The Nasdaq fell 1.38% on Thursday after poor results from Intel (INTC), Alphabet (GOOGL), and Amazon (AMZN). AI spending concerns continue to plague tech stocks. However, despite yesterday’s decline, the index headed into Friday trading up 0.89% for the week.
Nasdaq 100 E-Mini (NQZ26) futures were weak in pre-market trading, down 2.43%. The threat of renewed hostilities in Iran isn’t helping stocks as oil prices push higher and the 10-year Treasury yield hit 4.91%.
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Economic numbers released this morning will likely move markets. So too will earnings reports from Exxon Mobil (XOM) and Chevron (CVX), which should be extremely healthy given oil prices during the June to September quarter.
In yesterday’s options markets, volume was 13% lower than the 90-day average of 62.03 million. As is typical, calls outnumbered puts 55% to 45%. Approximately 42% of the volume was 6 days or more. That’s where I focus my attention.
Thursday’s unusual options activity for options expiring in six days or more had just 26 options with Vol/OI (volume-to-open-interest) ratios of 25 or higher. A BCE (BCE) option had the highest at 172.78, the only one above 100.
I’m not sure what all the excitement was about for the struggling Canadian telecom and media company. Still, given my Canadian roots, I couldn’t help but make it the focus of today’s commentary.
Have an excellent weekend.
The BCE Option in Question
I’ve been writing about options for Barchart for more than four years. I can’t remember a time when a U.S.-listed, Canadian company led unusual options activity. It may have happened before, though I can’t recall.
The Nov. 20 $20 call had volume of 20,734 yesterday. That accounted for nearly 99% of BCE’s options volume Thursday, which was nearly 13 times the 30-day average of 1,636.
Something is definitely up. But what? I’ll get into that.
BCE Reports Earnings Next Week
The company reports its Q3 2026 results next Thursday before the markets open. It needs to deliver good news to investors. The stock is down 16% in 2026 and 61% over the past five years. Without the dividend, shareholders would have no reason to smile.
In May 2025, BCE management, desperate to clean up its balance sheet, cut its annual dividend by 56% to $1.75 from $3.99 previously. The payout ratio before the cut was over 100%, which was unsustainable.
In the 12 months ended June 30, it paid out CAD$1.63 billion ($1.17 billion) in dividends, 55% less than in 2024, the last year with the old dividend for four quarters. Reducing its dividend cash outflow by nearly CAD$2 billion ($1.43 billion) helps. The October payment was the sixth at the lower rate.
Despite the dividend cut, its trailing 12-month levered free cash flow through Q2 2026 was CAD$2.60 billion ($1.86 billion), lower than it has been since March 2025 and, before that, September 2023.
It continues to invest in growth, just not in legacy businesses like media and domestic telecom, pushing its CAD$4 billion-plus ($3.0 billion) in 12-month capital expenditures into AI-related initiatives.
To help pay for that, it announced on Tuesday that it was selling 49.9% of its wireless tower infrastructure business to La Caisse, Quebec’s pension plan, for $1.75 billion. It owns more than 5,000 wireless towers across Canada. The cash from the sale should be reflected in its Q1 2027 results.
In 2025’s results, it sold its 37.5% stake in MLSE (Maple Leaf Sports & Entertainment), the owners of the Toronto Maple Leafs, Toronto Raptors, and many other sports-related assets for a CAD$5.2 billion ($3.72 billion) gain.
These moves, along with a renewed focus on growth, have analysts becoming more positive on BCE stock. Of the 17 covering it, 10 rate it a Buy (4.0 of 5) with a $26.07 target price, 30% higher than its current share price.
As a result of the tower deal, TD Cowen analyst Vince Valentini raised his target price by 10% to CAD$44 ($31.50), while maintaining his Buy rating.
“We reiterate our BUY recommendation on BCE, as we see a more balanced and increasingly compelling risk/reward setup emerging,” the Globe and Mail reported.
Do Options Traders Agree?
As I already mentioned, almost all of BCE’s options volume yesterday was for the Nov. 20 $20 call. In fact, of the call’s 20,734 contracts traded, those of 100 or more accounted for 62% of the volume.
Of the 22 trades of 100 contracts or more, 16 were at the bid price, and just 3 at the ask price. Of the top 10 by trade size, shown below, eight of them were at the bid, while the top trade of 2,606 contracts was four cents off the bid and 31 cents off the ask.
It’s natural to assume that this much selling at the bid is bearish; the more likely scenario is that institutions are selling Covered Calls for an income boost on the shares they already own.
While assignment is possible, consider this scenario.
The institutions bought in early October at or near the 52-week low of $18.68. They believe that BCE will report lower earnings, which may or may not drop the share price on Nov. 5.
So, using the top trade of 2,606 contracts, the call generated $140,700 in premium and represented 260,600 shares. If they bought at $19 in early October, as I write this, the shares trade at $20.31, slightly ITM (in the money). They’re unlikely to be called away before Nov. 20.
But assuming they are, the institution’s profit is $401,300 [(260,600 shares * $20 strike price) + $140,700 premium - (260,600 shares * $19)], with 65% of the gains from share price appreciation and 35% from the call premium.
Unless the institution believes the share price in October was the bottom, the one-month return is very attractive.
Further, even if you only bought BCE shares yesterday at $19.81, the calls have a $20.54 breakeven, 3.7% higher. With a 0.4917 delta, the likelihood of the share price being above $20 is approximately 50/50.
I’m not a fan of BCE. I agree with the TD Cowen analyst that Rogers Communications’ (RCI) monetization of its sports and media assets makes it the better Canadian communications services stock. That said, institutions moving yesterday to grab some income makes a lot of sense.
On the date of publication, Will Ashworth did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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