Why More Downside Could Be Ahead for Time Warner Inc. (TWX)

Time Warner Inc (TWX) option traders have shown a preference for bearish bets over bullish

Karee Venema
Jan 20, 2015 at 10:58 AM
facebook twitter linkedin


Time Warner Inc (NYSE:TWX) is down 3.3% to test support at the round-number $80 mark, after Morgan Stanley cut its rating on the stock to "equal weight" from "overweight," and slashed its price target by $5 to $85. The news is likely being met by cheers from options traders, who have been piling up on long puts in recent months.

Specifically, the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.79 ranks in the 89th annual percentile. In other words, puts have been bought to open over calls with more rapidity just 11% of the time within the past year.

Echoing this put-skewed preference is TWX's Schaeffer's put/call open interest ratio (SOIR) of 1.30. Not only does this show that puts outweigh calls among options set to expire in three months or less, but it ranks higher than 87% of similar readings taken in the past year. Simply stated, short-term speculators are more put-heavy than usual toward TWX.

This skepticism hasn't spilled outside of the options pits, though. In fact, 21 out of 24 covering analysts maintain a "buy" or better rating, with not a single "sell" to be found. Plus, the consensus 12-month price target of $92.22 stands at a 14.7% premium to TWX's current price at $80.38, as well as in territory not charted since August 2001. Should the shares extend their recent slide -- TWX is off 8% from its Dec. 29 high at $87.44 -- an additional round of downgrades and/or price-target cuts could be on the horizon.

On the fundamental front, Time Warner Inc's (NYSE:TWX) American Sniper is garnering buzz due to its impressive opening weekend. However, the content of the film is being met with mixed reactions from some of Hollywood's most recognizable names. Meanwhile, the firm could have some new competition, after Amazon.com, Inc. (NASDAQ:AMZN) unveiled its newest venture.


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 

Partnercenter