June 6, 2025
CSX Update – Merger Potential
Whenever my options screening tool picks up on wild call or put buying, the first question in my mind is, “Why would someone be buying these calls/puts? What is the catalyst?”
My first thought is generally these options trades are targeting earnings, or an investor conference. Then, when I can eliminate those two catalysts, things get a big more interesting.
And in the case of CSX, where we saw 150,000 calls bought recently, perhaps we now know why there has been such wild option activity …
This morning Wells Fargo released a research note highlighting potential merger and acquisition activity in the railroad industry in 2025. Here are some of the highlights from the research note:
“M&A in the rail industry has re-entered the conversation and gained momentum following trade articles and conference discussions.
“The firm believes the probability remains low, but it has increased substantially from near-zero. Wells believes the key factor in attempting a transcontinental merger is gaining the Trump administration’s buy-in. With that, its discussions suggest the Surface Transportation Board (STB) would be unlikely to stand in the way. This causes odds to increase to about 20% in the firm’s opinion from near-zero.
“The probability remains low as the administration’s support is not guaranteed, but the timeline has clearly accelerated into 2025.
“If rail M&A ensues, Wells sees the most upside for CSX (CSX) and Norfolk Southern (NSC).”
Only time will tell if CSX is bought or involved in any way with any merger activity.
That being said, owning now at-the-money calls, with eight months until expiration, is exactly how I would play this possibility.
June 2, 2025
Weekly Update
Coming off a losing week two weeks ago, the indexes mostly regained that lost ground last week as the S&P 500 gained 1.9%, the Dow advanced 1.6% and the Nasdaq rallied 2%.
Stocks on Watch and What Traders are Saying
Following a big rally in May, but on the heels of an awful April, the S&P 500 is mostly unchanged on the year. But today let’s focus on the positive returns of the last month, and via Morningstar Direct and Edward Jones since 1980, there have been six times that the S&P 500 moved higher by 5% or more in May. In all six cases, the market was higher in the next 12 months following this move, as noted below:
So if the market is on the verge of big things in the coming months, which stocks and sectors may lead the charge? Only time will tell, though a big call buyer in CSX (CSX) the last two weeks is drawing my attention to the stock. Here are those call buys:
Friday - Buyer of 60,000 CSX (CSX) September 35 Calls for $0.75 – Stock at 31.5
Thursday - Buyer of 2,000 CSX (CSX) January 35 Calls for $1.40 – Stock at 31.5
5/23 - Buyer of 30,000 CSX (CSX) January 35 Calls for $1.20 – Stock at 30.5
5/22 - Buyer of 45,000 CSX (CSX) January 35 Calls for $0.95 – Stock at 30.5.
I’m very intrigued by this call buying … and we may get involved as these trades are very unusual for sleepy CSX. The only rub I have with these trades is the trader is buying calls somewhat far out-of-the-money (for a slow stock like CSX).
Other stocks that are of interest to me for their relative strength are GE, SCHW, BSX, and PLTR, though in fairness all of these stocks have started to chop around along with the market.
And finally, I’m also watching Coupang (CPNG), which is an online retailer of sorts that operates mostly in South Korea and Taiwan. The stock looks terrific, received two upgrades last week, and option activity has been bullish since the stock broke out on earnings nearly a month ago, including this trade from last week:
Tuesday - Buyer of 15,000 Coupang (CPNG) June 30 Calls for $0.35 – Stock at 28.5.
I really like CPNG, though one of my hesitations is the company is somewhat similar to Grab (GRAB) in the services it offers, though the companies seemingly operate in different countries (GRAB is focused on Cambodia, Indonesia, Malaysia Singapore, Thailand and Vietnam).
Volatility
The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 18.5, which was mostly unchanged from the prior week. Of note, I am starting to “flirt” with buying a hedge/bearish position for the portfolio as the market and many stock leaders have somewhat stalled out of late. Though in fairness, the market chopping around after a massive move higher is hardly the end of the world or unexpected.
Option Order Flow was fairly mixed this past week as my Options Barometer came in at:
Tuesday – 6
Wednesday – 5
Thursday - 5
Friday – 6
Events for the Week to Come
Outside of the “normal” tariff talk and rumors, traders this week will be focused on a European Central Bank (ECB) meeting on Thursday as well as the May Jobs Report on Friday.
On the earnings front, the “big” reports have mostly passed, though traders will be watching for quarterly results this week from AVGO, CRWD, DOCU and LULU.
Open Positions
Freeport-McMoRan (FCX) November 43 Calls – FCX chopped around aimlessly last week, though it’s bid higher this morning by 3%. Regardless, option activity was strong all last week, including these trades:
Friday - Buyer of 5,800 Freeport-McMoRan (FCX) June 41/44 Bull Call Spreads for $0.45 – Stock at 38.5
Thursday - Buyer of 3,000 Freeport-McMoRan (FCX) June 41 Calls (exp. 6/6) for $0.33 – Stock at 39.
Grab Holdings (GRAB) January 5 Calls (exp. 2027) – GRAB continues to bounce above and below the 5 level. Not much more to add.
Marvell (MRVL) June 115 Calls – With just a couple weeks to go until expiration our MRVL trade is almost surely headed to expiring worthless.
Starbucks (SBUX) January 110 Calls – SBUX, like so many stocks, is chopping around aimlessly as of late, though of note on Wednesday option activity again ramped bullish including these trades:
Wednesday - Seller of 9,000 Starbucks (SBUX) July 80 Puts for $1.47 – Stock at 86
Wednesday - Buyer of 6,000 Starbucks (SBUX) August 100 Calls for $1.35 – Stock at 85.5.
Robinhood (HOOD) December 50/95 Bull Call Spread – HOOD was mostly unchanged last week which given the big stock run of late is totally fine. Our position remains in great shape.
Uber (UBER) December 90 Calls – UBER fell on Tesla robotaxi headlines last week, though the decline was hardly a death sentence for the stock. And into the “small” pullback option activity remained very bullish including these trades:
Friday - Buyer of 1,450 Uber (UBER) June 80 Calls (exp. 2026) for $19.05 – Stock at 84
Thursday - Buyer of 20,000 Uber (UBER) July 95 Calls for $1.30 – Stock at 84
Tuesday - Buyer of 11,000 Uber (UBER) July 95 Calls for $2.45 – Stock at 89.
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