Option Bears Cheer Rovi Corporation (ROVI) Legal Loss

Rovi Corporation (ROVI) lost its patent dispute with Netflix, Inc. (NFLX)

Jul 16, 2015 at 2:20 PM
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Entertainment technology firm Rovi Corporation (NASDAQ:ROVI) is falling to pieces this afternoon, after the company lost a patent dispute with Netflix, Inc. (NASDAQ:NFLX). Specifically, ROVI has plunged almost 20% to trade at $14.07, and earlier skimmed a two-year low of $13.36. On the Street, options traders are likely welcoming the bear gap with open arms.

During the last 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.11 ROVI puts for every call. Going back two weeks, this ratio stood at a call-skewed 0.76, suggesting speculators' appetite for bearish bets over bullish has been growing.

Echoing this negative bias is ROVI's Schaeffer's put/call open interest ratio (SOIR) of 1.78. Not only does this SOIR indicate put open interest nearly doubles call open interest among options in the front three-months' series, it also outstrips 78% of comparable readings from the last year. Put simply, short-term speculators are more put-biased than usual. This preference for puts over calls is reflected in this afternoon's activity, with put volume dwarfing call volume by a 5-to-1 margin.

Options traders aren't the only ones bearish toward Rovi Corporation (NASDAQ:ROVI). Over 24% of the stock's float is sold short, and would take more than two weeks to repurchase, at typical daily trading volumes. Today, however, ROVI has been placed on the short-sale restricted list.

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