Stocks quoted in this article:
TiVo Inc. (NASDAQ:TIVO) was targeted by put players on Thursday, with the contracts trading at nearly 12 times the average daily volume. The most sought after position was the November 12 put, which saw 9,160 contracts change hands for a volume-weighted average price (VWAP) of $0.36. The majority of the puts went off on the ask side, implied volatility rose 5.6 percentage points on the day, and open interest jumped overnight. Summing it all up, it seems safe to assume that a new batch of bearish bets was initiated here.
By purchasing the puts, speculators expect TIVO to fall south of the $12 level by the close on Nov. 15. More specifically, the traders will begin to profit once the stock breaches $11.64, which is the strike price less the VWAP. This breakeven mark represents expected downside of 7.4% from the security's current perch at $12.57. Considering the equity has not traded below $12 on an intraday basis since Sept. 10, delta for the put is currently docked at negative 0.32, or 32%, suggesting a less than 1-in-3 chance the option will find its way into the money ahead of expiration. Should TIVO remain above $12 over the next six weeks, the most yesterday's put buyers stand to lose is the initial cash outlay.
Looking elsewhere reveals that these speculators were willing to pay a bit more for their bearish bets. At last night's close, implied volatility at the November 12 put was inflated relative to TiVo Inc.'s 40-day historical (realized) volatility (32.5% vs. 26.4%). In other words, premium is relatively expensive at the moment.
On the charts, TIVO is up a slim 2.1% on the year. However, since hitting its most recent low of $10.47 on Aug. 19, the equity has added an impressive 20.1%. This positive price action has been highlighted by the stock's 10-day moving average, which previously served as resistance in late July and early August, but appears to have switched to a supportive role. In light of this, yesterday's put activity could represent TiVo Inc. (NASDAQ:TIVO) shareholders protecting recent paper profits from a near-term downturn.
Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis® perspective, please visit our Trading Floor Blog section.