Short-Covering Tailwinds May Send Discovery Stock Soaring

Options traders have been quite bearish in recent weeks

Managing Editor
Oct 10, 2018 at 2:05 PM
facebook twitter linkedin


Shares of Discovery, Inc. (NASDAQ:DISCA) are up 1.2% at $32.74 in afternoon trading, the stock still buzzing on its morning upgrade at Credit Suisse to "outperform" from "neutral," and price-target hike to $40 from $30. Below, we will take a look at how DISCA has been faring on the charts long term, and see why now may be an attractive time to jump onto Discovery stock with options.

As we suspected, DISCA has been climbing higher on the charts since late 2017. In early June through mid-September, the security also benefited from the rising 60-day moving average. Also guiding the shares higher during this period was the $25-$26 floor of support, which the broadcasting stock managed to bounce off of on Sept. 11. The stock recently touched a three-year high of $34.06 on Oct. 5, and is now up 45.4% year-to-date.

Daily Chart of DISCA with 60MA and Highlight

Digging deeper, data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows Discovery stock with a 10-day put/call volume ratio of 8.05, ranking just one percentage point from an annual high. This lofty ranking suggests puts have been purchased over calls at a much faster-than-usual clip during the past two weeks. 

What's more, short interest has fallen nearly 5% during the most recent reporting period, with 29.81 million shares still held by short sellers. Accounting for nearly 6.7% of DISCA's total available float, it would take shorts six days to cover their bearish bets -- meaning short-covering tailwinds may push the security even higher.

Lastly, short-term options are attractively priced right now, from a volatility perspective. This is according to the security's Schaeffer's Volatility Index (SVI) of 34%, which sits in the 19th percentile of its annual range. In other words, muted volatility expectations are being priced into short-term contracts.

 

Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

 
Schaeffer's Daily Bulletin Offer
 


 


 
Special Offers from Schaeffer's Trading Partners