I was searching for interesting option opportunities, and happened across some unusual activity on Norfolk Southern. With the stock trading just under $120, the January 2019 options had this activity.
Someone was betting big, about $15M, that this stock was going to rise as much as 50% over the next 21 months. And when I looked at the profit/loss chart, I saw this. Keep in mind, this is an option spread. I buy one strike and sell a higher one, in this case, dropping my price from $5.03 to $3.50. This makes it more affordable, lowers the break-even, and lets me spread more bets.
The potential for a return of $30,000 on a bet of $3500. The market was offering over an 8 to 1 return if this stock moved 50% over the next just under two years. And a guy with deep pockets was willing to take that bet. My pockets aren’t quite as deep, but this is the kind of return I like to see. I don’t need to have too many winners to come out ahead in the long term. So I put my money where my mouth is.
And, now, we wait. 21 months.