Time Warner Cable Options (TWC): Unusual Trading Activity

| August 13, 2012 | 0 Comments

TWC OptionsOptions in cable network company Time Warner Cable (TWC) showed a large amount of trading activity just before the market’s close Friday.

The broad market continued its grind upward into the end of the week.  Both the Dow and the S&P 500 closed higher Friday capping off a fifth straight week of gains.

The question now is… with the S&P at a critical resistance level of 1,400, is the market poised for a breather?

It appears some option traders believe it is.

How do I know this?

Simple, option traders are beginning to buy more put options than call options on individual names.  In other words, traders are betting on stocks heading lower in the near term.

So, it’s not surprising that our tracking system is showing some put buying on companies that have seen nice run-ups lately. 

And Time Warner Cable is one of those names. 

Shares of the cable provider have been trending higher since the end of November, when they traded just above $57 a share.  On Friday, the stock closed just under $90 a share.

So, the big trade in TWC?

Our tracking system detected at least two traders buying 5,000 contracts of the TWC August $85 strike put options.  One block traded 2,700 contracts and another only eleven seconds later of 2,300 contracts.  The average price paid was $0.20 per contract.  

The total cost of the trade was a mere $100,000.  But, if the stock does pullback, these traders stand to make a huge profit.

Let’s remember… when buying puts, the maximum profit potential is unlimited.  The more the stock falls below the option’s strike price, the bigger the gain. 

And in this case, it’s not a bad potential pay-off!

So, why so much negativity around this name?

If you don’t already know, Time Warner Cable owns cable networks that pass roughly 29 million homes.  They serve more than 12 million television subscribers, 10.5 million high-speed internet access customers, and 5 million phone subscribers.

The company’s network covers much of Ohio, New York, and the Carolinas.  And major markets served include New York City, Los Angeles, and Dallas.

Nevertheless, the company has its fair share of problems moving forward. 

For one, TWC will continue to struggle to grow and maintain its margins. With phone companies skimming off television customers and the internet access business maturing, margins are under pressure.

In addition, the company’s fixed-line phone service is a declining business.  Internet-based video and wireless services are hampering growth.  And the problem is only likely to worsen as time goes on.

More importantly, wireless is a major hole in TWC’s service capabilities. The company is currently shifting its wireless strategy, selling off its spectrum holdings and abandoning long-time partners Clearwire (CLWR) and Sprint (S) in favor of Verizon Wireless (VZ).

The Clearwire arrangement’s failure demonstrates that partnerships are a poor substitute for outright network ownership.

Bottom line…

These points are leading some option traders to believe TWC is going to head down in a hurry. 

What do you think?

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.