Unusual call options in this ETF can send these stocks higher

Options increase volume on these stocks

Key points

  • Traders jumped into this ETF, buying call options in hopes of a potential new rally.
  • Essentially, it’s a bet that interest rates will drop soon, here’s how you can know exactly when.
  • Three headlines stand out for spurring consumer activity in light of new disposable income.
  • 5 stocks we like best from CME Group

Big market players tend to move big, and they also tend to move later, in the later innings of the game. In this case, the game is never over, so innings are measured based on where you are in the business cycle now, mainly where the next step will be. MarketBeat’s call options scanner detected an unusual breakout in a major ETF that serves as an economic indicator.

Last week, options traders raided the market iShares 20+ year Treasury bond ETF NASDAQ: TLT on the call side. When traders buy calls, it is typically because they expect an upward movement on subsequent expiration dates; now, why is this ETF important? This contains a basket of long-term bonds and their prices move in the opposite direction to interest rates.

So, betting that this ETF will increase in price is also a subsequent bet that interest rates are falling, something the Fed made public in its latest meeting. When these rates will be cut is something you’ll find out shortly; for now, your focus is on why stocks are liked Target New York Stock Exchange: TGT, Costco Wholesale NASDAQ: COSTand even Home depot New York Stock Exchange: HD they are ready to recover on this latest gamble.

Get the mechanics

Because the Fed funds rate is directly tied to the rest of the money markets, also known as bonds, when one goes down – or is expected to go down – the rest of the asset class tends to follow. When you look at the FedWatch tool in the ECM Group NYSE:ECMthe image starts to make a lot more sense.

This tool allows you to take advantage of market expectations for the direction of interest rates, which currently price in a high probability of rate cuts in May this year, whereas previously markets expected cuts to come as early as March.

Because the markets are forward-thinking, they will not wait until May to start moving their investment dollars; the move will take place now. While some investors may head straight for consumer discretionary stocks, as history tends to favor them in lower interest rate environments, uncertainty requires additional protection.

Now that bank stocks like it Bank of America NYSE:BAC AND Citigroup NYSE:C have reported increasing delinquencies and charge-offs on their credit card departments, it will be of the utmost importance for the American consumer to have a little more breathing room to manage interest payments on outstanding balances.

This is why most consumers will not return to discretionary names. Instead, they find that points earned from everyday purchases (like spending at Costco and Target) will be the best place to allocate this newfound disposable income.

Oh, and guess what? It’s tax season, so home supplies in a stagnant home market mean more revenue for Home Depot. But you already know this if you’ve been following this thread on the best way to get a breakout in the construction stocks sector, which even Warren Buffett has started investing in.

Is there any money left?

Now the question arises regarding the timing of this move, whether there is still enough money to be made or whether traders have squeezed all the juice out of the markets so far. Well, there’s only one way to figure it out, so sit down and get your pencils ready.

Looking at Target shares, which are a far cry from their all-time high price of $268.9 in 2021 (which, by the way, was the last time interest rates trended lower), there appears to be plenty of room for move. on.

Analysts at Morgan Stanley NYSE:MS they think it could go as high as $165.0 per share based on their price targets. Institutions like Illinois Municipal Retirement Fund have also increased their holdings in the stock by as much as 72.0% so far this month; the story is starting to make a lot more sense now, isn’t it?

As for Costco, not only is it part of a large group of large-cap stocks operating in the consumer staples sector of the market (known for its immunity to the economic cycle), but it is also one of the few that brings Berkshire Hathaway NYSE: BRK.A quality stamp.

In case that’s not enough, analysts at Oppenheimer and Loop Capital raised their price targets to $760.0 and $755.0 per share each, implying a 7.0% upside from the trading level of the title today. Considering today flirts with the idea of ​​making new all-time highs, you can count on the bullish momentum by your side on this one.

Finally, Home Depot has also attracted analyst love, especially from Piper Sandler New York Stock Exchange: PIPR and TD Cowen, setting stock targets of $400.0 and $415.0 each. This is similar to Target in that it is still below its 2021 all-time high price of $420.6, despite significant indexes hitting all-time highs today.

Get ahead of the curb before the most significant money shift arrives, consider the best name on this list that fits your wallet, and do yourself a favor and stay away from any financing until you can get better rates in May.

Before you consider CME Group, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and CME Group wasn’t on the list.

While CME Group currently has a “buy” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here

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