As Christmas fast approaches and 2021 is almost a reality, option traders are doing last minute shopping. These “stocking stuffers’ are plays that are looking for a positive move by New Year’s Eve. While it’s impossible to know which publicly traded companies are on Santa’s list, these large option trades are an indication that someone thinks that do.

Using Option Activity

You may be wondering how one can know what option traders are expecting to end 2020. It’s actually pretty easy. The great thing about unusual option activity is that it can provide a direction, target and a timeframe. Pretty cool, right?

The direction is established by whether calls or puts were traded and whether the option was bought or sold. For example, selling puts and buying calls is bullish, and selling calls and buying puts is bearish. Selling puts is a bullish indication, but it’s kind of like getting a pair of socks for Christmas. That activity isn’t super exciting. That means that long calls and puts provided the most bullish or bearish conviction.

A target can be attained when an out-of-the-money (OTM) option is traded. If an OTM call is bought, it is an indication that the expected move in the price is at or beyond the strike price. Therefore, the more OTM the bigger the expected move.

The timeframe is established by the option expiration selected in the trade. A shorter amount of time to expiration, like December 31, provides more urgency for a quick move than a January 2022 expiration.   

Today’s Option Activity

Every day there are many stocks that have unusual option activity. The term “unusual” is typically referencing above average option volume, a large block trade or a sweep of many smaller trades quickly combining into a larger position.

Sometimes, you’ll see this unusual activity but not significant. This happens because an option trade can be an opening trade or a closing trade. Of course, closing trades are of little interest unless it’s paired with an opening trade. This is called a “rolling order.”

A key to identifying opening or closing trades is by looking at the volume and open interest. If the volume is less than the open interest, you would conclude it’s a closing trade. If it’s greater than the open interest, it would be considered an opening trade. This is a result of open interest being updated at the end of the trading day.

Here are stocks that had option activity that would qualify as unusual and significant for a December 31 expiration.

1. Apple Inc (AAPL)
2. General Motors Company (GM)
3. Occidental Petroleum Corporation (OXY)

AAPL Option Activity

Apple option volume didn't spike today. Both call and put volume were below average. However, this is the time of the year where volumes are lower and AAPL is the largest market cap stock in the market. Trade analysis shows the volume evenly split between trades filled between the market, at the ask and bid. However, several large trades were made that weren’t just retail money. Here’s a breakdown of the significant activity:

• 60,500 31 DEC 20 $138 calls mostly BOT @ $0.63 to $0.86 against open interest of 8,669

The indication is a move to $138 or beyond by the end of next week. This activity comes after a general increase in bullish activity over the past week. The $138 minimum target corresponds with the September 2 high.

GM Option Activity

Today’s option volume was nearly three times the average. The calls were sizzling at 3.5 times the average and a put/call ratio of 0.16. Over 48% of the call volume was filled at the ask price. Here’s a breakdown of the significant activity:

• 10,960 31 DEC 20 $44 calls mostly BOT at $0.21 to $0.50 against open interest of 785
• 11,222 18 JUN 21 $45 calls mostly BOT in one print @ $4.00 to $4.20 against open interest of 5,576

Today’s bounce is breaking out of a flag pattern and the strike is pointing to a move above $44, which may place the recent high near $46 in view.

OXY Option Activity

Overall, today’s option activity on OXY saw calls being traded at over twice the average volume and a put/call ratio of 0.15. There wasn’t any large block trades, but there was some very quick long activity early in the session. Here’s a breakdown of the activity:

• 21,465 31 DEC 20 $20 calls mostly BOT @ $0.10 to $0.27 against open interest of 4,113

Today’s activity in OXY follows bullish activity earlier in the week and a rise in oil today. The $20 strike price places the December high near $22 in view.

Conclusion

This is a difficult time of year to load up on long or short positions. There is a tendency for the market to rally between Christmas to New Year’s but 2020 has been anything but typical. These trades may be small long additions betting on a rally over the next week.