Gannett (NYSE:GCI) put volume spikes

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Gannet (NYSE: GCI ) shares lost 16 cents, or roughly 1.5%, to $13.25 on the day Thursday, slightly underperforming the broad-market sell off on the day. The shares have now dropped nearly 20% in a little more than a week. The August 11 puts were active this afternoon thanks to investors who appear to be willing to bet that GCI could decline another 17% between now and August options expiration.

At 3:40 EST, more than 15,000 of the August 11-strike puts traded for 50 cents per contract. There is currently no open interest in this strike, so obviously this volume was likely initiated to open. Based on the price action, this trade was initiated by a buyer. The investor who traded these puts will make money if GCI shares are trading lower than $10.50 at August options expiration in approximately 51 days. If the stock is trading below this breakeven level, the investor will begin to make money and continue to do so in direct relation to the stock's movement toward zero. On the other hand, if GCI shares remain higher than $10.50, this long put trade caps maximum loss at the premium paid, or 50 cents per contract.

One clue we have that buyers initiated this action is the rise of implied volatility on the day. The puts closed last night at 40 cents, which was an implied volatility of 70%. Today, that implied volatility has risen to closer to 75%. A price of 50 cents is obviously a 10-cent rise in the options today. Given that they had a delta of roughly 20, the options should have gained more like 2 cents, not 10.

Gannet confirmed today that they will release earnings results on July 16, before the market opens. Analysts are expecting the company to have earned 52 cents in this, their second fiscal quarter. That compares with earnings of 50 cents in the first quarter. What is interesting about this put purchase is that July options will not have expired by the time earnings are released. So if the bet is that earnings are a catalyst, then the investor could have spent less and bought the July contracts. But instead, they are paying up for an extra 35 days of option life.



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: GCI

Jud Pyle

Jud Pyle

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