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Hot Penny Stocks To Buy For Under $5 With Unusual Options Activity

Penny stocks with unusual options activity for your February watch list.

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If you’re looking for penny stocks to buy right now, you likely want to take advantage of volatility. In the stock market today, there’s no shortage of that. Thanks to upcoming Fed minutes, the trend is likely to continue. One of the reasons I’m sure you’re trading penny stocks is because they’re inexpensive, you don’t need a lot of capital to amass a large share position, and you can leverage small price movements for big gain percentages. The same case has also been made for options and I’ll get into details of how to buy options in a later article.

Instead of purchasing 100 shares of companies like Apple or Amazon, you can opt to buy options contracts. It allows you to trade the right to the eventual ownership of 100 shares of Apple or Amazon but doesn’t require you to be the one to buy them (unless you decide to take assignment). Right now, shares of Apple are trading around $170, which means it will cost a cool $17,000 to own 100 shares. So how can you profit from a big move in apple if you only have a few hundred dollars?

The options contracts offer the ability to leverage small sums of capital in exchange for significant gain potential. As of this article, a single Call option at the $172.50 strike price is trading around $1. This means that 1 contract will cost $100 and if the price rises just a few dollars, the option contract could be worth $1.40 or 40% above your purchase price.

Options Risk & Reward

The rewards are clear but the risks can be immense. Since prices fluctuate, implied volatility changes and time decay plays a role (all things we’ll discuss in an Options 101 article), the value of the option can fluctuate rapidly. This is why only certain traders with plenty of education in trading options make the choice to jump into these wild waters. So how do penny stocks play a role? Believe it or not, there are more than just a few penny stocks with options and today we’ll look at some that have some unusual options activity right now.

Penny Stocks With Unusual Options Acitivty

  1. Eos Energy Enterprises Inc. (NASDAQ: EOSE)
  2. Ouster Inc. (NYSE: OUST)
  3. Applied Optoelectronics Inc. (NASDAQ: AAOI)

1. Eos Energy Enterprises Inc. (NASDAQ: EOSE)

Shares of Eos Energy have been tried hard to rebound after a heavily depressed year in 2021. Shares hit fresh 52-week lows this month with EOSE stock hitting $3 for the first time in its public history. Eos specializes in zinc-based energy storage systems via its Znyth battery designed to take a direct competitive directive against lithium-ion platforms.

Of course, with the recent uptick in excitement for EV stocks, EOSE seems to have gained a bit more attention. What’s more, the options market for the penny stock has also woken up ahead of its upcoming earnings report next week.

As of this article, there’s some unusual options-flow in the March 18th, 2022 $5 strike calls. Considering that the current Open Interest on this option is a fraction of today’s volume, EOSE stock has hit some scans for unusual call activity today. It’s also worth noting that this particular expiration date is the closest to the date of its upcoming earnings.

2. Ouster Inc. (NYSE: OUST)

Digital lidar sensor company, Ouster just reported its earnings this week. The company recorded $11.9 million in Q4 revenue, up 53% sequentially. It also posted 30% gross margins and record shipments of more than 2,400 sensors during the quarter. Like EOSE, OUST stock has worked hard to battle back from a tough 2021. At one point, the penny stock traded over $16.

“This year was a turning point for Ouster as we scaled up our commercial engine, proved our high-volume manufacturing capabilities, accelerated our automotive roadmap, and won key customers across each of our target vertical markets. We expect 2022 to be even stronger, with important product and customer milestones that we are excited to share throughout the year,” said Ouster CEO Angus Pacala. Given the interest that EV sector names have in autonomous driving, lidar technology has become a hot-button topic. Furthermore, Ouster’s pending launch of its L3 chip this year could also become a focal point for the market.

While it isn’t as active as EOSE, OUST stock options flow shows some “unusual activity” in the March 18th, 2022 $2.50 strike Call options. As of this article, volume sits at 560 contracts while open interest only registers at 192 contracts.

3. Applied Optoelectronics Inc. (NASDAQ: AAOI)

Something that seems to be thematic in this article is penny stocks that have unusual options flow and have also gotten beaten down over the last year. Applied Optoelectronics continues this trend and this list of penny stocks. The company develops optical products and components used in data centers, telecom networks, and CATV broadband, among other applications. Its optical network lasers and equipment are offered to tier-1 customers within these markets.

Applied is also delivering Q4 and full-year earnings for 2021, like Eos, next week. If AAOI stock is on your list, keep February 24th in mind. The market may be looking for a follow-up to its last earnings where it beat EPS estimates but fell short on sales. CEO Dr. Thompson Lin explained how component shortages played a role and “is expected to continue to be a factor in the fourth quarter, but we believe the demand drivers remain favorable for us and anticipate easing of these supply constraints in the future.”

Leading up to this next earnings report, the options market has woken up a bit for AAOI stock. The March 18th, 2022 $5 strike call options are in focus. While Open Interest sits at 2,869 as of this article, 956 contracts were added into the mix today. Furthermore, the options chain for this expiration shows a heavier weighting of Open Interest in AAOI calls for the $5 and the $7.50 strikes.

What To Know About Unusual Options Activity & Penny Stocks

Like anything, options activity is another metric some traders use to gauge sentiment. When there is heavier Call option buying, some take this as a bullish sign. When there’s above-average Put option buying, they may feel bearish. However, as with stocks, you can also sell options to open a trade. In this case, that will also add to the volume of that particular contract. In the case of selling Call options, the bet is bearish similar to shorting a stock.

When selling a Put option, the bet is bullish. You’ve also got to consider multi-leg trades where Puts and Calls are bought or sold simultaneously. I won’t get into the details of these as this is a more advanced strategy.

However, the point is that it all adds to the volume number pegged in the options chain. So, just because there’s a high level of volume for a Call contract, that doesn’t mean it’s all a result of people buying that option. Keep this in mind when doing your research and looking at options flow.

By J. Samuel

As a trader and expert finance writer, I enjoy finding new and emerging trends that may have been overlooked by the average masses. If there's one thing that a trader or investor wants to know, it's how to use valuable data to their advantage. My expertise is in uncovering this data and compiling it into actionable information. As a professional finance writer, I've contributed to many of the top finance platforms and pride myself on researching factual, publicly available information and using that in all of my articles.

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