MO Breaks Out as Option Activity Surges

MO Unusual Option Activity Report

At the beginning of 2021, I posted on some unusual option activity in Altria Group Inc (NYSE: MO). The activity was part of a bigger move in tobacco companies since early November. In fact, we’ve had several different tobacco companies on my Top-Down Friday list since that time. While I’ve chosen to have companies like Vector Group Ltd (NYSE: VGR) and Philip Morris International Inc (NYSE: PM) on the list, Altria has been a company that has been a favorite among option traders and today is no different.

MO Option Activity

The option volume on MO was sizzling today at over two times the 5-day average volume. The activity was pretty balanced between calls and puts at over twice the average and a put-to-call ratio of 0.435. The composition of the call and put volume was also very similar with over 60% getting filled at the ask for calls and bid for puts. Selling puts and buying calls are bullish trades. Here’s a breakdown of the significant activity:

  • 7,380 contract combination on the 19 MAR 21 expiration filled in one print
    • Sold $40 put @ $0.09 against open interest of 8,651
    • BOT $46.50 call @ $0.37 against open interest of 291
    • BOT $47 call @ $0.25 against open interest of 467

Then number of contracts trade for the $40 put was less than the open interest. That is an indication it was to close a long put. That long put was essentially reversed to buy the $46.50 and $47 calls. The $47 call is an indication of the potential for this stock to reverse a multi-year downtrend.

MO Technicals

MO appears poised to complete a major breakout and complete a long-term trend reversal. Since the sell-off in early 2020, the price of Altria has struggled to break the 61.8% retracement of the downtrend near $44. The price attempted to close above the level last week before fading back but is currently trading above it. A weekly close above this level would be an indication of a full retracement back to $52.

The current breakout would also be a completion of an ascending triangle that has been developing since the August high near $44. The measured move to the August low near $36 gives an $8 range. The measured move added to the $44 resistance level also arrives at a $52 target.

Conclusion

The movement in MO may be representative of a trend to more smoking during the pandemic, but it also represents a defensive industry. The trend toward more defensive parts of the market could accelerate as the market may be poised to trend away from more riskier parts of the market following last week’s sell-off.

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