Unusual Options Activity In Time Warner Cable $TWC
Unusual Options Activity In Time Warner Cable $TWC
As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason… Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week…
Time Warner Cable $TWC is a well known provider of video, data, and voice services. In a nutshell, the company is one of the largest cable providers in the US. Check here for more info on the business.
$TWC is around even for the year. The current share price of $155.26 is just 3% from the 52-week high and 23% above the 52-week low.
So what does unusual options activity in $TWC tell us?
$TWC has been in the news a lot lately with a proposed $45 billion takeover bid from Comcast $CMCSA. Clearly, anytime you have an acquisition or merger that big, it’s going to draw lots of attention.
However, at the end of last week, Comcast dropped its bid for Time Warner after the government made it clear it wasn’t a fan of the deal (anti-trust issues). The end of this particular bid could open the door for several more opportunities involving $TWC.
Here’s the deal…
A trader sold 6,500 TWC June 140 puts, while simultaneously selling the same amount of June 160 calls. This type of spread is a called an options strangle.
The spread traded for a total of $5.50 for both options. That means the trader collected over $3.5 million in premiums. He or she will collect the full premium amount if $TWC closes between $165.50 and $134.50 by June expiration.
So why attempt to pick a range when a merger or acquisition is a strong possibility?
The trader likely believes $TWC isn’t likely to make a big move by June with the Comcast deal falling through. It will probably take a while for the next proposal to come together.
What’s more, there’s certainly a lot of premium in the options given the recent volatility. After all, the trader is collecting a very nice amount of premium for the stock to close in a roughly $30 range.
Here’s the chart of $TWC:
As you can see from the chart, $TWC has been fairly volatile over the last couple months. The shares are now trading above the 50-day moving average after the deal with Comcast fell through.
The strangle seller seems to be planning on the stock to trade around the 50-day moving average for the next several weeks. Given the scenario, I think this makes sense. And, with premiums so high, it’s a smart time to sell the options despite the risk.
More Options Trading Ideas…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
Yours in Profit,
Gordon Lewis
Note: Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com. You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.
Category: Unusual Options Trading Activity
