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Dish Network Option Players Shoot for New Highs

DISH fans are picking up both short- and long-term calls

by 10/18/2012 1:16 PM
Stocks quoted in this article:

The shares of DISH Network Corp. (NASDAQ:DISH - 35.66) are trading 4.5% higher, with the stock poised to notch its loftiest close since mid-2008. Against this backdrop, the options crowd is initiating bullish bets on the TV provider, with speculators scooping up both short- and long-term calls.

In early afternoon action, the security has seen roughly 31,000 calls cross the tape -- about 17 times its average intraday call volume, and nearly 16 times the number of DISH puts exchanged. Garnering notable attention has been the near-the-money October 35 call, which has seen more than 5,600 contracts traded on open interest of fewer than 1,600 contracts, pointing to an influx of new eleventh-hour bets. Plus, 94% of the soon-to-expire calls changed hands at the ask price, hinting at buy-to-open activity.

By purchasing the calls to open, the buyers are expecting DISH to extend today's uptrend through tomorrow's closing bell, when October-dated options expire. Specifically, the volume-weighted average price (VWAP) of the calls is $0.25, meaning the buyers will profit the further DISH moves past the $35.25 level (strike plus VWAP). However, even if the shares retreat beneath $35 -- which rejected the equity's rally attempts earlier this week -- the most the buyers stand to lose is the initial premium paid.

Meanwhile, the longer-term bulls have honed in on the January 34 and 35 calls, which have seen roughly 2,800 and 1,800 contracts traded, respectively. Implied volatility on the 34-strike call was last seen higher, and volume has exceeded open interest at the January 35 strike -- both signs of fresh initiations. Furthermore, nearly all of the calls have traded at the ask price, signaling buyer-driven volume.

The VWAP of the at-the-money January 34 calls is $2.75, thanks to their added time value. As such, the buyers will reap a reward if DISH conquers the $36.75 level -- in territory not charted since late 2007 -- within the next few months. Meanwhile, the VWAP of the January 35 calls is $2.48, indicating a breakeven level of $37.48.

However, today's affinity for long calls goes against the recent grain. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.28 registers in the 68th percentile of its annual range, suggesting option buyers have picked up DISH puts over calls at a faster-than-usual pace during the past two weeks.

Broadening our sentiment scope, the majority of analysts are somewhat wary of DISH, despite the stock's rise of more than 33% during the past year. Currently, just seven out of 15 analysts deem DISH worthy of a "buy" or better endorsement. Likewise, the consensus 12-month price target sits at $34.43, representing a discount to the equity's new annual high of $36.01 tagged just moments ago.

As alluded to earlier, DISH has been on a tear recently, tacking on about 16.3% since the start of October. From a longer-term standpoint, the stock has spent the past few years embarking on a journey of higher highs and lows, with recent pullbacks contained by its 80-week moving average. Furthermore, DISH is poised to end atop recent resistance in the aforementioned $35 neighborhood. Should the security continue its long-term uptrend, an unwinding of pessimism in the options pits, or a wave of upbeat analyst attention, could add contrarian fuel to DISH's fire.

In today's session, the shares of DISH are 4.5% higher to hover just north of that $35 marker. The bulls could be reacting to news that trial proceedings in AMC Networks' lawsuit against DISH were abruptly adjourned yesterday, and are scheduled to resume next Monday -- prompting speculation that settlement talks are in the works.

Weekly Chart of DISH since February 2009 With 80-Week Moving Average


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