Penny stocks are well-known for providing massive gains for those who know how to trade them. If you’re brand new to the markets or cheap stocks, in general, the first place you’ll want to start (after education) is putting together your watch list. Where should you start? Some traders may look for technical trends such as high-volume stocks or specific chart trends. Meanwhile, other traders might search for things like news, insider trading, different filing types, and more fundamental catalysts. Today we’re going to look at something a little different: penny stocks with unusual options activity.
Penny Stocks To Watch
- MFA Financial Inc. (NYSE: MFA)
- Castor Maritime Inc. (NASDAQ: CTRM)
- The Metals Company (NASDAQ: TMC)
- Mullen Automotive Inc. (NASDAQ: MULN)
Hot Penny Stocks To Buy Now
I’ll preface this with a statement: there aren’t any “sure things” in trading. That goes for everything from sentiment to news. Options, similar to insider trading, are seen as a way to gauge sentiment that may not be immediately apparent in the retail market. A prominent position in Call options or Put options can trigger optimism and pessimism regarding specific stocks. However, something to understand is that options volume and open interest figures might not give you the whole story.
Some traders purchase Call options when they have a significant short position. They do this to hedge their position. Another way traders use options is to collect premiums by “selling to open” a position. The closest thing I can compare this to is the process of shorting a stock. Instead of selling shares to open your position, you’d be selling options contracts to open your position. To learn more about trading options, check out: Trading Options 101.
Needless to say, options activity, when it’s out of the ordinary, is another thing to fold into your research process. Let’s look at 4 penny stocks with unusual options activity.
MFA Financial Inc. (NYSE: MFA)
One of the few penny stocks with dividends, MFA Financial, has seen interesting options today. The company’s model is based on investing and financing mortgage assets. These investing efforts are used in residential mortgage-backed securities and other real estate assets. MFA’s goal is to grow its loan portfolio, which last quarter, it acquired $1.4 billion of loans and expanded its portfolio by almost $800 million. For the full year of 2021, MFA grew its loan portfolio by more than $2.6 billion.
This week, the company announced its latest dividend for shareholders of record on March 22, 2022. MFA declared a cash dividend for the first quarter of the year of $0.11 per share. In addition, the MFA Board authorized a share buyback program to repurchase up to $250 million of common stock through the end of next year.
If you look at the MFA options chain today, you’ll see a significant level of Open Interest in the April 2022 and January 2023 Calls. In particular, The January 2023 $5 Call contracts saw the highest volume levels today with over 5,800 contracts. Current Open Interest sits at 19,918 contracts.
Castor Maritime Inc. (NASDAQ: CTRM)
With the fluctuation in the energy market right now, stocks with exposure to this niche are in a bright spotlight this month. This includes shipping companies. Castor Maritime falls into this category, and some recent news has helped amplify the attention on the penny stock.
Castor recently announced new charter agreements beginning this year. These include a 30 day minimum charter with its M/V/ Magic Moon dry bulk carrier starting this month. The gross daily charter rate is $25,000. Its M/V Magic Argo carrier has a charter beginning at the beginning of April with a minimum of 12 months (maximum 15 months). Meanwhile, the M/V/ Magic Venus carrier has a fixed time charter equal to 100% of the average of Baltic Panamax Index 5TC routes. That will also begin next month and include a duration of 13 to 15 months at the charter’s option. Castor has a fleet of 29 vessels with an aggregate capacity of 2.5 million dry weight tons.
What does the options market show for CTRM stock? Right now, we look at the October 21, 2022, $2.50 Call options. There were over 7,000 contracts of Open Interest to start the day. As far as volume goes, more than 4,500 contracts were traded as of this article.
The Metals Company (NASDAQ: TMC)
Metals and mining stocks have also become a popular topic as the Russia-Ukraine war has continued. Companies involved with precious metals, energy metals, and rare earth metals mining have come into focus. The Metals Company has been on the list of penny stocks to watch as things like nickel have surged in price this month.
The Metals Company explores low-impact battery metals from seafloor polymetallic nodules to supply clean energy infrastructure and the growing electric vehicle industries. These metals have gained a lot more attention recently. In fact, according to TMC, there’s “growing recognition from political and military leaders” of deep-sea nodules. The company highlighted comments from former Director of National Intelligence Admiral Dennis Blair said in a letter to the U.S. Secretary of Defense:
The national security imperative of creating sufficient mineral supplies to build future EVs, energy infrastructure from turbines to transmission, and modern aerospace and defense systems must include a robust and secure supply chain within U.S. control.
TMC stock has enjoyed a strong move this month with this as the backdrop. The options market may also have something to ‘say’ about the penny stocks. Right now, the March 18, 2022 Calls are in focus. While most Call strike prices have higher Open Interest than Puts, the $2.50 and $3 strikes (both considered in-the-money) are of particular note.
Mullen Automotive Inc. (NASDAQ: MULN)
Keeping on the same track as TMC, Mullen Automotive has also gained interest thanks to its involvement in the EV industry. The company manufactures electric vehicles, specializing in solid-state polymer battery technology. The company is currently testing solid-state polymer cells with evidence that they have the potential for a 150-kilowatt-hour battery pack delivering 600+ mile range.
In a recent update, David Michery, CEO and chairman of Mullen Automotive said, “The test data collected shows an impressive outcome and future for solid-state batteries. To sum up, we tested our 300 Ah (ampere-hour) cell, which yielded 343 Ah at 4.3 volts, and the results surpassed all expectations. We can say with almost certainty that this technology, once implemented on the Mullen FIVE, will deliver over 600 miles of range on a full charge. The future is bright for Mullen Automotive.”
What’s more, the company’s FIVE EV Crossover vehicle is due in late 2024.
So how do options look for MULN stock? There’s a significant amount of Open Interest in the March and April Calls. In particular, the March & April $1 and $2.50 strikes have gained the most as far as volume and O/I are concerned.
Penny Stocks With Unusual Volume
Some final thoughts if you’re looking for penny stocks to buy and are using options volume: do more research than just identifying irregularities in the options chain. Check for news and any future events that may correspond with this type of activity. Also, keep current trends in mind that may influence bullish or bearish sentiment regarding the near-term potential of certain penny stocks.
