When buying a stock, I've found historically that looking at options volume is a great indicator for one simple reason: options provide fantastic leverage for investors, and the stronger the volume the stronger the conviction. Each contract allows an investor the right to buy (a call contract) or right to sell (a put contact) 100 shares-- meaning, if a stock currently costs $20/share but the call premium is only $1, this gives the investor 20-to-1 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 9.
JPMorgan Chase & Co. (JPM), a financial holding company, provides various financial services worldwide. JPM had unusual options activity that we brought up recently here. On Dec. 9 there seemed to be more bullish activity as investors aggressively bought over 8,500 Feb 35 calls, roughly twice the open interest. The company still looks relatively cheap at a trailing and forward 7x P/E, .7x P/B, .8x PEG, and 3% dividend yield. JPM is a nice holding.
Career Education Corporation (CECO) operates colleges, schools, and universities that provide educational services in career-oriented disciplines primarily in the United States. There was strong options activity with over 7,000 Dec 7 calls being bought aggressively against only 269 in open interest. A lot of these for-profit education stocks have been beaten this past year, experiencing a combination of declining enrollment and numerous lawsuits. However, CECO looks too cheap now at just a trailing 3x P/E, 7x forward P/E, .2x P/S, .1x EV/S, .5x P/B, extremely low .2x EV/EBITDA, and almost $6/share in net cash with virtually no debt. I can see the value and agree that the stock is nice long here.
Rowan Companies, Inc. (RDC) provides onshore and offshore oil and gas contract drilling services in the United States and internationally. There was bullish options activity with 2,115 Dec 33 calls being bought aggressively against only 130 in open interest. RDC looks to have some attractive valuations at just a 5x trailing P/E, 9x forward P/E, .9x P/B, and likely increased earnings, as energy prices have started to surge again. RDC is decent stock.
Ford Motor Company (F) primarily develops, manufactures, distributes, and services vehicles and parts worldwide. We recently brought up bullish activity regarding F here. It looks as though there was more bullishness on Dec. 9, with investors buying almost 15,000 Dec 11 calls aggressively. F still looks attractive at under 7x P/E, .3x P/S, .8x EV/S, and the company is not reinstating its dividend at just under 2%.
Sprint Nextel Corporation (S), through its subsidiaries, offers wireless and wireline communications products and services to individual consumers, businesses, government subscribers, and resellers. There was strong activity in the Dec 2.5 puts with almost 36,000 contracts changing hands, but it didn't seem bearish as they were trading considerably lower. This most likely indicates these investors are bullish and using this as a cost-effective way of getting long. We agree that S has some interesting value.
Bank of America Corporation (BAC), through its subsidiaries, provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments. Almost 10,000 Jan 2014 7 calls changed hands, indicating people are bullish well into the future regarding BAC. BAC recently had other bullish activity, but I still find the company's balance sheet and prospects too opaque. This is more of a speculative play with the current financial mess.
LDK Solar Co., Ltd. (LDK), together with its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. LDK recently experienced some bullishness, but there were over 25,000 Mar 3 puts changing hands on Dec. 9 against just over 1,200 in open interest. This looked bearish, as they were being bought aggressively. However, it's hard for me to go short with a company trading under 7x P/E, .2x P/S, .5x P/B, and already beaten down considerably.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.