Monster’s Perspective:
September was a great month for Time Warner

Chris McKhann and David Russell of optionMONSTER have been tracking the big media company Time Warner throughout the month of September and we thought the Traders Edge Network readers might be interested in their research.

On September 10th David’s headline read “Confidence Shown in Time Warner” over this TWX chart:

He wrote “One investor is selling puts in Time Warner as the media stock returns to levels last seen when the tech bubble was deflating”.

optionMONSTER’s tracking programs detected unusual volume in the October 41 puts, with 10,250 contracts trading against open interest of 1,724 contracts. They all changed hands for the $0.31 bid price, indicating that they were sold.

The investor is on the hook to buy shares in the media company for $41 if they close below that level on expiration. But including the premium already received, their entry price would be $40.69. Should the stockremain above $41, they’ll keep the $0.31 credit and options will expire worthless.

Selling puts is a common strategy when investors like a stock but don’t want to expend capital getting long right away. It lets them program an entry at a lower price if a pullback occurs, while also letting them make some money if it never touches to their desired level.

On September 9th, TWX was down 0.3 percent to $43.51 in morning trading, but is up 23 percent in the last three months. Earlier in the session it touched $43.84, its highest level since mid-2001. Today’s put- sale activity pushed total option volume in Time Warner to more than triple the daily average.

On September 27th Chris led into his story, “Limited Downside Seen in Time Warner” by pointing out that “Time Warner is just off four-year highs reached last week, and one trader is targeting a floor beneath the stock.”

A trader sold 5,950 December 38 puts for the bid price of $0.27, according to optionMONSTER’s system. Open interest was 1,637 contracts at the start of the session, so we think that this is a new position.

This put selling could be viewed as another bet that TWX will remain above $38 through the December expiration, a level that has seen support going back to July. This trader is also showing a willingness to buy shares on a pullback below that level.

TWX is up 1.9 percent this morning at $45.49. The media giant closed Friday at $45.90, its highest level since September 2008. Shares were below $29 a year ago and broke through resistance at $39 at the start of August.

Remember that short puts can be an excellent way to acquire stock or generate income in your account. Many retail traders use this conservative strategy to generate
income in their accounts.

Jon “DRJ” Najarian


Jon ‘DRJ’ Najarian is co-founder of optionMONSTER® and co-lead analyst for the InsideOptions™ trade idea alert systems. He spent the first 29 years of his trading career trading in and around the pits of the Chicago exchanges. Jon is a frequent contributor to CNBC, the Wall Street Journal, and other prominent financial media organizations. Mr. Najarian also co-developed the patented trading algorithm the Heat Seeker®, used to detect unusual trading activity.

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