DIRECTV (DTV) volatility trade boosts options volume

By
A A A

Shares of television entertainment company DIRECTV ( DTV ) were in the red during afternoon trading following news of its sales partnership with Google Inc. (NASDAQ: GOOG ) . A long strangle trade crossed the tape early on Wednesday, suggesting at least one investor expects greater volatility throughout the rest of the year.

DTV dropped 56 cents, or more than 1%, to $38.87 during afternoon trading. The stock was outperforming the broad market losses as of 2 p.m. EDT. The stock has recovered roughly 12% from its July low of $33.64 and is trading just 2% lower than its 52-week high of $39.89. It looks like at least one investor is betting volatility will spike and push the stock significant higher or lower prior to January 2011 options expiration.

By afternoon trading, more than 22,000 January 34-40 strangles changed hands. The January 34 puts crossed the tape for $1.35 per contract, which was the ask price at the time of the trade. The January 40 calls changed hands for $2.30 per contract, which was closer to the ask price when the volume hit the tape. This options action suggests an investor paid a net debit of $3.65 per strangle to buy volatility during the long term.

Investors could make a maximum profit of $30.35 if the stock is trading at zero at expiration, and could theoretically make unlimited profits to the upside if the stock is trading higher than $43.65 at expiration. If the stock is trading between the strike prices at expiration, the strangle buyer loses the entire premium paid. Implied volatility of the 34-strike puts is 33% while the 40-strike calls are trading with an implied volatility of 27%. DTV's 30-day historical volatility is 28%.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Options

Referenced Stocks: DTV , GOOG

Jud Pyle

Jud Pyle

More from Jud Pyle:

Related Videos

How to Save Money at Bars
How to Save Money at Bars           

Stocks

Referenced

71%
100%

Most Active by Volume

44,823,339
  • $75.19 ▲ 0.28%
43,744,171
  • $3.44 ▼ 0.29%
42,340,022
  • $97.671 ▲ 0.66%
34,178,145
  • $17.62 ▼ 1.23%
34,028,998
  • $15.59 ▼ 0.19%
32,055,708
  • $21.23 ▼ 2.41%
31,539,235
  • $3.76 ▲ 0.80%
30,434,619
    $34.25 unch
As of 7/25/2014, 04:03 PM