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Option Bulls Target Comcast, GE After NBC Deal


CMCSA February 42 call sees active trading; GE call volume is also heavy.

Option traders quickly looked to capitalize on the announcement that Comcast Corporation (NASDAQ:CMCSA) was buying the remaining 49% of entertainment giant NBCUniversal from General Electric Company (NYSE:GE) for $16.7 billion. CMCSA shares immediately shot to a new 52-week high, while the equity's options trading quintupled its normal amount in early trading. Calls exceeded puts by more than 3,000 contracts, and also were trading at five times normal levels.

The most active was the short-term February 42 call, which has seen nearly 2,000 contracts change hands so far this morning. The option has seen volume far exceed open interest, and a good portion of the calls went off at the ask price -- likely indicating some new positions were purchased to open. At a volume-weighted average price (VWAP) of $0.15, the shares need to reach $42.15 (strike price plus VWAP) at the close Friday (the expiration date) to break even. That's a mere 1.8% jump from current levels for CMCSA. If the stock is unable to surpass the strike price, all the traders would lose is the premium paid. The current delta on the option is 24, meaning the option now has about a one-in-four chance of being in the money at expiration -- that delta increased by nearly 20 percentage points overnight due to the NBC purchase.

This bullish attitude is more of the same for CMCSA. The equity's 10-day call/put volume ratio stands at 2.55 according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), meaning traders are buying to open 2.5 calls for every put. And that reading stands in the 74th percentile of other similar data from the previous 12 months, meaning traders are relatively more bullish on the stock. In addition, CMCSA has seen its short interest drop by 7.2% in the last two reporting periods, as bearish investors wound down their positions.

As stated, yesterday's announcement drove CMSCA up to a new annual high this morning, although the stock has been on a steady climb over the last 12 months after hitting its annual low of $26.93 on Feb. 14 last year. It is up roughly 50% year over year, and has jumped 10.8% so far this year. Comcast had previously purchased 51% of NBC Universal in 2011, and the new deal includes all properties, including the vaunted 30 Rockefeller Center in New York City.

As for GE, overall options trading is up to four times that of a normal trading day, with calls more than doubling puts. But that's nothing new -- the equity's Schaeffer's put/call open interest ratio (SOIR) stands at 0.57, just 1 percentage point from its lowest point in the last 12 months. That means traders have almost never been as bullish as now for GE options that expire in the next three months.

This article by James Pilcher was originally published on Schaeffer's Investment Research.

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