Time Warner Inc (TWX) and the $1.2 Million Bearish Bet

Time Warner Inc puts continue to see accelerated activity

by Karee Venema

Published on Nov 21, 2014 at 2:49 PM
Updated on Apr 20, 2015 at 5:32 PM

Option bears have set their sights on Time Warner Inc (NYSE:TWX) in recent months, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 50-day put/call volume ratio of 0.58 ranks higher than all other readings taken over the past year, meaning puts have been bought to open over calls at an annual-high clip.

It's a similar setup in today's session, with puts trading at nearly 14 times the intraday average, and outpacing calls by a roughly 10-to-1 margin. The majority of the day's put volume occurred when two massive blocks totaling 22,604 contracts were bought to open at TWX's December 75 put. If this activity came at the hands of one trader, she ponied up roughly $1.2 million for her bearish bet ([11,852 contracts * $0.54 premium paid] + [10,752 contracts * $0.55 premium paid] * 100 shares per contract).

This is the most the speculator stands to lose, should TWX maintain its perch atop $75 through the close on Friday, Dec. 19, when the soon-to-be front-month contracts expire. Meanwhile, her profit will accrue on a move south of the respective breakeven marks of $74.46 and $74.45 (strike less the premiums paid). The options market isn't too confident the put will be in the money at expiration, as its delta is docked at negative 0.18.

This bearish positioning is a bit surprising, considering TWX is up roughly 20% in 2014. As such, it's possible that a portion of the recent put buying -- particularly at out-of-the-money strikes -- could be a result of shareholders protecting paper profits against an unexpected decline.

Today, the shares are off 0.6% at $80.09, despite two upbeat fundamental developments. Specifically, DISH Network Corp (NASDAQ:DISH) has extended an olive branch to TWX's Turner Broadcasting division -- as well as CBS Corporation (NYSE:CBS). Additionally, Time Warner Inc (NYSE:TWX) scored a legal victory in its proposed merger with Comcast Corporation (NASDAQ:CMCSA).


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