There are many indicators I use when analyzing a stock. One indicator I look for are relatively cheap dividend stocks. Another strong indicator is insider activity in stocks, such as the ones described here. Finally, another indicator is looking at unusual option activity, as I recently brought up here, while some on Nov. 8 caught my eye below. Unusual option activity always catches my attention since options are generally a strong indicator to future movement as they provide great leverage for an investor.
Bank of America (NYSE:BAC) through its subsidiaries, provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally. There was particularly strong volume in the Dec 7 trading over 34,500 contracts and the Jan 9 trading over 31,000 contracts. There wasn't aggressive buying as they both moved little-- if any-- in price, so there wasn't any strong bullishness. However, some of the issues in Europe seem to soon be clearing up so buying these call options may be a worthwhile investment, or what I prefer in this case with such high premiums, selling the Dec 6 puts which had a huge 40,620 contracts trading as well at $.30 each.
Alpha Natural Resources (ANR), together with its subsidiaries, engages in the production, processing, and sale of coal in the United States. There was particularly strong volume in the Nov 23 and Dec 24 puts. I wouldn't see this as bearish, as they moved sharply lower and may in fact be bullish to investors looking to build a position and like ANR at that discounted price. The company has compelling value at .8x P/B, 14x forward P/E, and .6x PEG, but no real catalyst to buy it at these levels. I'm not particularly bullish on ANR, but think it would be wise to sell these puts if looking to build a position at under 24, since the company is under .65x P/B at that price and that's too cheap.
Morgan Stanley (NYSE:MS), a financial holding company, provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. There was an unusually high 4,582 Jan 14 puts trade, but not aggressively leading me to believe it was simple insurance buying. I wouldn't be short MS here at a trailing 11x P/E, forward 8x P/E, .6x P/B, and .9x P/S. In fact, with some of the uncertainty in the financial world clearing up, the Jan 16 puts selling for a $1.40 are worth selling if you are looking to be bullish on MS. That is a great premium, and holding MS at $14.6 is a great price if it happens to move below the strike price.
Ivanhoe Mines Ltd. (IVN) operates as an exploration and development company. There was astronomical volume of 5,802 contracts in the June 35 against only 13 open interest, indicating extreme bullishness as these are far out of the money. This company showed massive call buying before, and is a quality precious metals play.
International Paper Company (NYSE:IP) operates as a paper and packaging company with operations worldwide. There were an identical 3,807 contracts traded on the Jan 2012 20 and Jan 2013 23 calls, indicating the investor was rolling over his position rather than being long or short. Moreover, it looks to be a covered call where the investor is content holding on to IP and collecting the 3.7% dividend yield. I don't think that's a bad call for the conservative investor simply looking to keep pace with inflation as money in the bank is giving under 1%.
UnitedHealth Group (NYSE:UNH) provides healthcare services in the United States. The Dec 45 puts specifically had very strong volume of just over 12,000 contracts being sold aggressively against just 1,530 in open interest. This is a bullish position since the trader is content holding UNH under $45 and if it doesn't, he/she is still happy collecting the $1.35 premium. I recently wrote favorably about UNH's valuations, and still see that as the case with the stock having a trailing and forward 10x P/E, .9x PEG, .5x P/S and EV/S, and respectable 1.4% growing dividend yield. I'd sell the Dec $45 puts as well.
D.R. Horton (NYSE:DHI) operates as a homebuilding company in the United States. There was very strong option volume with the Nov 10 trading 22,712 contracts and the Dec 12 trading 18,178 contracts against only 475 open interest. This seems to be on the heels of Toll Brothers (NYSE:TOL) positive announcement earlier in the day ahd investors hoping for the same on DHI's upcoming earnings report on Nov. 11. This is definitely a suprise to me, but one quarterly report doesn't make a trend and I still see mREITs as the best way to play real estate.