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Gannett Earnings Results Draw in Option Bulls

GCI profits and earnings surprise attract long-term call buyers

by 2/4/2013 11:50 AM
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The nation's largest newspaper operator Gannett Co., Inc. (NYSE:GCI 18.78) today announced a decline in year-over-year profits but still beat earnings estimates -- and optimistic option traders didn't take long to jump in. GCI call volume jumped to five times what's normally expected on an intraday basis, with roughly 5,300 contracts crossing the tape so far. That's compared with about 1,700 puts, which is still three times normal.

Specifically, the bulls zeroed in on longer-term plays. The July 23 call has been the most popular so far, with more than 3,000 contracts traded. With a volume-weighted average price (VWAP) of $0.57 paid for these bullish bets, the stock needs to exceed $23.57 (strike price plus VWAP) by the expiration date of July 19 for this call to become profitable. That would be a 25.5% premium over the current trading price, and the options market gives that call about a 22% chance of finishing in the money. Most of these contracts were bought at the ask price, and implied volatility has edged higher, meaning that the calls were most likely bought to open.

The optimism is running against current trends for GCI in the option pits. The equity's Schaeffer's put/call open interest ratio (SOIR) stands at 1.9, meaning that put open interest among options expiring in the next three months nearly doubles call open interest. What's more, that reading is higher than all but 18% of others taken in the last 12 months.

GCI today announced earnings of 44 cents a share, down from 49 cents during the fourth quarter of 2011, but those figures included restructuring charges and other items. Excluding those special charges, profits were at 89 cents a share, up 23.6% from the same period the previous year. Analysts had predicted earnings of 88 cents a share. The company said it was seeing growing revenue from its recently implemented digital subscription model, and that revenue as a whole grew 9.4% year-over-year. The stock is up 4% year-to-date, and more than 55% since hitting its 12-month low of $12.17 on June 5. But the shares have taken a 5% percent hit so far today in the wake of the earnings announcement.


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