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Bearish traders have descended upon TiVo Inc. (NASDAQ:TIVO - 10.34) in droves today, with roughly 10,000 puts across the tape so far. This is about 19 times the equity's average daily put volume. Speculators may be taking advantage of the fact that TIVO options are relatively cheap right now, as Schaeffer's Volatility Index (SVI) of 31% hovers just four percentage points above an annual low. In other words, now is an opportune time for skeptics to bet on a decline for the shares.
A healthy portion of today's put activity has centered around the near-the-money December 10 strike, with more than 5,100 of these contracts trading at a volume-weighted average price (VWAP) of $0.53. The vast majority changed hands at the ask price, suggesting they were bought. Since current open interest at this strike slightly exceeds today's volume, it cannot be said with certainty whether new positions are being added here. However, implied volatility was last seen 3.8 percentage points higher, hinting at the initiation of new bearish bets. If these puts were, in fact, bought to open, traders will need the stock to sink below $9.47 (strike price less the VWAP) by December expiration.
It also appears as though traders are closing out a three-legged, January-dated spread by buying 5,200 of the 9-strike puts and selling to close the 11/14 call spread. This spread was opened back in mid-May, according to Trade-Alert, for a net credit of $0.05 when TIVO was trading at $10.23. Today, it is being closed for a credit of $0.12.
Today's uptick in put volume runs counter to TIVO's current trend. In fact, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than eight calls for every put during the past couple of weeks. This 10-day call/put volume ratio resides in the bullishly skewed 57th annual percentile, reflecting a healthier-than-usual appetite for calls over puts.
However, although short interest on the entertainment software provider declined by about 5% during the most recent reporting period, these pessimistic bets still account for about 10% of TIVO's available float. It would take nearly a week to unwind these shorted shares, at the stock's average daily trading volume. This suggests that some of the aforementioned buy-to-open call volume could be attributable to short sellers looking to hedge their bets.
Meanwhile, nearly all of the analysts covering TIVO harbor high expectations for the equity, with 12 deeming it worthy of a "strong buy" endorsement, compared to just one "hold" rating and not a single "sell" recommendation. What's more, the security's average 12-month price target sits at $15.11, representing expected upside of about 48% to Friday's closing price of $10.23.
From a technical perspective, TIVO has climbed more than 15% so far this year, and has outperformed the broader S&P 500 Index (SPX) by almost 12 percentage points during the past three months. On the charts, the stock's recent pullback was contained by its 50-day moving average, which has acted as a floor since late July.
It should also be noted that TIVO is tentatively scheduled to report quarterly earnings at the end of the month, and has topped consensus bottom-line estimates in three of the past four quarters. Should the company top analysts' projections yet again, today's put players could find themselves rethinking their bearish positions.