Comcast surprised Wall Street with a weak subscription forecast today, leading to substantial gains in downside option positions.
On Aug. 25, Investitute’s market scanners identified the purchase of 2,000 September $39.50 puts for $0.32 to $0.44 with shares at $40.47. Volume was nearly twice the strike’s open interest, indicating that this was fresh buying.
Today those puts traded for $1.80, representing a profit of more than 370 percent on average. The stock fell 6.5 percent in the same time period, underscoring how options can far outperform their underlying shares.
Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.
CMCSA was down 1.18 percent to $38.15 today, a session after dropping 6.24 percent. Speaking an industry conference held by Bank of America Merrill Lynch yesterday, the cable giant estimated that it will lose 100,000 to 150,000 video subscribers in third quarter amid rising competition.