Massive Leveraged Trade in Media Space: Options Activity

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Disclosure: This post is intended for educational purposes only and should not be considered a recommendation. Options trading may not be suitable for all investors.

A massive, high-risk options trade is looking for upside in the takeover-frenzied media space.

Here’s the transaction that appeared Friday morning in Twenty-First Century Fox (FOXA):

  • 35,000 August 48 calls were bought for $1.10.
  • 35,000 August 50 calls were sold for $0.46.
  • 35,000 August 46 puts were sold for about $0.65.
  • That boils down to a net cost of roughly zero.
  • It was the largest trade in the entire options market all session.

The position combines two bullish strategies. First, they bought 48 calls and sold 50 calls as part of a bullish spread that will leverage a rally to the higher strike. Second, writing puts generated income to help offset the cost.

It also comes with potentially huge risk because they can lose money under $46 — all the way down to $0. Don’t try this at home! (See our Knowledge Center.)

FOXA rose 0.25 percent to $47.53. It’s up about 25 percent in the last two months thanks to bidding war between Comcast (CMCSA) and Walt Disney (DIS). Traders should realize there are several moving pieces to the activity, with FOXA also targeting the U.K.’s Sky and regulators on both sides of the Atlantic are reviewing the proposals.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.