These Discovery Options Traders Are Betting On A Turnaround For The Media Stock

Discovery, Inc. DISCA stock plummeted over 55% between March 22 and 26 before rebounding slightly.

The selloff has been attributed to a report that a number of major investment banks forced hudge fund Archegos Capital Management to liquidate its position in Discovery and a number of other stocks including Tencent Music Entertainment Group TME and Baidu Inc BIDU.

Following the sale, Discovery was trending on r/wallstreetbets as a buy target in yet another Wall Street-vs-Main Street duel.

The Discovery Trades: At 10:19 a.m. Tuesday, a trader executed a call sweep of 4,198 Discovery options with a $45 strike price expiring July 16. The trade represented a $2.73-million bullish bet for which the trader paid $6.49 per option contract.

At 10:22 a.m., a trader executed a call sweep of 180 Discovery options with a $45 strike price expiring July 16. The trade represented a $113,400 bullish bet for which the trader paid $6.30 per option contract.

At 10:25 a.m., a trader executed a call block of 250 Discovery options with a $45 strike price expiring April 16. The trade represented a $92,500 bullish bet for which the trader paid $3.70 per option contract.

At 10:25 a.m., a trader executed a call sweep of 256 Discovery options with a $45 strike price expiring April 16. The trade represented a $94,700 bullish bet for which the trader paid $3.70 per option contract.

Together traders are betting almost $3.03 million the share price of Discovery is going higher.

Why It’s Important: When a sweep order occurs, it indicates the trader wanted to get into a position quickly and is anticipating an imminent large move in stock price. A sweeper pays market price for the call option instead of placing a bid, which sweeps the order book of multiple exchanges to fill the order immediately.

These types of call option orders are usually made by institutions, and retail investors can find watching for sweepers useful because it indicates “smart money” has entered into a position.

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When a block trade occurs, it indicates a hedge fund or institution has taken an options position.

A block trade always involves large sizing and is typically handled by a blockhouse outside of the open market. Because block trades don’t occur on the open market, the large size of the trades doesn’t create volatility in the stock being traded.

Like sweepers, blocktrades indicate “smart money” has entered a position.

What Discovery Has Coming Up: Discovery announced Monday it was releasing a new series, “Chopped 420,” for this year’s international counterculture holiday.

The series will be based on cannabis cuisine, with the first episode airing April 20.

Options traders may be betting Discovery’s series will be a big hit or, more likely, they believe the stock is oversold and due for a bounce.

DISCA Price Action: Shares of Discovery were trading up 3.88% at $42.83 at last check Tuesday.