As I write my latest installment of Unusual Options Activity, it is early afternoon on the last day of the trading week. Here comes Labor Day weekend.
The S&P 500 is up almost 1% on the day after the U.S. nonfarm payrolls rose 315,000 in August, 17,000 higher than expected. The options volume through half a day’s trading is 548,106, well off the 30-day average daily volume of 2.1 million.
I guess investors are off early to enjoy the last long weekend of the summer.
For this installment, I’m looking to play the long game highlighting three attractive call options from three different sectors expiring more than 100 days from now.
Cameco - Basic Materials
The Cameco (CCJ) Dec. 16 $31 call option contract has a volume of 22,527 on the day, 61.38x the open interest. The ask is $3.25 for a breakeven of $34.25, 18% higher than where it’s currently trading. With 105 days until expiry, the $325 premium doesn’t seem like a huge risk.
My biggest want-to-know is about the options volume on this call contract. Is it hectic because of something company-related that’s got investors interested, or is there something more macro playing into the current bullish sentiment?
A little of both, it appears.
Cameco is one of the world’s largest uranium producers of uranium, the fuel that feeds nuclear power plants. Japan recently announced that it would restart seven nuclear plants starting next summer to bring the number in operation to 17 of the 33 that were idled after the Fukushima disaster in 2011.
As part of its plans to increase its nuclear power capabilities, Japan is exploring the construction of brand new reactors as part of the country’s move to green energy. As Yahoo Finance points out, “Uranium industry experts say the trend will tighten a market where production is already below demand.”
That’s excellent news if you’re already a Cameco shareholder.
The company reported healthy Q2 2022 results at the end of July, including a 55% increase in revenue to CAD$558 million, while its adjusted net earnings for the quarter were 290% to CAD$72 million.
As a result of its strong quarter, Cameco raised its outlook for 2022. It now plans to deliver between 24 and 26 million pounds of uranium, up from its previous guidance of 23-25 million. In terms of revenues, it expects at least CAD$1.73 billion.
With Japan’s announcement last week, there is no question Cameco will be busy for the rest of 2022 and into 2023.
Starbucks - Retail/Wholesale
The call volume for the Starbucks (SBUX) Dec. 16 $100 call option isn’t high at just 1,501, 2x its open interest. However, with a reasonable ask price of $1.23, and a breakeven just 21% higher than where it’s currently trading, I believe the recent news from the company ought to get Starbucks’ share price moving in the right direction.
On Sep. 1, Starbucks announced the appointment of a new CEO after several months of searching for former CEO Kevin Johnson’s replacement. Johnson stepped down in March after five years in the top job.
The new CEO is Laxman Narasimhan, who joins the world’s largest coffee retailer after more than three years of turning around the fortunes of UK-based Reckitt Benckiser (RBGLY). Before taking the top job at the company known for brands such as Lysol, Clearasil, and Enfamil, Narasimhan served in executive capacities with PepsiCo (PEP).
SBUX stock hasn’t had a good year. It’s down more than 32% year-to-date.
Its business seems to be holding up despite the turmoil surrounding Howard Schultz’s third time back running the company he helped build into a coffee powerhouse.
In the third quarter ended July 3, the company’s same-store sales increased 3% over last year, driven by a 9% increase at its North American stores, offset by a 44% decline in China due to Covid-19 lockdowns. Its non-GAAP earnings fell 15 cents over last year to $0.84.
However, the analyst estimates for fiscal 2022 and 2023 earnings are $2.88 and $3.40, respectively, according to Barchart.
I believe that Schultz has found an excellent candidate to take Starbucks to the next level. That’s good news if you’re considering buying SBUX stock or options.
Technology - Pure Storage
If you’re like me and a bit technically challenged, it’s okay if you think Pure Storage (PSTG) is a self-storage company. However, in reality, the company’s Storage-as-a-Service (STaaS) storage solutions help businesses of all sizes more efficiently handle their data storage needs.
The company’s Jan. 19/2024 $30 call has a $7.00 ask price. Based on its current share price of $29.01, it’s got 504 days to appreciate 28%. That seems more than doable.
Over the past nine quarters through Q2 2023, Pure Storage has grown its Remaining Performance Obligations (RBOs) by $543 million to $1.5 billion as of Aug. 7. The company’s subscription annual recurring revenue (ARR) at the end of Q2 2023 wad $955.3 million, 31% higher than a year earlier. More importantly, it generated a GAAP profit of $10.9 million in the quarter, a considerable improvement from its $45.3 million loss a year earlier.
It finished the second quarter with more than 10,500 customers and 56% of the Fortune 500. In Q2 2023 alone, it added more than 350 new customers.
On a non-GAAP basis in fiscal 2023, it expects to generate nearly $400 million operating profits from $2.75 billion in revenue.
According to Barchart data, 11 out of 15 analysts rate PSTG as a strong buy. That’s up from a moderate buy three months ago. It has a $36 mean 12-month target price, essentially the breakeven on the $30 call.
More Options News from Barchart
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