Today, a large tranche of 3M Company (MMM) call options traded at a deep in-the-money (ITM) strike price for an expiration date 5 months from now. That implies institutional investors are very bullish on MMM stock.

MMM stock is up today to $136.62 per share. I discussed 3M in an April 22 Barchart article, “3M Company Produces Good Q1 Earnings and Guidance - MMM Stock Looks Cheap.”

So, no wonder large institutions decided to buy large amounts of in-the-money (ITM) long-dated calls. This can be seen in the Barchart Unusual Stock Options Activity Report today.

Breakeven and Expected Return

It shows that over 23,000 call option contracts have traded at the $125.00 strike price (9/19/25 expiry), which is well below today's price. That means the investor in these calls already has at least $11.62 in intrinsic value (i.e., $136.62-$125.00).

The midpoint premium is $19.95, so the investor is overpaying (i.e., extrinsic value) by $8.83. In other words, MMM stock has to rise to $144.95, or only 6.1% more, before the trade is profitable. But the investor has 149 days for this to happen, or 5 months.

That makes this trade look very potentially profitable. Based on my prior article, MMM stock has a value of at least $150.15, based on analysts' price targets.

So, that means there is a good chance that this call option has an expected return (ER) of $5.20 of profit (i.e., $150.15-144.95 breakeven).

However, there is no guarantee that the investor will be able to make this in the next 5 months.

Shorting OTM Puts to Fund a Long-Dated Call

That is why sometimes it makes sense to also sell short out-of-the-money puts as well to help pay for this long-dated call option. That is what I discussed in the April 22 Barchart article.

However, that also involves putting up more capital.

I discussed shorting the May 23, 2025, expiry puts with a $132.00 strike price for a premium of $4.15 per put contract. That provided the investor an immediate yield of 3.14% (i.e., $4.15/$132.00). 

Today those puts are lower at $3.17, so it has already been profitable for the short-seller. But a new investor could short the $135.00 put option for a premium of $4.18, a 3.09% yield. That would also help pay for the $19.95 long-dated call option premium.

Moreover, if that short-put trade is repeated for the next four months, it could help pay for much of the call option premium (i.e., 4 x $4.18 = $16.72, or 83.8% of the $19.95 call option premium).

The bottom line is that MMM stock looks very cheap here. Buying long-dated in-the-money (ITM) calls, as well as shorting out-of-the-money (OTM) puts in nearby expiry periods (to fund the calls), has a good expected return (ER).