TiVo has been working its way higher since August, and one investor is looking for a rally this year.
OptionMonster’s tracking systems detected a long-term bullish strategy in the video-recording stock on Friday. About 2,400 January 11 calls were bought for $1.35 and an equal number of January 9 puts were sold for $0.98. Volume was more than twice open interest at both strikes, meaning that a new position was opened.
Calls lock in the price investors must pay to own shares, giving them considerable leverage in the event of a rally. Selling puts generates income, but also creates the risk of losing money if the shares fall.
Doing both together reflects a strongly optimistic sentiment toward the stock. It’s similar to writing insurance on your own house: You make money on the premium and from appreciation but, if it burns down, you lose money on both.
TIVO shares rose 1.3 percent to close at $10.15 on Friday, but is down about 15 percent in the last three months. If shares hold their current level, it would mark a third higher low since last summer.
The company has been adding new customers thanks to partnerships with major cable and satellite companies such as Virgin Media and DirecTV. Its last three earnings reports beat estimates, though management issued weak guidance after the most recent results. (See researchLAB for more.)
Overall option volume was twice the average amount in Friday’s session.
—Russell has no positions in TIVO.
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David Russell is a reporter and writer for OptionMonster.