CBS Sees Put-Selling: Options

By Jud Pyle, CFA, chief investment strategist for ONN.tv

CBS(CBS Quote) was downgraded by Argus to hold from buy in the second week of August, resulting in heavy put-buying activity. We're seeing the opposite going on today, giving investors who remain bearish on CBS a healthy supply of puts.

Looking at the Oct. 10 puts, more than 5,200 contracts have hit the tape today, and most of the action happened on the sell side (there were more sellers than buyers). The volume-weighted average of these puts is 60 cents (meaning investors who sold these puts are essentially calling a floor in the stock around $9.40).

These puts are home to current open interest of 432 contracts. The Oct. 10 puts have a delta of 30, meaning for every dollar move in the underlying, the puts should move 30 cents. CBS shares are currently trading up 4 cents, meaning these puts should have moved slightly more than 1 cent. The Oct. 10 puts have dropped 5 cents on the day, however, indicating more investors sold these options and are pushing their price down. These puts have an implied volatility of 65 and a 30-day realized volatility of 63.

CBS shares are currently trading at $11, down from $11.14 when we last covered option activity in CBS. In that article, we saw more than 18,350 Dec. 7.5 puts change hands with a volume-weighted average price of 50 cents. These puts had an implied volatility of 78 vs. the 30-day realized volatility of 92. Put-buyers of the Dec. 7.5 puts need CBS shares to expire lower than $7 to make money.