3 Stocks Options Traders Safeguarded with Puts After Market Jolt

August 16, 2024 at 07:00 AM EDT

Papa John's lit exterior restaurant sign at night and trademark logo.

Most investors tend to panic sell once the market’s volatility awakens from its often long sleep. As the S&P 500 or the value of any portfolio starts to decline suddenly like it did last week, the main risk management tool market participants look to is simply to reduce exposure to these positions, and that’s typically done by selling out.

The problem is the market is not a black-and-white world, as was experienced last week. The recovery from the worst day of 2024 came not a week after, not a day after, but a couple of hours after. Investors who sold out in the middle of the sell-off would have missed out on breaking even and walking away with a profit. This is why products like option contracts exist; they help investors lock in profits without having to sell, like insurance.

Put options are designed to profit a buyer when the underlying stock's price declines. But, if an investor owns a stock and the value of this investment goes down, then an offsetting profit can be made through buying put options. Knowing this, investors can pinpoint which stocks have had recent spikes in put option volume, a sign that investors don’t want to let go of stocks like Papa Johns International Inc. (NASDAQ: PZZA), GXO Logistics Inc. (NYSE: GXO), and even MP Materials Corp. (NYSE: MP).

Papa Johns Stock Gains Momentum with Upside Potential and Strong Income

During high inflation times in the United States, consumer discretionary brands like Papa Johns might be fundamentally set to outperform. Pizza will always be an affordable alternative to cooking at home or eating out elsewhere, and consumers aren't the only ones who realize this in today's economy.

Wall Street analysts forecast up to 15.6% earnings per share (EPS) growth in Papa Johns stock for the next 12 months, 50% more than forecasts for its competitor Domino's Pizza Inc. (NYSE: DPZ), which is set at only 10.7% EPS growth. However, Papa John stands out from the pack in other ways.

BMO Capital Markets slapped a price target of up to $65 a share for Papa Johns stock, which directly calls for a net upside of 44.8% from where it trades today. Considering the stock now trades at only 45% of its 52-week high, this potential upside is amplified by the income opportunities found in the company as well.

Offering investors a payout of $1.84 a share will represent an annualized dividend yield of 4.1%, which not only beats inflation but also beats the 'risk-free' rate of U.S. ten-year bonds, which have recently dipped below 4% in yield.

Economic Tailwinds Set to Propel GXO Stock to Double-Digit Gains

Whether markets are pricing this in or not, the Federal Reserve is looking to cut interest rates before 2024 is over. According to the CME’s FedWatch tool, the timing of these rate cuts could be as soon as September of this year, pushing the envelope sooner for portfolios to be made around this view.

Rate cuts could eventually boost both business and consumer activity, which translates to higher demand for logistics and transportation services. As the delivery of raw materials and finished products is essential, GXO stock plays a key role.

Wall Street analysts see up to 19.8% EPS growth in the next 12 months for GXO stock, and that says a lot for logistics and transportation stock. Leaning on these optimistic views, analysts have placed a consensus price target of $68.6 a share for GXO stock, daring it to rally by 43.6% from where it trades today.

More than that, the company’s CEO bought up to $500,000 worth of stock as recently as June 2024, giving markets another piece of bullish evidence to consider. This is only part of the $815.8 million of institutional capital that made its way into GXO stock over the past 12 months.

MP Materials: The Underrated Stock Powering the Electric Vehicle Revolution

This is another stock that investors weren’t willing to let go of, and that’s because MP mines some of the main rare metals used in the electric vehicle industry. Knowing that electric vehicle demand will only be on the rise in the coming years, Wall Street felt comfortable making bold assumptions.

If MP swings from negative EPS to positive EPS in the next 12 months, there is a lot of growth to be expected, but other analysts believe it is possible, as judged by current price targets. Those at Benchmark see a valuation of up to $30 a share for MP stock, which calls for a net upside of 170% from where the stock trades today.

Considering the stock only trades at 54% of its 52-week high, it does have a lot of room to move upward from here. Even bearish traders realized the odds of losing were greater, so they started bailing out of MP stock.

Short interest declined by up to 1.9% over the past month, showing signs of bearish capitulation and opening room for more bullish traders to come in.

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3 Stocks Options Traders Safeguarded with Puts After Market Jolt

Papa Johns Stock Gains Momentum with Upside Potential and Strong Income

Economic Tailwinds Set to Propel GXO Stock to Double-Digit Gains

MP Materials: The Underrated Stock Powering the Electric Vehicle Revolution

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