Comcast Corporation CMCSA shares are up 22.6% in the past year despite a difficult environment for traditional cable TV. However, at least one large option trader is betting 2020 will be a difficult year for Comcast.
The Trade
On Wednesday, Benzinga Pro subscribers received an option alert related to an unusually large trade in Comcast options.
At 12:18 p.m., a trader bought 1,500 Comcast put options with a $42.50 strike price expiring in January 2021 near the ask price at $2.811. The trade represented a $421,650 bearish bet.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small size of the Comcast trade based on institutional standards, it is unlikely to be an institutional hedge.
Tough Transition Ahead?
Comcast’s stock has gotten off to a lackluster start to 2020, including reporting a drop in TV subscribers in the fourth quarter. Despite the outflow of cord-cutting customers, Comcast reported EPS and revenue beats on the quarter.
Several analysts have come out in support of the stock following its January earnings report and highlight several potential bullish catalysts ahead. The Olympics and the 2020 U.S. elections are potential engagement and advertising drivers. In addition, the launch of NBC’s Peacock streaming service in July could be a growth catalyst for Comcast.
Another potential catalyst for the company is its high-speed internet business, which exceeded expectations by adding 442,000 new subscribers in the fourth quarter.
Tuesday’s put buyer may see Comcast stock in a difficult situation with its Peacock streaming service. Management clearly sees streaming as the model of choice for the future of video, but Comcast expects to make between $6 and $7 in average revenue per user from Peacock, much less than the roughly $10 in estimated ARPU it currently generates from is bundle of basic cable networks.
Benzinga’s Take
The large option trade on Wednesday comes after a trader bought $175,000 in Jan. 2021 $45 Comcast call options on Tuesday. The mixed activity may be a reflection of the fact that traders don’t quite know what to expect from Comcast’s delicate long-term digital transformation at this point. Bullish sentiment among StockTwits messages mentioning Comcast has dropped from 94.9% on January 31 to 85.2% on Wednesday.
The puts purchased on Wednesday have a break-even price at or below $39.69, suggesting at least 11.6% downside for Comcast over the next year.
Do you agree with this take? Email feedback@benzinga.com with your thoughts.
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