The shares of DIRECTV
(NASDAQ:DTV) ended the week notably lower, as a disappointing earnings forecast sent the stock south of its 200-day moving average. Nevertheless, some options speculators expect the proverbial bleeding to stop relatively soon, as evidenced by Friday's affinity for short puts.
By the closing bell, the satellite TV titan saw roughly 10,000 puts change hands -- almost three times its average daily volume, and close to double the number of DTV calls exchanged. Garnering notable attention was the March 48 put, which saw close to 2,400 contracts traded. Almost all of the puts crossed at the bid price, and open interest at the newly front-month strike swelled over the holiday weekend, pointing to sell-to-open activity.
By writing the out-of-the-money puts to open, the sellers expect DTV to remain north of $48 through the next few weeks. In this best-case scenario, the puts will stay out of the money, and the sellers can retain the entire premium received from the sale -- a volume-weighted average price of $0.62. However, if DTV breaches the strike within the puts' lifetime, the sellers could be assigned -- meaning they're on the hook to buy DTV shares at $48, a premium to what they'd pay on the Street.
Ahead of last week's earnings release, most option traders were bullish towards DTV -- but more traditionally so. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than two DTV calls for every put during the past two weeks. What's more, the stock's 10-day call/put volume ratio of 2.16 ranks in the 63rd percentile of its annual range, pointing to a healthier-than-usual appetite for "vanilla" calls of late.
Echoing that, the security sports a Schaeffer's put/call open interest ratio (SOIR) of 0.60, indicating that calls comfortably outnumber puts among options expiring within three months. Compared to similar readings of the past year, this ratio registers in the 21st percentile, suggesting near-term options players are more call-biased than usual right now.
As alluded to earlier, the shares of DTV finished Friday beneath their 200-day moving average for the first time in three months. However, the aforementioned put sellers are gambling on support in the $48 neighborhood, which contained DTV's pullback in mid-November, and hasn't been breached on a daily closing basis since late July.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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