When buying a stock, I've found historically that looking at options volume is a great indicator for one simple reason: They provide fantastic leverage for investors. Each contract allows for an investor the right to buy (a call contract) or right to sell (a put contact) 100 shares, meaning great leverage. Therefore, if I'm an investor and extremely confident about an upcoming earnings report, related news event, etc. I'd look to the company's options rather than just buying the common stock outright as I described here. These companies below had options volume that caught my eye on December 5.
Yahoo! (YHOO), together with its subsidiaries, operates as a digital media company that delivers personalized digital content and experiences through various devices worldwide. There was notably strong volume with the December 18 calls again as we recently described here, trading well over 15,000 contracts with aggressive buying denoting bullishness. Again, this looks to be a gamble with the numerous buyout rumors. So with such a short timeframe, this is only a buy for the most speculative investor.
Cisco Systems (CSCO) designs, manufactures, and sells Internet protocol based networking and other products related to the communications and information technology industry worldwide. CSCO had unusual options activity recently as we described here, and had well over 15,000 Jan 19 calls being bought aggressively. CSCO still trades at a relatively cheap trailing 16x P/E and low 10x P/E, 6.5x EV/EBITDA, 1.2x PEG, close to $30B in net cash, and decent 1.3% dividend yield. This is still a good holding and nice call option position to initiate.
Barrick Gold (ABX) engages in the production and sale of gold, as well as related activities, such as exploration and mine development. There was an unusual 5,000 Jan 2013 52.5 puts changing hands as investors looked for downside on ABX. I don't really see the bearish case against gold (GLD) and ABX with the Federal Reserve continuing to print money and global uncertainty. Moreover, ABX trades a relatively cheap 12x trailing P/E, 8x forward P/E, .3x PEG, and decent 1.2% dividend yield. I wouldn't partake in this trade.
JPMorgan Chase & Co. (JPM), a financial holding company, provides various financial services worldwide. I brought up recently the bullish case for JPM here and looks as though there was bullish options activity on Dec. 5 with more than 7,000 Dec 35 calls being bought aggressively. However, while I still think JPM has great value, I wouldn't advise buying a call option that is less than 10 days from expiring as anything can happen in such a short timeframe.
Legg Mason (LM), through its subsidiaries, operates as an asset management company worldwide. There was strong bearish activity with over 5,000 Jan 26 puts changing hands as investors bought the puts at the asking price denoting aggressive buying. LM announces earnings on Jan. 12, 2012 so looks as though investors are bearish on what we'll hear as consensus estimates have dropped estimates from $.38 90 days ago to the current $.31 mark. At a reasonable trailing 16x P/E, 12x forward P/E, .7x P/B, and 1.2% dividend yield, I think there are much better stocks to be short rather than LM and wouldn't do this trade myself.
H&R Block (HRB), through its subsidiaries, provides tax preparation, retail banking, and various business advisory and consulting services. HRB had a disappointing earnings report this past Thursday and looks as though investors are bearish now with very strong volume particularly in the Jan 2014 10 puts. I think HRB makes for a solid value holding now as the company is focusing just on their tax-preparation business and trades at a reasonably cheap trailing 14x P/E, 9x forward P/E, .9x PEG, and consistent 4% dividend yield. I wouldn't buy these puts.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.