Unusual Options Activity: Discovery (DISCA)

Shares of media giant Discovery (DISCA) surged higher at the start of the year, then imploded as a hedge fund blew up. In recent sessions, shares have started to trend higher. One trader is betting that the rally will continue.

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  • That’s based on the August $37.50 calls. Over 33,660 contracts traded against a prior open interest of 234, for a 144-fold jump in volume. The buyer of the calls paid about $0.58 to make the trade.

    With shares trading just over $31, a move to $37.50 is about a 20 percent move higher. That’s a bit steep for a trade with just under two months to play out, but if the current uptrend holds, the option could at least post some profits before coming back down.

    Even with the knockdown in shares, Discovery has beaten the S&P 500 by 10 points over the past year. And trading at 11 times earnings, the company is priced like a value play, even as it has some growth potential.

    Action to take: Shares could continue to recover from here. Investors may like the company, but it doesn’t pay a dividend and there are other media companies that do right now.

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  • As a trade, the August calls are somewhat on the aggressive side, but a big jump in shares could push returns on the option to the triple-digit range.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.