Option Activity for TIVO & DTV -Thursday, August 05, 2010



I hope that your trading is going well, as I know that members of S.O.M.E. are making the most of the market movements and their returns.

Traders have tuned into TiVo Inc. (TIVO) and DIRECTV (DTV) recently, with option volume ramping up on both of these digital television titans. Taking a closer look, it seems this increased option activity on TIVO and DTV has different motivations.

TiVo Inc. (TIVO) Last week, speculation mounted on rumors that TiVo Inc.'s (TIVO) technology could make an appearance on Apple Inc.'s (AAPL) "Apple TV" using the same streaming technology TIVO has become synonymous with; however, rumors of the deal have since died down.

AAPL deal or not, TIVO could definitely use some help on the charts. The stock has surrendered 13.3% so far in 2010, underperforming the broader S&P 500 Index (SPX) by nearly 45 percentage points in the last 60 sessions. TIVO's technical woes were exacerbated in May, when the company squared off in a legal battle with EchoStar Corp, sector rival DISH Network Corp.'s (DISH) sister company. Currently, TIVO is docked beneath several notable layers of trendline support, most notably its 80-week moving average. This long-term moving average, located just north of the $10 level, has capped TIVO's progress since May 21 -- in fact, the stock has been fallen short of this trendline by roughly a point all throughout that time frame.

Option players have taken notice of this important level, as over 7,500 contracts traded on the August 10 call on Tuesday -- the majority of which crossed at the ask price, revealing they were likely purchased. Overnight, open interest increased substantially, revealing the addition of fresh bullish bets at this strike.

A few strikes higher and a few months back, the November 12 call saw volume of 2,513 contracts traded. Overnight, open interest increased by roughly 2,500 contracts, revealing that new positions were added at this out-of-the-money strike.



Option players have taken notice of this important level, as over 7,500 contracts traded on the August 10 call on Tuesday -- the majority of which crossed at the ask price, revealing they were likely purchased. Overnight, open interest increased substantially, revealing the addition of fresh bullish bets at this strike.

A few strikes higher and a few months back, the November 12 call saw volume of 2,513 contracts traded. Overnight, open interest increased by roughly 2,500 contracts, revealing that new positions were added at this out-of-the-money strike.

For the August series, the 9 strike holds the title of peak call open interest, with over 8,800 contracts in residence. However, after Tuesday's activity at the 10 strike, this call now has 8,247 contracts in open interest. With TIVO hovering around $8.83, these hefty accumulations of call open interest could add an additional roadblock to the shares in the near term.

Tuesday's attention to calls is nothing new; in the past two weeks, speculators on the International Securities Exchange (ISE) have bought to open 6.4 calls for every put, a ratio which ranks in 77th percentile of its annual range.

However, the shorts have also increased their exposure to TIVO lately. In the last month, short interest jumped by 23% -- 16% in the last reporting period alone -- and now accounts for roughly 12% of the stock's available float. With short interest rising in tandem with call buying, it seems that traders may be purchasing out-of-the-money calls on TIVO in order to hedge their bearish bets.

DIRECTV (DTV)

Meanwhile, option players have tuned into DTV ahead of the company's quarterly report. DTV will release its second-quarter earnings on Thursday, Aug. 5, with analysts looking for a profit of 60 cents per share. DTV has a checkered history with its quarterly reports; the company has twice surpassed, and twice fallen short of, analysts' expectations.

Pre-earnings puts were the name of the game on Tuesday, with some 3,330 puts changing hands -- roughly 1.4 times the stock's expected single-session put volume of around 2,400 contracts.

The September 38 put was by far most popular, with 1,410 contracts crossing the tape. Overnight, open interest at this strike increased by 1,347 contracts, revealing that fresh bearish bets were added here. With DTV trading around $37.74, these puts are just in the money.

Elsewhere, short interest jumped by 51% during the past month, and now accounts for 30 million shares, or 3.5%, of the stock's available float. In other words, it seems that traders are ramping up their bearish exposure to DTV ahead of earnings.

Technically speaking, it's somewhat surprising to see such pre-earnings pessimism on DTV. The stock has been trending slowly -- but steadily -- upward since January, adding roughly 11.7% so far this year. DTV has enjoyed long-time support from its 10-month moving average, which has neatly contained the stock's progress this year.



Yet with DTV having such a spotty performance history in the earning spotlight, it's not entirely surprising that traders have been betting against the digital diva. However, should DTV surprise everyone with its quarterly report tomorrow (or even simply live up to expectations), a reversal of bearish sentiment -- whether from option players or the shorts -- could help add to DTV's year-to-date gains.

Success is simple. Do what's right, the right way, at the right time.







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