High Put Option Volume Reveals Conviction in These 3 Stocks

Key Points

• When investors see large put option volumes, they mistakenly see the activity as potentially bearish. However, that's not the case with these three stocks.
• Investors are buying insurance on these names, looking to lock in their gains so far without having to sell yet.
• Wall Street analysts and fundamental investors see a double-digit upside left to be had in these stocks.

When it comes to measuring investor and market sentiment toward a stock or group of stocks, retail investors typically look to buying and selling activity. As revealing as this might be, it does come with a few caveats. These caveats can often cloud the real sentiment or reasoning behind participants doing what they do in the stock market. For example, buying a stock can be straightforward, meaning some profits are hoped to be had, though selling is a different story.

An investor might sell a stock as part of rebalancing a portfolio, for tax purposes, because they see a better opportunity somewhere and need the cash, or for a thousand other reasons. When it comes to selling, investors who assume that the implications are always bearish might miss the big picture. Today, a different sentiment comes through the options market.

Unusual put option activity has been spotted in three stocks. The implications are that these puts (which make money when a stock goes down) are not necessarily bearish but rather insurance policies against holdings that aren’t being let go of. This is the case for PepsiCo Inc. NASDAQ: PEP, Chevron Co. NYSE: CVX, and even Suncor Energy Inc. NYSE: SU.

Investors Get Defensive With Pepsi Stock

As one of the low-beta stocks in the market, not known for discounted prices or increased volatility, Pepsi stock and its current discount probably drove a lot of buyers into the stock. These same buyers then turned to put insurance options on their positions, a common risk management strategy.

As of January 2025, Pepsi stock reported up to 33,914 put option contracts, a 59% increase from its usual volume of 21,389. Investors need to understand the reasoning behind this recent activity so that they don’t blindly follow in these footsteps but actually explain the entire thesis behind the trade.

Now that Pepsi stock has traded down to 78% of its 52-week high price, it is officially in bearish territory, making it an undeniable buy target today. Those from Franklin Resources decided to boost their holdings in Pepsi stock by as much as 21.1% as of November 2024, bringing their net position to a high of $2.2 billion today.

More than that, shareholders can now access Pepsi Stock’s $5.4 dividend payout, which translates to an annual dividend yield of up to 3.8% to beat inflation in the United States as well. Ultimately, Wall Street analysts know that this discount won’t last long, particularly those from Deutsche Bank, who kept a $184 valuation on the stock as of December 2024 for a 29% upside from today’s stock price.

Energy Stocks Will Dominate 2025

Analysts at Goldman Sachs have said in their recent 2025 macro outlook report that, out of all commodities, oil is the one that poses the most upside potential for the year. Through this recommendation, investors can make sense of Warren Buffett buying up to 29% of Occidental Petroleum Co. NYSE: OXY during the past few quarters.

They can also understand the 54,357 put options bought in December 2024 for Chevron stock, a 52% increase from the typical 35,823 options volume. This stock has a lot more insurance puts attached to it for a reason: It trades at 92% of its 52-week high, so these buyers are looking to pay up to protect their bullish momentum.

By locking in their gains so far without having to sell the stock, investors are directly exposed to the 27% upside that analysts from the UBS Group have placed on Chevron stock as of December 2024, all through their recent price targets of $195 and a Buy rating to accompany them.

Despite its bullish momentum, though, Chevron stock still offers shareholders up to $6.52 in dividend payouts, which means an annual dividend yield of up to 4.25% today.

Suncor Stock Has Plenty of Upside Left

As part of the energy sector play that both Buffett and Goldman are now aware of, Suncor stock has earned its place as a must-have in investor portfolios today. This fact can be reiterated by the recent surge in put option volume for the stock, where 28,315 puts were purchased, a massive 2,998% increase from the typical 914 volume.

This amount of insurance volume in the stock can be attributed to the upside some Wall Street analysts think there is, such as those from the Royal Bank of Canada, which placed an Outperform rating on the stock as of January 2025, right along with a $66 a share valuation.

Suncor stock would have to rally by as much as 67.5% from where it trades today to prove these analysts right. It is no wonder investors are doing everything they cannot to relinquish their shares. These analysts weren’t the only ones willing to express their optimism on Suncor stock; however, a few institutional buyers also came in recently to buy.

These buyers include Sanders Capital, which boosted its holdings by 0.2% as of November 2024. While this may not sound like much on a percentage basis, the new allocation brought its stake to a total of $2.1 billion, or 4.6% ownership in the company.