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Big Things Expected from Live Nation

Options players expect near-term volatility in LYV

by 6/28/2012 1:08 PM
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Although range-bound between $7 and $11 for the last two years, Live Nation Entertainment, Inc. (NYSE:LYV - 8.92) could be poised for a major move in the next several weeks. Or so one heavily capitalized options trader is hoping.

A block of 12,100 August 12-strike calls traded at the ask price of $0.40 per contract. Open interest was non-existent prior to this trade, so it's safe to assume they are being purchased to open. Implied volatility on the option has edged 2.8% higher on this buying demand. What's more, overall call volume in LYV (typically expected around 121 contracts per day) is running 171 times the usual pace.

LYV hasn't traded north of the $12 level since May 2010, so it's safe to assume these calls aren't simply straight speculative bets that the stock will rise dramatically between now and August 17. If this were the strategy at hand, gains would be unlimited above the $12.40 breakeven price, and losses would be limited to the premium paid.

But indeed, it looks like these calls were tied to a large block of shares that traded at $9.05 at the same time the options hit the tape. The shares were evidently sold, creating a delta-neutral position that is more of a volatility trade than a directional bet. Long calls carry positive delta, and short stock carries negative delta, so the two cancel each other out in terms of any move the stock might make.

Rumor mills have been buzzing of late with speculation that LYV will be overtaken by Liberty Media Corp. (NASDAQ:LMCA - 86.52) or taken private. If this speculation becomes reality sooner rather than later, it could break LYV shares out of their recent comfort zone. Earnings expected on or around August 6 -- less than two weeks before these out-of-the-money calls expire -- could also have a short-term impact.


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