Short-Term Time Warner Cable Inc. (TWC) Traders Make a Bold Bet

Takeover chatter has call buyers betting on a new record high for Time Warner Cable Inc (NYSE:TWC)

by Karee Venema

Published on May 22, 2015 at 2:50 PM
Updated on Jun 24, 2020 at 10:16 AM

It's been a big week on the M&A front, with Altera Corporation (NASDAQ:ALTR) making waves on Monday, and a trio of notable names snagging headlines today. Time Warner Cable Inc (NYSE:TWC) has also been in the spotlight, as speculation swirls that the company is in serious talks with both Altice and Charter Communications, Inc. (NASDAQ:CHTR). The reports have shares of TWC up 3.3% at $170.99 -- and fresh off a record high of $172.21 -- but option traders are calling for more.

Taking a quick step back, TWC calls are crossing at two times the average intraday rate, and are outpacing puts by a 2-to-1 margin. Most active by a mile is the equity's June 175 call, where the International Securities Exchange (ISE) indicates new positions are being purchased for a volume-weighted average price (VWAP) of $3.60.

Based on this average entry price, speculators need TWC to rally through $178.60 (strike plus VWAP) by the close on Friday, June 19 -- when front-month options expire -- or into never-before-seen waters. Since last night's close, delta on the call has jumped to 0.40 from 0.25, indicating an increased chance the option will be in the money at expiration.

Expanding the sentiment scope shows today's accelerated call activity is just more of the same. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TWC's 50-day call/put volume ratio of 1.42 rests in the 86th annual percentile.

Echoing this is Time Warner Cable Inc's (NYSE:TWC) Schaeffer's put/call open interest ratio (SOIR) of 0.97, which sits below 83% of all similar readings taken in the past year. In other words, short-term speculators are more call-heavy than usual toward TWC.

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