Unusual Options Activity: The GEO Group (GEO)

Shares of private prison company The GEO Group (GEO) have been trending up since May, with a large spike higher on Friday. One trader sees the possibility for a move even higher.

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  • That’s based on the March $12 calls. With 157 days until expiration, over 70,830 contracts traded against a prior open interest of 662. That makes for a 107-fold leap in volume on the option trade. The buyer of the call paid $0.70 to make the trade.

    Shares of the stock traded around $8.50 following their jump higher. The $12 strike price would need shares to move over 41 percent higher in order for the option to move in-the-money.

    The company has seen shares drop 30 percent in the past year, likely on the possibility that for-profit prison systems may end up being reformed under the Biden Administration. However, there’s been no sign of that yet.

    Action to take: While prison reform may occur in time, the current valuation leaves shares trading at less than 7 times forward earnings. While hardly a growth industry, the prison company earns consistent income and cash flows, which should lead to a higher valuation here. However, shares don’t currently pay a dividend.

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  • For traders, the option is an interesting one given the amount of time to play out and strike price. It’s capable of triple-digit moves higher, provided that shares continue their trend higher in the next few months. If that trend doesn’t happen, or happen to slowly, traders may want to take a quick profit rather than look for a big win.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.