Shares of television entertainment company
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%.