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Comcast Corporation (CMCSA) Sees a Spike in Longer-Term Trading

One strategist employed a short strangle on CMCSA

by 3/5/2013 10:18 AM
Stocks quoted in this article:

Comcast Corporation (NASDAQ:CMCSA - 40.80) saw some options activity on both sides of the trading fence on Monday, with roughly 14,000 calls and 15,000 puts crossing the tape -- about double the equity's average single-session volume. A large portion of this volume was concentrated on the January 2014 series of options, with one strategist betting on minimal long-term movement for CMCSA.

Specifically, matching blocks of 8,255 contracts were simultaneously sold at the January 2014 50-strike call and the January 2014 35-strike put -- the former for $0.36 each, and the latter for $1.69 apiece. This resulted in a net credit of $2.05 per pair of contracts. Because open interest surged at both strikes overnight, it's likely that one trader constructed a short strangle on CMCSA.

Essentially, the trader is betting on the stock to close at or between the strike prices at expiration -- rendering both options worthless, and allowing him to pocket the net credit received, which represents the maximum profit on the play. There are two breakeven rails in this strategy: $32.95, or the put strike minus the net credit; and $52.05, or the call strike plus the net credit. However, should the shares rise north of the $52.05 mark, the trader's losses could be theoretically unlimited. (Losses if the stock is trading south of $32.95 at expiration are unlimited down to $0.)

From a broader perspective, CMCSA calls have been preferred over puts in recent months. In fact, the equity's 50-day call/put volume ratio checks in at 2.79, indicating calls bought to open have nearly tripled puts during the past 10 weeks. This ratio is just 5 percentage points shy of annual high, meaning speculators have rarely picked up bullish bets over bearish at a faster clip during the last 12 months.

The broadcasting giant has put in a decent performance on the charts lately, having gained more than 9% year-to-date, and roughly 40% on a year-over-year basis. What's more, CMCSA tagged a record high of $42 on Feb. 13 after the company revealed it will acquire the remainder of NBCUniversal from General Electric Company (NYSE:GE).


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