Unusual Options Activity for Dish Network (DISH) May Signal the End of an Era

Recently, embattled satellite TV provider Dish Network (DISH) issued a press release, announcing the launch of its Hopper Plus entertainment system. “Three new 4K devices — Hopper Plus, Joey 4 and Wireless Joey 4 — are now seamlessly integrated with the award-winning Hopper whole-home DVR system,” the company proudly proclaimed. Still, if bearish trading activity is anything to go by, it may be too little, too late for DISH stock.

While Hopper Plus presents an interesting consumer angle, integrating live TV, on-demand programming and streaming apps under a single cohesive platform, such a framework likely lagged too long for modern consumers to care. The glaring evidence is in the numbers.

In the company’s latest second quarter of 2022 earnings report, Dish Network generated revenue of $4.21 billion, down about 6.2% against the year-ago period. Net income came out to $523 million, shedding 22% against Q2 2021’s tally.

In the market, DISH stock has been brutalized, dropping 6.5% during the equities sector rout of Sept. 13. For the year, shares have hemorrhaged nearly 45%.

Although the meme-stock phenomenon warned traders not to get overly bearish on any one enterprise, the harsh reality is the fundamentals are increasingly closing in on DISH stock. Therefore, it’s unlikely that the underlying company will attract even the most risk tolerant of speculators.

Specifically, the one arena where DISH stock could have made gains was in live sports programming. However, as ResearchAndMarkets.com noted, “For years, sporting events were exclusively tied to cable subscriptions, and OTT (over-the-top) platforms weren't even a part of the conversation. However, popularity for the latter has soared in recent years, with an estimated 1.2 million people in the US dropping their traditional TV services in Q2 2020.”

What’s more, bearish traders have noticed, making DISH stock a target for unusual options activity.

Traders Smell Blood in the Water for DISH Stock

When Wall Street called time on the Sept. 13 session, DISH stock didn’t just suffer red ink in the open market. In the derivatives market, traders piled into put options for the satellite TV provider. Puts rise in value as the underlying security declines.

Specifically, the bears targeted the $18.50 puts with an expiration date of Sept. 16, 2022 – by the close of this coming Friday. Volume reached 4,149 contracts against an open interest reading of 105. DISH finished the session at $18.33, meaning that this contract is in the money by 0.92%.

Moreover, the bid-ask spread as represented by the midpoint price (55 cents) came out to 18.18%. The staggeringly high spread suggests a lack of liquidity. As well, given the volatility of DISH stock – it features a beta of 1.85 on a five-year monthly basis – the facilitating market maker likely wanted a substantial safety margin.

While these near-expiry wagers occur all the time in the options market, for DISH stock, the bearish sentiment may be the early signs that this is the beginning of the end. According to data from Barchart.com, Dish Network features a put/call open interest ratio of 1.51. That’s astonishing.

Typically, the delineation point between optimism and pessimism is around 0.70. A ratio below 0.70 indicates that more traders are buying call options than puts. However, anything higher represents the opposite circumstance.

But to go over the threshold by a magnitude of nearly 116%? Investors would be taking serious risks going contrarian on DISH stock.

Myriad Factors Impede Traditional TV

With so many risks facing traditional TV providers, it’s difficult to know where to start. Fundamentally, TV subscriptions are losing relevance with consumers. Simply put, more people are choosing to cut the cord and hop onto their favorite streaming services.

A critical issue with traditional TV is that consumers must pay for programming that they rarely watch, if ever. Therefore, it’s going to be tough to convince a mixed-martial arts fan to buy a traditional TV service which may also include completely unrelated broadcasting such as content from Hallmark Channel or Lifetime.

As well, the onslaught of the COVID-19 pandemic imposed a crisis on DISH stock. In theory, government mandates forcing people to mostly stay indoors creates a hostage audience situation for TV service providers. However, with live sports canceled for several months, Dish Network couldn’t capitalize on the critical early period of the pandemic.

Then, when government restrictions faded and live sports returned, a new phenomenon materialized: revenge travel. With people ready to enjoy the experiences that the global health crisis denied, this sentiment left little room for traditional TV subs.

Factor in the potential economic crisis that may be brewing and DISH stock becomes increasingly untenable.

Time to See Reality

As mentioned earlier, the rise of meme traders presents significant risks to anyone daring to take a bearish bet on an embattled business. Therefore, it’s not out of the question for DISH stock to rise. However, the underlying company is losing its battle to stay relevant. With other factors continuing to pressure the subscription TV industry, it’s probably time to call it quits on Dish Network.

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