Top 3 Stocks with Explosive Call Option Activity: What to Watch

Key Points

• Betting on call options is a leveraged and specific way to take a bullish view of a stock, so investors must pay attention when volumes spike. 
• Three stocks recently reported a surge in unusual call options activity, justifying investor interest in potential upside moves.
• Wall Street analysts agree as they have boosted price targets on them recently, calling for a double-digit upside.

When considering a long position in a stock, investors usually consider buying shares in a company to express their views. However, they need to realize that there is a much more aggressive way to gain long exposure to a stock. This other way is through the options market, but there is, of course, a main caveat to participating in these products.

When buying options, investors need to correctly determine a stock's direction and the timing of the trade, or else risk losing 100% of the initial investment. Knowing this, when investors see unusual call options volume in any stock, the surge can be taken as a very strong view coming from a few investors willing to lose it all, as their confidence justifies the risk.

Today, three stocks have reported a spike in call option volume to show where the upside potential is being perceived in the markets today. These stocks are the SPDR Gold Shares NYSEARCA: GLD as a way to play the rallies left in gold prices, then there is a financial sector play through shares of Robinhood Markets Inc. NASDAQ: HOOD; finally, there seemed to be a breakout in interest for a healthcare sector view in Hims & Hers Health Inc. NYSE: HIMS.

Traders Bet on Gold Reaching a New All-Time High

Throughout the year, gold has repeatedly made new all-time highs, but this time, traders think there is one more rally in the making for the precious metal. It might all have to do with where the new business cycle is taking markets next.

As the Federal Reserve (the Fed) accepts that inflation for the United States might stay above its 2% target for a while, other nations like China have started to stockpile gold reserves ahead of potential dollar weakness. Given that gold, like many other commodities, is dollar-quoted, investors can expect it to go the opposite of where the dollar goes.

Interest rates are one of the main drivers of currency valuations, and now that the Fed has also cut interest rates at the most aggressive pace in 16 years, a bet on a weaker dollar could start to make sense. That is why some traders found room in their allocation budgets to invest in the gold ETF.

Knowing that this trend could accelerate in the coming months, Truist Financial decided to boost their holdings in this ETF by 5.2% as of August 2024, netting their investment at $95.3 million today, to show investors signs of institutional bullishness facing the upside potential.

Robinhood Stock Gains Attention with Double-Digit Upside Potential

Over the past couple of quarterly announcements, Robinhood has delivered impressive growth in all of its key performance indicators (KPIs), especially user growth and monetization rates. Now that the next earnings season is almost here, bets are off with the view that Robinhood will once again deliver satisfying results.

These call option traders weren't the only ones willing to share their optimistic views for Robinhood's future. Analysts at Bank of America decided to reiterate their "Buy" rating for the company, this time coupled with a $32 share price target.

To prove these new targets right, the stock would need to rally by as much as 24.5% from where it trades today and make a new 52-week high. Momentum favors Robinhood stock, and that's something else investors should take into account when reviewing a potential long position in the company.

Lower interest rates also mean lower yields on savings accounts at the big banks, so more and more people might look to Robinhood's platform and managed money products for an alternative chance at better returns on their savings and liquid capital.

This trend could significantly increase earnings, justifying the options trade and the recent price target boost.

Hims & Hers Stock Bounces Back After Misguided Sell-off

After investors thought that big healthcare name Eli Lilly & Co. NYSE: LLY entering the weight loss and GLP-1 market would have been trouble for Hims & Hers, worrying sentiment brought the stock down by as much as 43.4% from its previous highs.

Even though the stock swiftly recovered from part of the sell-off, rallying by 36.5%, it still trades at a mere 68% of its 52-week high, giving investors plenty of room to expect another recovery rally back to previous levels. This time, however, there is a clear catalyst that could close this gap for Hims & Hers stock, which is why option traders stepped in.

Reaching the size and quality requirements, Hims & Hers stock is now being added to the S&P 600 small cap index, which would require a mandatory investment and weighing by some of the broader exchange-traded funds (ETFs) out there such as MSCI Inc. NYSE: MSCI, effectively driving up demand for this stock.

As of August 2024, analysts at Needham & Co. initiated coverage on Hims & Hers stock, placing a “Buy” rating alongside a price target of up to $24 a share. This new call implies a direct upside of 28.3% from where the stock sits today, another reason to consider the validity of this new options trade surge.