Traders Hit Fast Forward on TiVo

By David Russell

The bulls tuned into TiVo (TIVO) on Friday as the digital recording service ripped to a new 5-1/2 year high.

optionMONSTER's Heat Seeker tracking system detected unusual call buying early in the session, a few hours before rumors of a legal settlement with Dish Network (DISH) drove the shares higher by 9.7 percent to $12.58. By the end of the day, options volume was up 53-fold and some early buyers had more than doubled their money.

The November 12.50 calls were the busiest strike, changing hands 16,901 times against open interest of 4,821 contracts. They traded for $0.45 early in the session and as high as $1.10 at the peak of the buying. Most of the big institutional trades priced for $0.85 to $0.95.

The largest transactions occurred early in the session when TIVO was up less than 3 percent. One investor paid $0.84 for 3,000 December 12.50 calls. Others purchased the February 12.50-15 call spread 2,000 times for $0.80 and 1,000 times for $0.75. Overall call volume in TIVO exceeded by 14 to 1.

TIVO's loss was narrower than expected and its revenue beat forecasts when it reported fiscal second-quarter results on Aug. 26. The next release is scheduled for after the bell on Nov. 24.

Separately, related company Netflix (NFLX) rallied 11 percent to a new high of $54.89 after reporting better-than-expected results and raising fourth-quarter guidance.

One article also reported speculation that the company will offer streaming content through game consoles such as the Sony (SNE) Playstation 3 or Nintendo (NTDOY.PK) Wii. Options volume in NFLX was seven times greater than average as investors bought calls and sold puts in retail-sized transactions.

Both NFLX and TIVO are positioned to benefit from the long-term trend of convergence between traditional television and online content and delivery.

(Chart courtesy of tradeMONSTER)