a volume of 14,897, 40.81x its open interest. The investment firm’s options volume on Thursday was 18,484, the highest daily amount since Feb. 2. 

According to data from yesterday, there was a trade for the $110 strike of 13,389 at $0.20 at 3:29 p.m. That’s a down payment of just 0.2% with 14 days to expiration. With a delta of 0.07507, the buyer could double their money by selling before expiry if the shares appreciate by $2.66 (2.6%) over the next two weeks. 

KKR’s shares are up 21% YTD and 322% over the past five years. KKR stock has only had two significant downturns over the past 60 months -- Feb/March 2020 and a more prolonged, deeper correction from Nov. 2021 to Sept. 2022 -- so it’s not inconceivable that its stock will keep going higher in the near term.

Analysts love this stock—16 cover KKR, rating it Strong Buy (4.81 out of 5) with a mean target price of $98.53 —and so they should. It’s an excellent business. 

Rating: 8.5/10 

Capri Holdings

Capri Holdings (CPRI) owns and operates the Michael Kors, Jimmy Choo, and Versace luxury brands. The company’s share price has been hit in 2024, down more than 20%. 

Investors are concerned that regulators won’t approve its sale to Tapestry (TPR), the owner of Coach, Kate Spade, and Stuart Weitzman, for $8.5 billion, or $57 a share. The stock currently trades under $40.

European Union regulators are expected to make a ruling any day now. That has a lot to do with the unusual options activity.    

The May 17 $40.00 strike had a volume of 12.470, 40.49x its open interest. The luxury brand owner’s options volume on Thursday was 100,885, so investors weren’t just looking at the May call. The day before, the volume was also high, at 72,696. Its 30-day average volume is 18,527. It’s up by double that on Friday. 

According to data from yesterday, there were three trades of 5,000 for the $40 strike, all at $3.50 around 3:25 p.m. That’s a down payment of 8.8% with 35 days to expiration. With a delta of 0.58964, the buyer could double their money by selling before expiry if the shares appreciate by $5.94 (14.6%) over the next five weeks. Considering its shares traded at $35 when Tapestry made the offer last August, this bet doesn’t appear to have too much downside. 

If you’re an M&A arbitrage player, these calls make total sense.   

Rating: 9.0/10