Time Warner options
Ouch! News that Rupert Murdoch’s 21st Century Fox has abandoned its bid to buy Time Warner(NYSE:TWX) is not what event-driven call buyers wanted to hear having locked-in to bullish bets back on July 16th when headlines hit the screens. On that day shares in the company jumped from $71.31 to $87.00, while volumes surged on call options expiring August 15.
As of Tuesday’s close, open interest data showed investors had positions in more than 40,000 call options at three strike prices: 80.0, 85.0 and 90.0. So far on Wednesday there has been no notable action at those same strikes, indicating traders are staying put for now with out-of-the-money contracts where time-value is fast eroding option value. Premiums, however, have slumped massively as shares shed 10.8% to stand at $76.00. As news of the proposed deal emerged in July investors paid an average premium of $4.87 to secure rights to buy shares in TWX at $80.0 while they paid an average of $2.11 to buy 20,800 calls at the 85.0 strike. Today those same premiums plunged to 30-cents and four-cents, respectively. Overall option volume on TWX is just 25,000 contracts on Wednesday.
Chart – Call option open interest jumped July 16th as bid news emerged