Options Corner: High-Risk FuboTV Offers An Underappreciated Statistical Edge

Earlier this year, struggling sports streaming specialist FuboTV FUBO received a lifeline from entertainment giant and sector rival The Walt Disney Company DIS. Specifically, the deal calls for the combination of Disney's Hulu + Live TV with Fubo, creating a massive content powerhouse. Naturally, the matter has attracted regulatory risks in addition to execution concerns, which has subsequently deflated FUBO stock from the initial pop. Still, there's a statistical case for optimism.

In late April, Bloomberg News reported that the U.S. Department of Justice began probing Disney's deal to take a controlling stake in Fubo to determine whether it would create an unfair competitive environment in the sports streaming market. Fully clearing this regulatory obstacle will be difficult considering that Disney owns sports network ESPN, while Fubo carries several regional sports networks.

Beyond the lingering legal shadows, there's also the matter of execution. Fundamentally, the idea is that while Disney has large swathes of the entertainment segment locked up, its sports coverage with ESPN is dragging. By creating synergies with Fubo, it aims to revive ESPN's former relevance. However, this may be easier said than done, helping to explain some recent lackluster trading in FUBO stock.

Last month, Fubo reported first-quarter earnings, presenting a mixed outcome. On an adjusted basis, the company lost 2 cents per share, beating expectations calling for a loss of 9 cents. However, revenue somewhat disappointed. Although the top-line tally of $405.96 million represented an 8.1% lift on a year-over-year basis, it missed the consensus target of $415.45 million.

Still, the bottom line is that cord cutting is very much a thing — and all the signs suggest that the trend is irreversible. Disney can't just let its ESPN brand atrophy, which still commands respect in the sports ecosystem. Assuming the deal clears essential hurdles, it could be a positive catalyst for both Disney and Fubo.

Statistical Undercurrent Points Positively For FUBO Stock

Every four years, the American electorate votes for the president of the U.S. and without fail, roughly half of the nation thinks the other half is out of their minds. Therefore, creating a model predicting election results will likely lead to inaccuracies if said model exclusively incorporates narratives and the interpretation of such. Storylines offer color and context but they're not always great predictors.

Colloquially, it's better to study what people do rather than what they say. The same principle applies to the financial markets, especially for names like FUBO stock, which are incredibly popular with retail traders. One can spend all day analyzing financial statements and conducting industry research — at the end of it, investors as a collective will buy what they want to buy.

As such, it's important to consider market breadth or the sequence of accumulative and distributive sessions. Unlike fundamental metrics such as earnings or technical metrics such as share price, market breadth doesn't drift temporally. The balance of accumulation and distribution is simply the demand profile and the definition of demand doesn't change with time. Earnings and share price? They almost always fluctuate, especially with long passages of time.

In the past two months, FUBO stock printed a "7-3-U" sequence: seven up weeks, three down weeks, with a net positive trajectory across the 10-week period. In 64.29% of cases, the following week's price action results in upside, with a median return of 10.49%.

Last Friday, FUBO stock closed at $3.43. If the implications of the 7-3-U sequence pan out as projected, FUBO would be on track to hit $3.79. Should the bulls maintain control of the market, a push toward the $4 level over the next several weeks would not be out of the question.

What's interesting about FUBO stock is that statistically, it feeds off positive energy. Generally speaking, when the balance of distributive sessions is greater than accumulative over a 10-week period, the security tends to have a negative bias. On the other end, when the balance favors accumulative sessions, FUBO tends to enjoy a positive bias.

Huge Payouts For The Aggressive Trader

Those who want to take a shot at this high-risk, high-reward idea may consider the 3/4 bull call spread expiring July 18. This transaction involves buying the $3 call and simultaneously selling the $4 call, for a net debit paid of $34. If FUBO stock rises through the short strike price of $4 at expiration, the maximum reward is $66, a payout of over 194%.

Clearly, market makers hold a dim view of the idea that FUBO stock could rise to $4; hence, the huge payout. Still, based on prior responses to the 7-3-U pattern, speculators have an empirical case. Moreover, from a pure numbers perspective, gamblers are incentivized to consider taking a wager.

As a baseline, the chance that FUBO stock will rise on any given week is only 46.06%. On balance, the security tends to have a negative bias. However, the current sentiment regime has shifted the probability spectrum so that bullish speculators have favorable odds.

By no means is this a guarantee. But by the numbers, FUBO stock may be more attractive than it looks on paper.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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