Odd Options Activity Surrounds These Stocks: How To Capitalize

In a new report, Deutsche Bank analyst Lon Parisi discusses three stocks with unusual recent activity in their options markets: Estee Lauder Companies Inc EL, Mead Johnson Nutrition Co MJN and Michael Kors Holdings Ltd KORS. According to Parisi, the options market can provide some insight into what to expect from these three stocks in the near-term.

Parisi explains that the options market is indicating that Estee Lauder stock has limited upside and limited positive catalysts following a positive Q4 earnings report. Deutsche Bank maintains a Buy rating and $98 price target for the stock.

Related Link: El-Erian: Chinese Concerns 'Legitimate,' Market Reaction 'Excessive'

When it comes to Mead Johnson, Parisi sees “implied vol rising recently while stock experiencing short-dated range-bound behavior.” He adds that the inverted term structure could mean that the options market is anticipating a buyout. Deutsche Bank maintains a Hold rating on the stock and a $76 price target.

Finally, Parisi points out that one of 2016’s top performers, Michael Kors, currently has a very steep 6-month/3-month term structure in which the nearer-dated options are cheap compared to the longer-dated contracts. “Abnormally steep term structure may be attributed to few nearer-dated catalysts between now and May16 expiration,” he suggests. Deutsche Bank maintains a Buy rating and $56 price target for the stocks.

Disclosure: the author holds no position in the stocks mentioned.