The past week has seen a large selloff in shares of Discovery (DISCA), as a hedge fund went through a forced liquidation. One trader sees a potential rebound in the coming months.
That’s based on the May 2021 $75 calls. Expiring in 51 days, over 12,660 options traded, a 41-fold rise in volume from the prior open interest of 307. The buyer paid about $0.50 for the trade.
With shares in the $40 range, a move to $75 requires a high double-digit move higher for the trade to move in-the-money. With a 52-week high of $78, and with shares down nearly 45 percent in the space of a week, the trader is betting on a quick rebound back to prior highs, as opposed to a slower recovery.
- Man Who Predicted 2008 Crash: “The Mother of All Crashes is Coming”
If you've watched the movie The Big Short,you've heard of Michael Burry. He was one of the few who no only predicated the 2008 crash but profited from it.
He made $750 million for his investors and $100 million personally when his bet against the housing market paid off. His next big prediction?
He's warning the "mother of all crashes" is coming.
If you have any money in the markets, I urge you to click here and get the exact day of the next stock market crash.
Action to take: Even with the recent drop, shares are still up 110 percent from their pandemic low. Some move higher as the forced liquidation ends, as the balance between supply and demand for shares comes back to an equilibrium. And if traders are looking to buy the dip, shares may indeed rebound strongly.
That makes the May trades look attractive. While somewhat short-term, it’s got high return potential on a move higher, even with the increasing implied volatility in the past few days.
Investors may like shares here as well, although shares don’t pay a dividend.