Follow the Buffet Trade; Buy DTV Calls

It is a beautiful Monday and I am excited about the possibilities that this week holds. I think we should start out our options trading activity this week with an exploration of the options of DirecTV (NASDAQ:DTV).

DirecTV with its market capitalization of $43.77B is a provider of digital television entertainment in the United States and Latin America. The Company operates two direct-to-home (DTH), operating segments: DIRECTV U.S. and DIRECTV Latin America, which are engaged in acquiring, promoting, selling and/or distributing digital entertainment programming primarily via satellite to residential and commercial subscribers.

DirecTV boasts of more than 37 million subscribers across the Americas, it offers its subscribers more than 195 full time HD channels and the company has been amply rewarded with about $30B in revenues in fiscal 2013.

Why I am Attracted to DirecTV Today

DirecTV crossed my radar recently when Warren Buffet’s Berkshire Hathaway Inc. (NYSE:BRK.A) purchased some 6,532,015 shares to bring the Oracle of Omaha’s position to 30,000,000 shares.  An interesting thing to note is that the stock purchase now makes shares of DirecTV to hold a 5.98% position in Berkshire’s common stock portfolio. The more interesting point is that the stock purchase now makes Berkshire Hathaway the largest single shareholder in DirecTV.

Why Warren Buffet is Attracted to DirecTV

It doesn’t take much research to uncover the reason behind Warren Buffet’s love for DirecTV. The first reason behind Buffet’s love for DTV is that DirecTV is already in agreement with AT&T (NYSE:T) to be acquired at a $95 per share. Incidentally, shares of DirecTV are trading at $87.17 per share to mark an 8.98% discount to the $95 acquisition price. The deal is still subject to the FCC’s approval; hence, it is logical that Buffet expects the stock to catch up with the acquisition price before the deal is completed by the middle of next year.

The second reason why you should be attracted to DirecTV is the solid financials that the company has reported. DirecTV recently reported splendid third quarter (Q3 2014) earnings result.

The company reported revenue of $8.37B to mark a 6.3% year-over-year improvement and to beat the consensus estimate of $8.13B.

The company reported GAAP net income of $611M or $1.21 per share while earnings per share came in at $1.33 per share to beat the consensus estimate of $1.25 per share.

The company ended the third quarter with $1,662 million of cash from operations compared with $1,345 million in the prior-year period.

How to Trade DTV Options

DTV Chart

The chart above (with my annotations) shows how the shares of DirecTV have traded within the last one year. You will observe the bullish trendline (Blue) that saw the stock rising from a $63 share price to make an $89.46 high in May. You will also observe that the stock has been channeling from May until the present as it alternates between an $82 trough and an $87 crest while the $89 resistance holds.

The stock seems to have established a new channel range at $87.10 to $87.20; hence, we can look forward to seeing the stock breaking out to new highs. In addition, the RSI of 56.21 suggests that we have a fair chance of seeing the stock crossing the $89.46 high.

I am optimistic about the prospects of DirecTV and I recommend buying DTV calls. The DTV Mar 2015 90.000 call (DTV150320C00090000) looks attractive at an asking price of $2.28 per share.

 

 

 

 

— Daily Option Alerts

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