Depending on your ideological views, you may either love or hate Fox Corp (FOXA), the parent company of Fox News and other broadcasting programs. Obviously, Fox has been at the forefront of the most heated political controversies, particularly the ugly defamation case involving Dominion Voting Systems. As well, Fox cut ties with conservative firebrand Tucker Carlson, setting off a thunderous wave across the media landscape.
With another presidential campaign upon us, it’s incredibly difficult to find someone who doesn’t have an opinion about Fox and its role in shaping public discourse. And that’s quite a backdrop because FOXA stock presents an intriguing idea for speculative investors. Suffering a sharp 6.29% loss last Friday, dark clouds appear to be forming over the broadcasting giant. Nevertheless, intrepid buyers might be able to snag a discount here.
In fairness, I didn’t get a great read on FOXA stock when the Tucker Carlson news broke out. Primarily, I worried about the fading relevance of Fox News. While Carlson never reached the viewership heights of Bill O’Reilly – another Fox News host who was shockingly sent packing – he managed to attract a wide demographic with his populist message.
Frankly, losing such a catalyst would impose challenges on FOXA stock. Unsurprisingly, the Barchart Technical Opinion indicator rates Fox Corp an 8% sell. As well, analysts don’t seem especially enthused about the enterprise. Yes, FOXA does carry a moderate buy assessment. However, with eight holds and one strong sell among 14 total analysts, the endorsement isn’t particularly strong.
Nevertheless, it may be worth keeping Fox Corp on your radar thanks to unusual options activity.
Options Dynamics Point to a Possible Opportunity in FOXA Stock
Following the close of the Sept. 1 session, FOXA stock lit up Barchart’s screener for unusual options volume. Specifically, total volume came in at 26,566 contracts against an open interest reading of 42,212. Further, the delta between the Friday session volume and the trailing one-month average metric landed at 810.11%.
Looking at the transactional breakdown, call volume hit 15,162 contracts while put volume came in at 11,404 contracts. This pairing yielded a put/call volume ratio of 0.75, on paper providing an edge to the optimists. Also, the put/call open interest ratio sat at 0.62, again appearing to favor the bulls.
Of course, these headline numbers alone don’t tell us much. However, looking at Fintel’s options flow data – which filters for big block trades likely placed by institutions – we can see that the open interest in FOXA put options may reflect a hedging strategy.
For example, a sizable amount of open interest exists for sold $34 puts with an expiration of Oct. 20, 2023. In this case, traders who sold (or wrote) the puts would want FOXA to hit $34 or rise above, thereby making the puts worthless.
However, there’s also massive open interest in bought $37 puts with an expiration date of Dec. 15, 2023. Put another way, it’s possible that the smart money anticipates FOXA stock to swing higher but they’re also taking precautions.
Where it gets really interesting is FOXA’s volatility smile or graph that lays out the volatility of FOXA options at various strike prices. Interestingly, at a strike price of $20, implied volatility (IV) hits 0.89. However, on the other end of the spectrum, the IV at the $45 strike price reached 0.72.
What’s more, at $23, the IV suddenly drops to 0.50. But between strike prices $42 through $44, the IV stands at 0.61 and higher. In other words, traders may be anticipating FOXA stock to decisively move higher. Nevertheless, the extremely high IV at the $20 strike may also indicate risk mitigation.
The Smart Money Could Be Tipping Their Hand
To be sure, FOXA stock represents a speculative idea. Financially, the underlying company appears to be doing reasonably well. However, the loss of Carlson imposes a dark cloud over the business. Nevertheless, the aforementioned volatility smile appears to denote a bullish leaning toward FOXA among smart money traders.
Naturally, a major question comes up: do the fundamentals support a long-term rise in FOXA stock?
Given the latest information regarding the volatility smile, I believe that traders are acting at least somewhat rationally and that their belief in FOXA isn’t based purely on speculation. That’s because as popular as Carlson and former President Donald Trump are, the conservative media ecosystem will need to resonate with audiences in the post-Trump era.
Even if Trump wins in 2024, he’ll be ineligible to run in 2028. During this time, the broader conservative political ecosystem will need a reset. Fox News could possibly resurge to influence this wide demographic, making FOXA stock great again.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
