Warner Bros. Discovery, Inc. (WBD), Trending Stock Report

A professional investor entered a huge bullish position in Warner Bros. Discovery, Inc. (WBD) using options on Friday. WBD missed on its earnings report last week on Wednesday the 7^th. The company reported some bad news. They lost an NBA contract, then wrote down $9.2 Billion in charges related to their linear TV business. This is after writing down $2.1 billion related to the recent merger. It wasn’t all bad news for WBD, they did add 4 million subscribers to their streaming channel during the most recent quarter.

The professional investor sold 124,500 puts and used the premium to reduce the cost of purchasing 124,500 calls. We don’t know if the investor was hedging an existing short position because they are worried that the stock will bounce back after putting bad news in the past, or if they are entering a new bullish position speculating that the stock will rise. Either way, the options trade is showing that this pro thinks chances for an upmove in the stock are good over the next six weeks.

This Volatility Skew for WBD shows us the implied volatility of options for each strike price on the September 27^th expiration. The volatility of the puts that the professional investor sold had an implied volatility of about 60%, and the calls they bought had an implied volatility around 30%. This investor was putting the volatility skew to good use.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of WBD’s stock price over the past year. You can see that the actual behavior (the blue histogram) shows us that WBD did not make big moves as frequently as modeled options prices currently expect. That tells us that WBD options are a little expensive relative to the stock’s actual behavior. The professional investor used the skew cleverly to reduce the cost of the call options that they purchased.

A professional investor entered a large bullish position on WBD using options on Friday. While the options are a little expensive for this expiration, the pro used a clever strategy to reduce the cost of his bullish position substantially.

To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea.