Did a FOXA Shareholder Just Spend $7.5M to Hedge?

Someone isn't so sure about Twenty-First Century Fox Inc's (FOXA) future without Rupert Murdoch

Jun 17, 2015 at 2:48 PM
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You've probably heard by now that legendary media mogul Rupert Murdoch is stepping down as CEO of Twenty-First Century Fox Inc (NASDAQ:FOXA), handing the reins over to his sons, James and Lachlan. The front-office change has left at least one trader somewhat skeptical, as someone bought to open 53,700 January 2017 25-strike puts this morning. This bet alone is 19 times FOXA's expected daily put volume. 

Looking at the numbers from Trade-Alert, the trader purchased the contracts for $1.40 apiece, bring his initial cash outlay to about $7.52 million (premium paid * number of contracts * 100 shares per contract). In short, he will profit if the shares breach $23.60 (strike less premium) before January 2017 expiration. Looking back, FOXA hasn't traded south of this breakeven mark since January 2013. 

Given the fact that these options are so far out-of-the-money, this trader may not actually expect to profit from this trade. Specifically, it's possible that this is a large FOXA shareholder buying insurance for his position, to protect against a steep pullback.

Usually, the activity in FOXA's option arena is extremely bullish. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that almost 25 calls have been bought to open for each put during the past two weeks. Also, the resultant ratio of 24.77 is higher than 85% of all others from the past year, meaning call buying has been much more popular than normal. 

It's not like Twenty-First Century Fox Inc (NASDAQ:FOXA) has been lighting it up on the charts. The shares are down 15% in 2015 to trade at $32.63. However, the stock is up 1.2% this afternoon, despite a "market perform" initiation at JBL Advisors.


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