High Call Option Volume: 3 Stocks to Keep on Your Radar

Key Points

• Three stocks have just reported a surge in call option activity, meaning the bets are off for rallies in the short term.
• Backed by fundamental tailwinds, financials, and analyst sentiment, investors should look into these surges.
• Price action aside, these stocks are filled with upside and technical momentum to bring new highs shortly.

Not many in the stock market know that there is another way to gain exposure to a stock other than buying a set amount of shares and calling it a day. Investors can get access to leverage relatively easily through options trading, but of course, there are caveats to these products—dozens. But to save investors time, only the two main ones will be covered.

First, the option buyer needs to get the direction of the underlying stock right. When buying a call option, investors will profit from the stock price rallying, and vice versa when buying a put option. Second, investors need to correct the timing of this directional move since options have an expiration date and will go to $0 on that day. Knowing that the stakes are higher when trading options, spotting unusual volume in these contracts is worthy of investors' attention.

Three stocks reporting breakouts in call option volume – remember, betting on a stock rally – came through this options volume screener. Starting with Chewy Inc. NYSE: CHWY, the pet consumer staples darling, Nike Inc. NYSE: NKE, the commoditized consumer discretionary brand trading at a discount today, and even Capital One Financial Co. NYSE: COF to bring in a rebound for the consumer financial sector.

Chewy Stock's Growth is Barking Up the Right Tree

Shares of Chewy stock are now trading at 67% of their 52-week high level, which could be enough to scare away options traders who rely on momentum to get their profit out of their positions, but that just wasn’t the case for this brand.

This surge in call options represented a total flow of $916,381 into these contracts, which, as investors already know, this amount carries a lot of leverage on top of it. Assuming that this bet is worth over $1 million in terms of Chewy stock’s potential upside in a relatively short period, investors should look deeper.

Wall Street analysts now forecast up to 60.9% earnings per share (EPS) growth for Chewy stock, which is above peers like Petco Health and Wellness Inc. NASDAQ: WOOF, as analysts still forecast negative EPS for the next 12 months. More than that, there are reasons to believe that Chewy stock’s discount is a function of a broader industry sell-off rather than a company-specific issue.

Whether the economy is booming or busting, pet owners are likely to always make room in their budgets for the family's furry members, and that’s where investors can gauge the stability and predictability of this company’s financials.

So much so that analysts at Wedbush recently boosted their price targets on Chewy stock to $35 a share from $28, reflecting their opinions for a 32% upside from where the stock trades today.

Why Nike Stock's Discount Is a Prime Opportunity for Options Traders

After reporting its second-quarter 2024 earnings results, Nike stock sold off by 25% the following week. Bearish traders justified this selloff by pointing out that Nike management quoted continued weakness in the Chinese consumer and lower-than-expected revenue guidance for 2024.

However, these options traders came in to challenge this view, as the company’s financials still look to be on the positive end of things. So, a $308,336 bet on the stock’s rebound rally was made. Analysts at Citigroup felt comfortable slapping a $102 share price target on Nike stock, daring it to rise by 38.9% from where it has fallen to today.

More than that, Nike’s largest shareholder (Wellcome Trust Ltd) boosted their stakes in the company by 10% as of July 2024, after the stock’s earnings selloff. This increase would bring the asset manager’s net investment up to $207.3 million today, in a vote of confidence for these option buyers to lean on.

If size is a proxy for market positioning, Nike takes the podium. The company’s $110.8 billion market capitalization stands above peers like Lululemon Athletica Inc. NASDAQ: LULU and its $36.4 billion size. Nike’s size alone can be enough factor for these traders to bet on a swift rebound in the stock.

Analyst Upgrades Attract Option Buyers to Capital One Financial Stock

Bank stocks recently announced their second-quarter earnings results, and Citigroup Inc. NYSE: C, J.P. Morgan Chase & Co. NYSE: JPM, and Wells Fargo & Co. NYSE: WFC all reported deteriorating consumer credit trends.

These banks showed investors that net charge-offs (delinquent loans) on credit cards are on the rise, as are their provisions or further declines in the consumer credit profile. So, why would this be good news for consumer credit stocks like Capital One Financial?

Because of the cycle itself, a deteriorating consumer environment is another reason for the Federal Reserve (the Fed) to consider cutting interest rates soon. According to the CME’s FedWatch tool, there’s over a 60% probability that cuts will be here by September 2024.

This means that consumers will now have access to lower rates on their credit cards and other loans, boosting the volume (and earnings) that companies like Capital One Financial may experience. Speaking of which, analysts at J.P. Morgan decided to boost their price targets for the stock to $155 a share, daring it to rally by 12% from where it trades today.

Jefferies Financial analysts took things a step further, as they felt comfortable boosting their price targets to $165 a share, or 19.2% higher than today’s price. Knowing that the consumer wave may be about to turn, short sellers bailed on their positions, as Capital One Financial stock’s short interest declined by 2.6% in the past month.