Intelsat Options Pop After RBC Says "Buy the Dip"

Intelsat shorts could be hedging with call options

Mar 6, 2019 at 12:38 PM
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Intelsat SA (NYSE:I) surged 1,445% from its February 2018 intraday low at $2.44 to its Oct. 17 record high of $37.70. Since then, the stock has pulled back drastically, last seen trading at $18.50. Nevertheless, RBC said "this lower share price represents a great buying opportunity," and raised its rating on the communications satellite services provider to "market perform" from "underperform."

Overall, analysts are split when it comes to Intelsat, with half of those in coverage maintaining a "hold" or worse recommendation, and the other half a "buy" or better. However, the average 12-month price target sits all the way up at $33.03.

Meanwhile, in Intelsat's options pits, speculators have shown a clear preference for calls over puts. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.14 calls for every put over the past 20 sessions. Plus, call open interest of 166,334 contracts is at a 12-month peak.

It's a similar set-up in today's trading, with 11,000 calls on the tape so far, compared to 3,562 puts. While most of the action is centered at some call spreads in the January 2020 series, shorter-term traders appear to be purchasing new positions at the April 18 calls -- betting on today's positive price action to continue over the next six weeks.

While it's possible traders are using calls to bet bullishly on I stock, it's also likely short sellers are initiating an options hedge against any additional upside risk. Though the stock remains on the short-sale restricted list today following Tuesday's sharp sell-off, short interest rose 13% in the most recent reporting period to 14.19 million shares. This represents roughly one-quarter of Intelsat's available float, or 6.5 times the average daily trading volume.

Looking closer at the charts, I shares are down more than 51% from their mid-October peak. The stock attempted to find a foothold at its 200-day moving average several times in recent months, but broke below the trendline earlier this week. These losses accelerated yesterday, with the stock tumbling 15.9%, after a Bloomberg Law report indicated several U.S. lawmakers may threaten to block a Federal Communications Commission (FCC) proposal that would allow foreign satellite providers to sell their rights to public airwaves to wireless providers and pocket the estimated $40 billion in profits.

intelsat daily chart march 6


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