Stocks quoted in this article:
The shares of DreamWorks Animation SKG, Inc. (NASDAQ:DWA) are up 4.8% at $23.91, after earlier tagging a two-year high of $24.75. In the wake of the company's deal with Netflix, Inc. (NASDAQ:NFLX), option bulls are having a field day, with DWA calls flying off the shelves at 51 times the normal rate.
More specifically, DWA has seen close to 2,100 calls change hands, compared to its average intraday volume of about 40 calls. Garnering the most attention has been the July 25 call, which has seen nearly 1,200 contracts cross the tape on open interest of fewer than 500 contracts, pointing to a heap of new positions. Plus, 83% of the calls traded on the ask side, suggesting they were bought.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.60, the buyers will begin to profit if DreamWorks Animation SKG, Inc. conquers $25.60 (strike price plus VWAP) by July 19, when soon-to-be front-month options expire. Should the equity take a breather from its rally and remain beneath the $25 level, the most the buyers can lose is the initial premium paid for the calls.
Prior to today, the sentiment surrounding DWA was decisively bearish. Just two out of 12 analysts deemed the stock worthy of a "buy" or better rating, and the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.74 sat just 5 percentage points from an annual pessimistic peak. Plus, short interest accounts for 30% of DWA's total available float, representing nearly 36 sessions' worth of pent-up buying demand, at the stock's average pace of trading.
An unwinding of skepticism on the Street could add contrarian fuel to DWA's fire.