Why would anyone trade penny stocks? Let me answer quickly: make money in the stock market. Besides the obvious, since penny stocks are so cheap that you can buy lots of stocks and leverage small amounts of capital with the potential for otherworldly gains. The list continues to grow as to how many penny stocks explode hundreds or thousands of percentage points in a matter of hours or days.
The risks are many, but if you are wondering if you can get rich with penny stocks, the short answer is “yes”, but you need to know how to start on the right foot. Playing a game of darts with stock symbols is not the best strategy. Look for trends and compile a well-researched list of penny stocks is. Today we are doing just that.
Penny Stocks to Watch
- Ring Energy Inc. (NYSE: REI)
- Uranium Energy (NYSE:UEC)
- Exela Technologies Inc. (NASDAQ: XELA)
Penny Stocks to Watch with Unusual Options Activity
It is not necessarily a stock market game that is being played. But the options market can tell you a few things about market sentiment. I know we’ve talked about penny stocks being cheap, and while you might not expect them to have options, there are plenty that do. If you are new to options, read our article, Trading Options 101: A Beginner’s Guideto get familiar with the basics.
Basically, traders tend to watch the options market for different reasons. One such reason is the identification of “unusual activity” or overly bullish and bearish “bets” on specific stocks. For example, if there is very little open interest but suddenly you see thousands of contracts being traded in a single session, this could attract attention.
If there is a large volume of call trading, the general tone is that “someone” thinks something bullish might be happening and vice versa for puts. However, it should be noted that options can also be used as a hedge. Options traders can short the Call or the Put to collect premiums. They can also buy put options if they have a large stock position to protect against downside risk and vice versa for a large short position.
Volume can’t tell you much, but it’s still worth noting when researching market sentiment. The question you have to answer for yourself: are traders simply playing a stock market game using options as their “toy”, or does this activity suggest something else?
Ring Energy Inc. (NYSE: REI)
energy penny stocks are on fire right now. Thanks to the Russian-Ukrainian conflict, everything from commodity companies to refiners and shippers are getting in on the action. In this case, Ring is your ordinary oil and gas exploration company focused on the Permian Basin in West Texas and New Mexico. In its recent financial and operational update, management laid the groundwork for how the company is preparing in 2022 to grow. In particular, fourth quarter sales volumes jumped to more than 9,000 barrels of oil equivalent per day, up 11% from the third quarter. Meanwhile, January saw the start of its 2022 drill program.
“The success of our 2021 drill program supports our plans to conduct a continuous single-rig drill program for the foreseeable future in 2022…As of January 1, 2022, nearly 60% of our low cost hedges have lifted, allowing for significantly higher revenues in 2022 assuming the current oil price environment continues. “
Paul D. McKinney, CEO
McKinney isn’t the only one showing optimism in Ring. A look at the options market shows a similar sentiment initially.
Volume of REI shares and unusual options
In particular, REI call option contracts expiring this month are in focus. The $3.50 and $4 strikes saw higher open interest volume, and the $4 strike, in particular, saw unusual activity today. Over 19,000 contracts traded against only 2,761 of open interest.
Uranium Energy (NYSE:UEC)
Uranium stockpiles are also part of the energy stockpile discussion, with miners, refiners and suppliers benefiting. Thanks to the latest news on the Russian-Ukrainian conflict, nuclear is at the forefront of discussions. Russia seized a major nuclear power plant in Ukraine this week, with a sentiment of sympathy drawing traders’ attention to nuclear stocks.
Uranium Energy supplies raw materials for nuclear power generation and currently has two production-ready platforms in Texas and Wyoming. It also has a portfolio of resource-stage uranium projects in Arizona, Colorado, New Mexico and Paraguay.
Despite an initial price drop, UEC stock as a whole has maintained its bullish trend over the past few weeks. Friday’s action was much more volatile than other sessions. However, in the early afternoon, the penny stock managed to climb back above $3.70. This bullish trend also spilled over into the options market.
Volume of UEC shares and unusual options
In the case of UEC stocks, we looked at contracts from March and April. In particular, the April 14 UEC $4 calls saw unusual volume on Friday. It saw more than 1,300 contracts trading against just 663 of open interest. Meanwhile, the March call contracts as a whole showed a considerable level of open interest for all strikes compared to the same strikes for sales contracts. Does this mean the market is taking an even more bullish bet on UEC stocks, or is this a hedge for an impending decline?
Exela Technologies Inc. (NASDAQ: XELA)
We have observed a trend in the retail market which involves penny stocks under $1. These are some of cheapest penny stocks today and can become a source of enormous volatility. Even the slightest movement of a few pennies can amount to a large percentage of movement. Exela Technologies is one of the sub-$1 penny stocks that seems to have caught even more attention from options traders. We will discuss this below.
One of the biggest catalysts putting XELA stock on traders’ radars was an update earlier this year. The company announced that it had renewed a $35 million contract with a consulting firm. Exela also announced a repurchase of 100 million shares at $1 per share through a new note exchange offering. At the time, it represented a premium of more than 80%. While the exchange offering was supposed to close last month, it was recently extended to expire later this month.
Volume of XELA shares and unusual options
Since this exchange offer took place, the options market seems to have woken up a bit more. In particular, the March 18 $1 and $2.50 calls were revealed. Both have open interest between 26,000 and 46,791 contracts. Additionally, $1 strike calls saw a further surge in volume today, trading over 2,400 contracts before the end of the day.
Finding the Best Penny Stocks to Buy
This is just one way to search for penny stocks to add to your watchlist. Sentiment has become a key driver for retail traders in particular. Whether it’s unusual options activity or above-average trading volume, news, deposits, a mix of each, data is king. Knowing how to use this data to your advantage is equally important. Based on this information, are any of these names currently on your list of penny stocks?
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