There was a lot of news on GSK-Unilever over the weekend. I happened to think this one sentence was the most interesting:
“GSK said it had received three bids from Unilever, the latest on Dec. 20 comprising 41.7 billion pounds in cash and 8.3 billion pounds in Unilever shares, which failed to reflect the intrinsic value of the business and its potential.”
After spotting UOA in December, Winning Picks Premium members got long GSK February 18th $44 Calls for $1.20 on December 8th.
It turns out the options activity was happening right in the middle of the bidding process.
I’m sure GSK call buying (which usually is non-existant) was just a lucky coincidence! 😉
Here are todays Top 3...
UNUSUAL OPTIONS ACTIVITY
1. Luxury Brand e-Tailer Seeing Huge Bets
2. How to Play AMC Long Into Earnings
3. What’s Wrong With Dollar General?
Let’s get started...
UNUSUAL OPTIONS ACTIVITY FTCH STOCK
Luxury Brand e-Tailer Seeing Huge Bets
Farfetch (FTCH) has the right customers… the ones with all the money!
The company caters to the luxury fashion market through the internet, which is no small feat.
Just two weeks ago Wells Fargo named it a top 2022 pick, saying:
“While we acknowledge that early 2022 likely will be challenging given the lapping of stimulus-driven top-line compares and record margins, we see the market beginning to look past these concerns and bracing for a much-improved 2H22 setup early in the year.”
The stock is still trying to find a bottom.
What Does the FTCH Stock Chart Say?
After the initial climb in early 2021, the rest of the year has been a disaster for FTCH.
The stock is firmly under the 50 and 200dma. It can’t seem to hold the 50dma and continues to make lower-highs then lower-lows.
The November spike higher (Boxed in blue) was bad. That day crushed the shorts and got the dreamers back in, only to trap them a week later.
The Bears are likely pressing here and will lean on resistance at $35.
With not much support on that chart, the Bulls need to see a higher-low to get things turning around and draw back a few investors.
This situation does not look pretty.
Which makes the recent options flow that much more interesting.
Options Activity in FTCH Stock
Someone is getting aggressive with FTCH Calls recently.
On Friday, someone bought 20,000 FTCH March 18th $30 Calls for $1.68.
Today, there continues to be Call buying in March and also more calls in April.
The FTCH March 18th $30 Calls were bought ~10,000x for $1.76. The RR$ is currently $37.11.
In addition, someone paid $1.33 for 15,000 FTCH April 14th $35 Calls with an RR$ of $43.50.
These RR$ indicate a significant snap back in FTCH, through resistance, the 50dma, and toward the 200dma.
Earnings are in late-February.
What do you think?
UNUSUAL OPTIONS ACTIVITY AMC STOCK
How to Play AMC Long Into Earnings
It wasn’t long ago when AMC was breaking down in December and I showed you June $30-50 Call Spread ($2.90) that seemed like better risk-reward than stock. It was a way to help those long the stock to take a breather.
Since that time, AMC is down $4.50, while the Call Spread lost $1.60. It worked well so far.
In addition, I suspect volatility is here to stay as the stock breaks $20.
The question is... now what?
What Does the AMC Stock Chart Say?
AMC stock is breaking big levels here.
The last time AMC traded at $18, the stock volume was 500 – 800 million shares per day!
We are not even over 50 million today.
What does this mean for the stock?
The AMC crowd is relentless and doing what has worked in the past… holding.
The Bears are seeing this as an opportunity to press and demoralize the long crowd.
The lack of volume tells them that the long crowd has run out of money and losing patience.
The Bears will continue to press until they see big volume – up or down.
Strong up volume will indicate for them to slow down and try to avoid a squeeze again.
Options Activity in AMC Stock
AMC earnings are due out in the next few weeks.
There has been a Put buyer in the name that has been rolling down and getting bigger from the high $20s.
Today it looks like he sold to close 3,000 March 18th $22 Puts and 5,000 February $25 Puts to buy 15,000 March 18th $18 Puts.
Notice how he's pressing by adding more contracts.
The RR$ is pointing toward $11.89. Yikes!
The Implied Volatility is climbing into nosebleed levels again. Consider that the March straddle cost ~$7.40, which gives you breakevens near $10.60 and $25.40.
If you are long the stock (assume 100 shares) and really want to hold long-term then this trade is interesting to look at:
Buy 1 AMC March 18th $20 Call $3.15
Sell 2 AMC March 18th $30 Calls $1.40
Net-net = debit $0.35.
That option trade makes money at expiration between $20.35 and $39.65. It makes a maximum of $9.65 (max value = $10) at $30 on expiration. Just something to think about as you try to get back some of that money between that range.
UNUSUAL OPTIONS ACTIVITY DG STOCK
What’s Wrong With Dollar General?
Dollar General (DG) revenues are growing as they add stores, but same-store-sales numbers are declining.
Morgan Stanley downgraded the stock today to equal weight from overweight:
“The ’22 investment setup is less favorable in our view; our EPS estimates are ~3.5% below consensus as we expect comps to continue decelerating (we model +1% given a tricky low end consumer backdrop) and EBIT margin contraction (~30 bps) as momentum from recent initiatives fades and cost pressures accelerate.”
I would watch this WSJ video on the economics of DG. It’s interesting.
What Does the DG Stock Chart Say?
DG stock has had quite a run. You could see this trendline it’s been following since the pandemic lows.
But something has changed in the last week. The stock has gone from new all-time highs to quickly breaking down through the 50 and 200dma, as well as this strong trend line.
While it looks oversold, the Bulls want to get back into that uptrend… quickly.
The longer it holds these levels the more likely we see another move lower.
Now, consider the options flow ...
Options Activity in DG Stock
On Friday, there was a large Put buyer rolling down.
They sold almost 4,000 DG February 18th $230 Puts to close and then bought 10,000 DG February 18th $210 Puts 10,000x. They paid about $4.25 for these $210s.
And then just got lucky enough to catch a big downgrade at Morgan Stanley.
Great timing!
It appears to me that someone has a good handle on how much DG’s numbers are slowing and pressing the stock lower. Considering the purchase of the $210 Puts, they likely are looking at $185 as a Target Stock price.
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Best,
Felix
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