3 Stocks with Unusual Call Option Activity and High Buying Volume

Key Points

• Call option buying activity usually means traders think a stock could rise to a specific price by a particular date.
• Three stocks reported unusual call option buying activity to show potential upcoming upside.
• Backed by solid fundamentals, analysts have also made their bullish cases public. 

When traders decide to bet on stock options rather than lay their capital into buying straight shares, investors must notice two main implications of trading options rather than shares. First, options have an expiration date and a strike price, meaning whoever buys an option needs to get the direction (and magnitude of a move) and the timing right in the trade.

So, when someone buys a call option—meaning they are bullish on the stock—the underlying stock needs to rally to the chosen strike price by the selected date; if these requirements are not met, then the trader will lose 100% of the capital laid out on the expiration date. For this reason, stocks that report unusual option call buying volumes call for investor attention any day.

But today is not any day; today, this options screener caught a volume breakout in stocks like Bank of America Co. NYSE: BAC, Nike Inc. NYSE: NKE, and even PayPal Holdings Inc. NASDAQ: PYPL. Each has its own merits for calling on trader attention, which could make for a potential buying opportunity for those willing to keep an eye out.

Why the Current Interest Rate Environment Favors Bank of America Stock

Financial stocks like Bank of America benefit from interest rate swings, such as the ones proposed by the Federal Reserve (the Fed) today. According to the CME's FedWatch tool, these interest rate cuts are poised to come as soon as September 2024, making the catalyst clear for traders to justify looking into Bank of America stock.

When and if interest rates are cut, the commercial side of the bank will experience additional volume and profits. Mortgage and credit card rates typically come down along with the Fed funds rate.

Because of this, those on the sidelines waiting to buy a home, due to 7.3% and higher mortgage rates today, might have their long-awaited opportunity to finance a new home at better rates.

More than that, these market cycles tend to shift much of the stock market’s sector performance. In simpler terms, this means rising volatility for the overall market, an opportunity for Bank of America’s sales and trading arm to see rising profits based on this volatility.

These trends have pushed analysts at Oppenheimer to boost Bank of America stock’s valuation to $46 a share. The stock would need to rally 18.2% from its current level to prove these analysts right.

Nike Stock Nearing a Bottom with Signs of Consumer Trend Recovery

After four months of disappointing data, the U.S. consumer sentiment index has finally reached a higher reading. Signs of a more optimistic consumer will definitely help consumer discretionary stocks like Nike, which is almost considered a commodity, just like a green Medusa cup from Starbucks Co. NASDAQ: SBUX.

Now that the stock trades at 78% of its 52-week high, Nike offers investors an opening to become a potential discount value play. Justifying recent call option buying breakouts also comes with analyst views for the stock.

Those at Robert W. Baird see this upside reaching as high as $125 a share for Nike stock, meaning it needs to rally by roughly 30.3% from where it trades today.

More than that, Nike’s price-to-earnings (P/E) ratio of 28.2x is the lowest it has been since 2017 (excluding COVID-19’s collapse). Today’s valuations are another pillar that these options traders may consider to determine whether laying out their capital to be exposed to the stock’s potential upside in the coming months is worthwhile.

Tied to the same trends benefitting Bank of America, Nike’s audience could also benefit from interest rate cuts, as cheaper financing rates and money in the economy will likely stimulate consumer activity.

Reignited Growth Paths Point to Future Upside Potential for PayPal

PayPal doesn’t need to become a growth stock to return to its fair valuation. Still, it doesn’t hurt for management to start exploring new ways to ignite shareholder growth.

Recently, the platform launched a new commerce-based advertising business to spark new revenue avenues for PayPal to expand its top and bottom-line finances. Knowing this, investors may say that today’s earnings per share (EPS) growth projections for 9.9% could be on the conservative end of the spectrum.

The company is also expanding its income stream by creating its own cryptocurrency on the Solana blockchain, which could allow for future seamless transactions and safety features. Of course, this would be an additional fee-based business or something similar.

Willing to prove PayPal’s fair valuation, analysts at Mizuho Financial Group saw fit to boost the stock’s price target to $90 a share. These valuations imply that PayPal’s fair value lies roughly 38% above today’s prices.

Over the past month, PayPal’s short interest has declined by 2.3%, showing that bearish traders are stepping out of the game and avoiding the potential losses that could come with shorting a stock as loaded with upside as PayPal.