Shares of cable giant Comcast Corporation (CMCSA) slid on Tuesday as the company warned on declining cable subscribers. One trader sees the room for a further drop in the months ahead.
That’s based on the November $50 puts. With 64 days left on the trade, over 32,100 contracts traded against an open interest of 201 contracts, for a 160-fold jump in volume. The buyer of the puts paid $0.85 to make the trade.
With shares currently around $55, it would take a drop of just under 10 percent for the options to move in the money.
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Even with the recent drop, shares have performed about in line with the S&P 500 index. While cable subscribers have been dropping, the company has other operations and has been growing, with earnings and revenue up 25 percent and 20 percent respectively in the past year.
Action to take: Some short-term weakness is possible, more likely as a result of overall stock market weakness than the company’s fundamentals. Investors may want to buy shares on a drop under $50, where they can pick up shares at a yield over the current rate of 1.7 percent.
Traders may like the put option in the short-term, with an eye towards quick mid-to-high double-digit returns on the trade. On a drop in shares in coming weeks, traders may then want to look at call options to play the rebound in shares as well.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.