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Bearish Betting Soars on Lions Gate Entertainment Corp. (USA) (LGF)

Short-term put players are unfazed by LGF's upbeat analyst adjustment

by 4/23/2013 1:49 PM
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Lions Gate Entertainment Corp. (USA) (NYSE:LGF) climbed to a new record high of $24.19 earlier today, after scoring a price-target hike to $28 from $23 at Wunderlich Securities in pre-market action. However, the upbeat attention hasn't swayed bearish bettors from zeroing in on the stock, as roughly 30,000 puts have crossed the tape so far -- an impressive 42 times the equity's anticipated intraday put volume. By contrast, just over 1,900 calls have changed hands. It appears that a large number of today's traders are expecting the stock to falter by summer -- a timeframe that may encompass the firm's next quarterly earnings report.

Leading the pack by a landslide is the June 23 put, where more than 26,500 contracts have traded at a volume-weighted average price (VWAP) of $1.14. The majority of these puts were exchanged at the ask price, suggesting they were bought. Since today's volume has greatly exceeded open interest at this strike -- and implied volatility has increased by 5.3 percentage points during the course of the session -- it's likely that new positions are being added here. By purchasing these puts to open, speculators are counting on LGF to retreat below $21.86 (strike price less the VWAP) by June expiration. This represents a drop of 8.2% from the stock's present price of $23.80.

Today's campaign for puts over calls is in keeping with Lions Gate Entertainment Corp.'s recent options trend. In fact, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.98 is just 3 percentage points shy of a 12-month peak. Or, in simpler terms, traders have been snapping up bearish options over bullish at a near annual-high clip.

LGF has been a technical standout lately, boasting a year-to-date gain of more than 45%, and almost doubling in value during the last 12 months. The shares have also bested the broader S&P 500 Index (SPX) by north of 26 percentage points over the past 60 sessions. On the charts, the stock's most recent pullback was cushioned by its 40-day moving average, which has served as a floor since late December.

Lion's Gate Entertainment Corp. (USA) is tentatively scheduled to report fiscal fourth-quarter earnings in the last week of May, and has topped consensus bottom-line estimates in two of the past four quarters. Analysts are currently expecting a profit of 40 cents per share.


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