Entertainment Companies Draw Heavy Put Action: Options

There was heavy put activity today in CBS, Sony and Viacom.
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) -- Heavy put activity hit the tape in entertainment companies




(CBS) - Get Report



(SNE) - Get Report

Corp. Monday, and it's interesting that we saw more buyers than sellers.

Looking at VIA-B, the Dec. 20 puts traded nearly 7,000 times today with a volume weighted average price of 91 cents. These puts closed up five cents and were home to open interest of 184 contracts prior to today's trading. This put price computes to an implied volatility of 51 compared to a 30-day realized volatility of 42.

VIA-B shares, which closed up 18 cents to $25.17, are up 24% from a recent low of $20.31 reached on July 10. The company did not announce big news today to catalyze the put buying we saw today.

The SNE Jan. 2010 22.5 puts changed hands 6,500 times today and were home to open interest of 169 contracts. These puts had a VWAP of 76 cents and climbed two cents on the day. This computes to an implied volatility of 42 compared to a 30-day realized volatility of 39. The company did not announce significant news today. SNE shares have rallied 82% since bottoming out at $15.72 on Feb. 23. The stock closed up 24 cents to $28.58.

CBS saw the highest volume hit the tape out of these entertainment names, as more than 18,350 Dec. 7.5 puts traded today. These puts had a VWAP of 50 cents on the day, and were home to open interest of 1,326 contracts. That is an implied volatility of 78 versus the 30-day realized volatility of 92. Argus downgraded CBS to "hold" from "buy" today, which could have catalyzed put buying. CBS stock closed up 33 cents to $11.14, which is 92% up from a recent low of $5.80 on July 7.

The presence of put buyers such as these does not mean investors should run out and sell their shares of these companies. It is interesting, however, that on a day when there does not seem to be a lot of big news on the sector, at least one investor is buying some downside protection. The investor could be thinking that after the rally in the shares, some downside could be in the offing.

-- Written by Jud Pyle in Chicago

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."