Trade of the Day: TiVo (TIVO)

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I have noticed a ton of option activity in a stock that I have kept on my Watch List over the years: TiVo Inc. (NASDAQ:TIVO).

Earnings are due out after Tuesday’s close, and the action in after-hours should carry over into Wednesday’s session. A move past $12 or a test to single-digits could be in the works.

Shares closed above their 50-day moving average on Friday after peaking at $11.20. The next waves of resistance are at $12 and the 100-day moving average. Near-term support is at $11–$10.75. There is a good chance that TiVo will move 5%–10% this week, and Wall Street is looking for a profit of $0.04 per share on revenue of $89 million.

The company missed expectations by a penny the last time they confessed. Overall, the company has beat earnings expectations in two of the previous four quarters, so its history is a little choppy. A beat-and-raise quarter this time around would be bullish news. But be aware that the trade could take a hit on another miss and/or lowered guidance for the current quarter.

Traders are loading up on the March options, but they expire in three weeks. This means that traders are expecting a huge move over the near term. I want to use the May calls to give the trade a little more time to play out.

Buy the TIVO May 12 calls (TIVO150515C00012000) at current levels, around $0.47, for target $0.85. I would like to see this target reached after earnings are announced, which would make it a risk-free trade.

The activity in the TIVO March 11 and TIVO March 12 calls topped over 5,500 contracts each on Friday. Obviously, these were bullish bets on an upside earnings surprise.

I have used May options to lessen a blow from an earnings miss, but I also like this trade as a potential takeover target. TiVo has a nice portfolio of intellectual properties that would be a great acquisition for a major cable provider. A buyout by May could be a reach, a stretch or a pipe dream, and it is pure speculation on my part, but it is possible.

With video-on-the-go continually increasing, TiVo is king when it comes to managing video content. The company’s market-cap is just north of $1 billion, and a bid of $1.5 billion from another company would get shares pushing $16­–$17.

Trade of the Day: TiVo Inc. (TIVO)

TiVo’s 52-week high is at $14.29. Shares have been in a tight two-year trading range, and a blowout quarter could lead to an explosive move. Earnings trades are always tricky, but I’m keeping my fingers crossed that they knock the cover off the ball.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/trade-day-tivo-tivo/.

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