Bull likes DreamWorks before earnings
David Russell | [email protected]
optionMONSTER's Heat Seeker Heat Seeker program detected the purchase of nearly 3,300 March 17.50 calls for $0.60 to $0.75 against open interest of just 1,553 contracts. Almost all the volume occurred in about 5 minutes on Friday, indicating it was a work of a single large investor.
The trader now has the right to buy shares in the movie studio for $17.50 in the next four weeks, no matter how high they may trade. That could result in some major leverage if the stock rallies, but the investor will lose his or her entire investment if it doesn't move.
The advantage of the strategy is that it manages risk, delivering long exposure at less than 1/20 of the share price. (See our Education section for more on how trading options can be safer than buying common equity.)
DWA rose 2.66 percent to $17.39 on Friday but has been struggling amid disappointing box-office results. The stock is down about 7 percent in the last year, while the broader market and other media companies have enjoyed doubled-digit gains.
The call buyer apparently expects news to get better when earnings are released after the bell a week from today on Feb. 26. The trader may be hopeful of cost reductions, especially after the Wall Street Journal reported earlier in the month that as many as 500 jobs may be cut at the studio
Total option volume was 14 times greater than average in the session, according to the Heat Seeker. Calls outnumbered puts by a bullish 42-to-1 ratio.