Penny stocks, defined as equities trading below $5 per share, hold an appealing lure for traders seeking rapid profits. Their low nominal share prices provide easier access for those with limited investing capital. While penny stocks do offer explosive upside potential, they also carry substantial downside risks that must be accounted for.

Options Activity & Opportunities

Options contracts allow traders to speculate on a stock’s price movement without needing to buy shares outright. Monitoring options trading activity shows where other market participants are positioning for near-term moves. Unusual surges in options volume or volatility levels can reveal informed bets backing a pronounced price swing.

Observing these signals within the options chains associated with penny stocks provides useful clues for traders screening for promising under-the-radar picks. While options flow insights only form part of the analysis, tracking this activity has merit for watch list generation. It can point towards specific names justifying deeper individual research.

Sourcing the Relevant Data

Stock market analyst reviews data on computer screens to find profitable penny stocks

While major large-cap stocks have liquid options markets, data availability proves more sparse further down the market capitalization spectrum. Traders concentrate on penny stocks with robust daily options volume and open interest across multiple strike prices and expiration dates.

Of those chains meeting minimum activity thresholds, unusual volume spikes or pronounced volatility skew shifts may emerge. Alternatively, traders can scan for notable patterns like heavy buying interest rapidly lifting the ask prices on short-dated out-of-the-money call options. Such trading dynamics often precede significant price moves.

Incorporate Options Data as Part of Holistic Analysis

While helpful for watch list generation, options activity captures part of the story. Prudent traders also incorporate share price technical analysis, valuation metrics, insider transactions from SEC filings, short interest levels, and sector trends.

Fundamentally sound companies seeing surging commercial traction in thriving industries represent the ideal penny stocks profile. The numbers help guide, but qualitative human assessment also matters when evaluating speculative names. What the data fails to indicate, that seasoned judgment may provide through context, intuition and experience.

Manage Trades Actively Amid Volatility

Given the amplified risks, penny stock traders concentrate on consistent 30-40% short-term gains rather than unrealistic 1000% explosions. They enter smaller-sized positions in names passing in-depth scrutiny and employ quick profit-taking alongside strict loss limits to protect capital from inevitable volatile swings.

Rather than obsessing over finding the one 800% runner, traders focusing on reliable setups with options activity signals can still accumulate solid returns over time.

Hanesbrands Inc. (HBI)

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If you’re unfamiliar, HanesBrands is a global apparel brand best known for undergarments. Something it has been better known for is underperforming the market in 2023. Shares have dumped from $8.8 to lows of $3.54. Although the last few months saw an attempt to rebound, HBI stock remains under $5. This week, however, shares are back on the move after the company recently announced earnings and plans to expand its workplace transformation.

HanesBrands Inc. announced its financial results for the third quarter of 2023. Despite a challenging global macroeconomic environment impacting sales, the company reported key performance improvements. Input cost inflation eased, contributing to a 100 basis point increase in adjusted gross margin to 35.5%.

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Net sales from continuing operations totaled $1.51 billion, marking a 9.5% decrease compared to the previous year. This decrease was attributed to various factors, including challenges in the activewear market and macroeconomic impacts in different regions. The Global Champion brand experienced a sales decrease of 19% on a reported basis.

The activewear segment saw a 17% decline in sales, while international sales decreased by 12% on a reported basis. However, the company improved its inventory position, generating $155 million in operating cash flow for the quarter and reducing inventory by 29% year-over-year. HanesBrands also strengthened its balance sheet, paying down $144 million of debt in the quarter and increasing its liquidity position to approximately $1.2 billion.

​What’s going on with the HBI options chain? The January 17, 2025, $10 Calls have seen a jump in volume today. More than 3,600 contracts were traded by 1:30 pm ET.

Plug Power (PLUG)

What was once a meme stock favored by countless “online gurus” is now back in the depths of penny stock territory. But that hasn’t stopped traders from watching closely for a rebound. One of the main factors impacting the penny stock’s price is recent earnings and a warning from the hydrogen developer.

In its Q3 earnings, the company stated that it could run out of money in a year. This, as some would suspect, sent PLUG stock tumbling to fresh 52-week lows. The company posted a loss of $0.47 on revenue of $198.7 million. This was compared to estimates from analysts at $199.4 million. The company also said “overall financial performance has been negatively impacted by unprecedented supply challenges in the hydrogen network in North America.”

So does this mean all is lost for PLUG stock? If you look at the options action, it might raise some attention in the opposite direction. The March 15, 2024, $5 Calls are lighting up the board today, with more than 5,000 contracts traded before 2 PM ET. More near-time options contracts for this week’s $4 and $3.50 Calls have also gained attention, with 6,800 and 7,220 contracts traded, respectively. Overall, the Call contracts have gained the most interest in the stock market today. The vast majority of the options trading has included Calls traded at the Ask or above, according to data from ThinkOrSwim.

Farfetch Ltd. (FTCH)

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Farfetch Limited is a prominent name in the luxury fashion industry. It connects customers globally with luxury items from over 1,400 brands, boutiques, and department stores. Farfetch operates not only as a consumer platform but also offers enterprise-level solutions through its Luxury New Retail initiative. This includes Farfetch Platform Solutions and Future Retail for technology and retail innovations.

This week has become a pivotal one for the company. First, it reports earnings on Wednesday. This release could be significant as it will provide insights into the company’s performance and strategic direction during the quarter. Investors, analysts, and stakeholders are likely to closely monitor this announcement for several reasons. First, the financial results will offer a clear picture of Farfetch’s current economic health and its ability to navigate the competitive luxury fashion market. Second, the announcement will likely include updates on Farfetch’s strategic initiatives.

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Given the global scope of Farfetch’s operations, the financial results will also reflect the impact of external factors such as economic conditions, consumer trends in luxury fashion, and global market dynamics. In addition, The Telegraph reported that José Neves is to be in talks with bankers and top shareholders about a go-private deal.

Amid the speculation, the FTCH options chain has reflected this trend with this week’s $2 Calls and $5 Calls expiring in January 2025, gaining the most volume. While the near-term expiry saw more than 8,700 contracts traded, the 2025 Calls had nearly 13,000 contracts traded before 2 PM ET on Tuesday.

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