It’s Friday. Who's ready for the weekend? I sure am.
As I write this, two hours into the trading day, the S&P 500 and Nasdaq 100 are flat. Neither index would finish in positive territory for the week at this rate.
On Fridays, I like to discuss multiple stocks with unusual options activity. Given that my fantasy football draft is tomorrow—early, I know—I thought I’d focus on stocks that are NFL official partners.
To be included in this exercise, a stock must have unusual options activity (a Vol/OI ratio of 1.24 or greater and expiring in a week or later) and provide investors with an opportunity to generate $1,000 in income by opening kickoff.
Have an excellent weekend!
Who’s Eligible?
God forbid the NFL makes it easy to find its league-wide sponsors. However, the NFL’s UK site lists its partners, so I will find my unusual options activity from this list of 12 companies.
To be considered, they must trade on a U.S. exchange. That reduces my list to seven companies: Anheuser-Busch InBev (BUD), Diageo (DEO), FedEx (FDX), La-Z-Boy (LZB), Marriott International (MAR), Microsoft (MSFT), and Visa (V).
I like most of these businesses, so it’s a list I can work with.
Visa
As I scan Friday’s late-morning trading, I see that the transaction processor has six unusually active options.
I’m looking to generate income in one of two ways: 1) premium income from selling puts and 2) gains from buying calls and selling them before expiry.
The three puts with the highest Vol/OI ratios all look interesting. All three expire before the end of August, long before kickoff. The trick here is selling the put that ensures you don’t have to buy its stock. Easier said than done. Visa stock is down nearly 6% in the past six months and Barchart’s Technical Opinion in the short term is a Strong Sell.
Analysts generally like its stock. Of the 34 covering it, 29 rate it a Buy (4.59 out of 5) with a target price of $303.44, 17% where it’s currently trading. It is expected to earn $9.91 a share in fiscal 2024 (September year-end) and $11.08 in 2025. It trades at a reasonable 23.5x the 2025 estimate.
Of the three puts, two (Aug. 16 $262.50 and Aug. 23 $262.50) are both in the money, while Aug. 23 $257.50 is slightly out of the money. That’s the one I’d go with.
The 25.3% annualized return would put $253 in your jeans should the price remain above $257.50 for the next two weeks. Should you have to buy 100 shares, your net price of $254.97 is a decent entry point to own the stock long-term.
Microsoft
While the exercise here is to generate near-term income, there could be many worse things than owning Microsoft for the long haul. Over the past five years, it’s gained nearly 194%, 38% higher than the Nasdaq 100.
As I write this, I see five unusually active options, none of them with particularly significant volume or open interest. Three are puts, and two are calls. I’ll start with the puts first.
The goal is to generate $1,000 in income by Sept. 5. Since we’re down to two stocks that must deliver $747 in income, the Aug. 16 $402.50 put is the one to do the job.
The put is slightly out of the money. It has a Vol/OI ratio of 1.28, with an annualized return of 63.6% if you sold the put. More importantly, it gets us $495 closer to our $1,000 goal.
The risk here is that Microsoft is one of the Magnificent 7. There has been a rotation out of Mag 7 stocks in recent weeks. MSFT stock is down 13.7% from its early July 52-week high of $468.35. The rotation out of Microsoft may continue into the fall.
The good news is that the Barchart Technical Opinion is only a Weak Sell, not a Strong Sell, which could keep the stock from falling below $400.
To reach $1,000, the final of three stocks would need to generate $252 in income. Neither of the MSFT calls would do the job.
Marriott International
Marriott International is the third and final unusually active option to use to generate $1,000 in income by the start of the NFL season. The remaining five stocks offer slim pickings, but fortunately, one is all we need.
The Aug. 30 $210 put is out of the money by 3.3%. The hotel chain hasn’t had a good run over the past month. Its stock is down nearly 9% and 15% since hitting a July high of $255.33 on July 17. The Barchart Technical Opinion for the short term is Sell.
Most of the damage was done after Marriott reported Q2 2024 results, including lower guidance for the year due to a soft market in China and a weakening business environment in the U.S. and Canada.
If you read the entire press release, the report's tone was still quite positive. It will still grow RevPAR (revenue per available room) in 2024 by 3-4% and net rooms by 5.5-6.0%, returning $4.3 billion to shareholders through dividends and share repurchases.
“With a membership base of over 210 million members and growing, Marriott Bonvoy is a key competitive advantage. We remain focused on enhancing the loyalty program's benefits and finding new ways to engage with our members both on and off property,” stated CEO Anthony Capuano in its Q2 2024 press release.
As for the put, it provides an annualized return of 19.1% and, more importantly, $245 in income before the end of August, bringing the income generated to $993. This is $7 short of our goal, but still a decent effort nonetheless.
Just so you know, selling puts is not for the faint of heart. Should the share price fall below the strike price, your losses are unlimited.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
