Outperforming DISCA Dips After Downgrade

The options pits have been overwhelmingly bearish on the stock

Deputy Editor
Mar 23, 2021 at 10:23 AM
facebook twitter linkedin

The shares of Discovery Communications Inc. (NASDAQ:DISCA) are down 5.5% to trade at $70.52 at last check, after UBS downgraded the stock to "sell" from "neutral." Though the equity is off to a strong start, the firm expects streaming tailwinds to simmer down, and cited the stock's year-over-year outperformance as a challenge for DISCA's current risk/reward profile. However, UBS also hiked its price target to $46 from $24. 

DISCA has been soaring since the start of the year, carving out a clean path of higher highs with help from its 10-day moving average. Today's dip has the equity faltering further from its March 19 record high of $78.14, with the $78 level rejecting the stock during yesterday's trading as well. Year-to-date, the security is up around 130%. 

The brokerage bunch was already quite bearish on DISCA coming into today. Of the 16 analysts in coverage, 12 carried a "hold" or worse rating. Plus, the 12-month consensus price target of $46.80 stands at a 32.2% discount to current levels. 

Sentiment is similar in the options pits, per Discovery Communications stock's 10-day put/call volume ratio of 3.33 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than all but 1% of readings from the past year, indicating a much stronger-than-usual penchant for long puts during the last couple weeks. 

Meanwhile, short interest represents a healthy 29.1% of the stock's available float. In other words, it would take over five days for shorts to buy back these bearish bets at DISCA's average pace of trading. 




These investors are using the market's volatility to their advantage and scoring triple-digit gains on many of their trades.

Even in today's sideways bear market, this trading strategy has continued to provide consistency and profitability to a small group of investors. By using this approach, these traders are removing directional risk and still hitting triple-digit returns. If you want access to this strategy, and lower risk with higher returns sounds good to you, then don't wait another minute.

Join us now to receive our next trades the moment they come out!


Common mistakes options traders make


Special Offers from Schaeffer's Trading Partners