By Jud Pyle, CFA, chief investment strategist for the Options News Network
seem to still be reacting positively following a "buy" initiation from MKM Partners on April 21, but at least one investor bought puts during today's session on a bet that the stock could pull back throughout the next few months.
DISCA is currently up nearly 2%, or roughly 65 cents, to $37.28 without any company-specific news today. The media and entertainment company is due to announce earnings on April 30 before the market opens, and analysts estimate earnings of 34 cents a share. MKM Partners set a price target of $41 and said the company is well-positioned for outperformance throughout the next year. But options action during Friday's session suggests at least one investor anticipates a possible drop by mid-July.
During today's session, a block of 26,175 out-of-the-money July 35 puts changed hands for a premium of $1.25 per contract, which was the ask price at the time of the trade. These puts are home to current open interest of just 208 contracts, indicating investors initiated the action to open. This long put position will make money if DISCA shares drop lower than $33.75 prior to July options expiration, in which case the buyer will collect significant but limited gains as the stock moves closer to zero.
If DISCA stock remains at its current level, this trade caps any losses at the premium paid, or $1.25 per contract.
Put-buying action such as this is not the only reason to short shares of DISCA. However, keep in mind that the stock is just cents off its 52-week high, and at least one investor is willing to risk a total of $3,271,875 on a bet that the stock is due for a pullback.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."