Options Traders Target Time Warner Puts Ahead of Earnings

Put players have been targeting Time Warner Inc (TWX) at extremes levels in recent weeks

Feb 7, 2017 at 3:26 PM
facebook X logo linkedin

Time Warner Inc (NYSE:TWX) is gearing up for its fourth-quarter earnings report, due before the market opens tomorrow. The stock has a mixed history of post-earnings price action, but options traders appear to be betting on a downside move. Today, the shares are 0.1% lower at $96.24, following a disappointing revenue result from sector peer Twenty-First Century Fox Inc (NASDAQ:FOXA), and TWX puts are changing hands at an unusually rapid pace.

Taking a step back, TWX has been steadily climbing the charts over the past 12 months, adding 43%. The shares have been enjoying solid support from the rising 50-day moving average lately, and snagged a 15-year high of $97.35 just last week. Where the stock goes next could depend on tomorrow's earnings report, though it tends to make relatively muted moves -- averaging a swing of 3.3% in the post-earnings session over the past eight quarters, with half to the upside, and half lower. Currently, options are pricing in a milder 2.5% move in either direction for Wednesday.

Speaking of options, TWS puts are crossing the tape at roughly 1.4 times the typical intraday rate, with over 3,000 on the tape -- nearly tripling the 1,027 call options traded. Leading the action is the February 90 put, where it appears some speculators may be selling to open new positions -- a theory supported by International Securities Exchange (ISE) data. In other words, the put sellers are betting on the round $90 mark serving as a floor for TWX shares through front-month expiration, at the close on Friday, Feb. 17.

Meanwhile, put buying has been the prevailing trend among TWX options traders in recent weeks. Across the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has seen more than 10 puts purchased for each call over the last 10 sessions. Moreover, the resulting put/call volume ratio of 10.46 is docked at a 12-month high. Given TWX's recent run up the charts, however, it's plausible some recent put buyers may have been shareholders looking to protect their profits.

The brokerage bunch isn't completely convinced of Time Warner Inc (NYSE:TWX), either, with over half of analysts rating the shares a lukewarm "hold." There are signs of unwinding pessimism elsewhere, though. Short interest on TWX fell by nearly 31% during the two most recent reporting periods, and now represents less than 1% of the stock's available float. What's more, with 7.3 million shares sold short, these bearish bets are at their lowest level in nearly two years. 

Stay in the loop with stocks on the move. Sign up now for Schaeffer's Midday Market Check.

Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!