3 Consumer Stocks Call Option Traders Are Betting Big On

Key Points

• Call option traders have recently focused their attention on these consumer stocks, leaving investors with a strong thesis to support.
• With Wall Street analysts and institutional buyers agreeing on further upside after recently bullish momentum, these picks are at the top of my mind.
• Fundamental themes in the underlying justify the aggressive option transactions.

There is a big difference, a massive one, between buying shares of stock as investors attempt to profit from their rising prices and seeking exposure to this underlying move by applying leverage. The most common form of leverage retail traders implement in their portfolios is margin, or borrowing money from their brokerages, which is often not the greatest choice.

A better way to have access to leverage is to trade stock options, contracts that fluctuate a lot more aggressively as the underlying stock that they cover starts to make a move. There is one main caveat to these products, and that comes through the timing element, as if investors don’t just have to get the direction of the stock but also the timing of the move correct; otherwise, they risk losing 100% of the premium paid for the contracts traded.

This is why a list of names that call option traders decided to get aggressively into recently can be useful for investors, as they now understand that many traders are confident in both the direction and timing of a move in the underlying. Today’s considerations include the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP, shares of American Express NYSE: AXP, or even Capital One Financial Co. NYSE: COF.

Why Safer and Stable Names Will Dominate

According to analysts from Goldman Sachs, in their 2025 macro outlook report, there are many tail risks present for the broader S&P 500 index and its stock constituents. This essentially means that they see some downside risk due to high valuations, and that would make perfect sense in today’s trading activity.

If and when volatility comes around in the form of an index decline, the safer and more stable names in the market will call for more attention and capital moving forward, which is why just over 4,000 call options were traded during late January 2025 on this defensive index.

It might very well mean that traders are becoming bullish on some of the stocks that make up this index, such as PepsiCo Inc. NASDAQ: PEP or Coca-Cola Co. NYSE: KO, but chances are that these traders are starting to bet on the safety that the index provides amidst potential economic uncertainty on the horizon.

This is one place for investors to either find shelter in case volatility comes around or start drilling deeper for specific stocks that, through their defensive natures, could provide a favorable risk-to-reward ratio as well as stable and strong fundamentals.

Expanding on Protective Views with American Express Stock

Few stocks do as much justice as American Express when it comes to protecting against downside volatility. This is not only an international consumer credit name with the scale and reach to weather most economic storms, but the company's selective model gives it the sort of moat that every investor wishes to support.

Knowing that this moat and protective layer is present, traders may have considered the stock's low beta of 0.5 to be half as volatile as the broader S&P 500. More than that, given that the stock trades at a new 52-week high, investors can safely assume that the broader market is already giving this name its fair share of bullish attention.

That might explain why up to 19,916 call options were traded recently, a 36% increase from the stock's average level of only 14,641. This sudden surge in trading activity might signal to retail investors that confidence in this company's future is on the rise, but these traders weren't the only ones willing to express their optimism.

Institutional buyers from Swedbank also decided to boost their holdings in American Express stock by 0.4% as of late January 2025. While this may not sound like much on a percentage basis, the new allocation did bring the group's position to a high of $121.8 million today, giving investors another bullish pillar to lean on.

Improving Credit Profiles Boost Capital One Financial

The first quarter of 2025 has brought a positive message out of banking earnings, which showed improvements in consumer discretionary profiles, which can be taken as a bullish sign for companies involved in that space, such as Capital One Financial, a stock that now trades at a new 52-week high for a reason.

That reason is already being taken to the bank by options traders, who recently bought up to 25,831 call options, translating into a 159% boost from the company’s usual 9,972 options volume. As with these other stocks, traders weren’t the only ones willing to start showing their optimism for the company.

Analysts from the UBS Group decided to place a buy rating on Capital One Financial stock as of January 2025. This time, however, they kept a $235 valuation for the stock. This new view calls for up to 16% upside from where it trades today, not to mention a new 52-week high to give investors the timing and momentum they need to start the year.