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Option Brief: Lions Gate Entertainment Corp. (USA) (NYSE:LGF) is off more than 4% this afternoon to hover at $32.33, despite announcing a "multi-year licensing agreement" with China-based Jiaflix Enterprises yesterday. Meanwhile, LGF's options pits are bullishly biased ahead of tomorrow morning's quarterly earnings report, as roughly 12,000 calls have changed hands so far. This is about nine times the intraday norm, and more than double the number of puts traded. Against this increased demand for call options, LGF's 30-day, at-the-money implied volatility (IV) has climbed 7.5 percentage points, or 17.0%, to 51.5%.
Leading the pack is the December 33 call, where north of 3,600 contracts have crossed the tape -- over three-quarters of them at the ask price, suggesting they were bought. Since today's volume at this strike exceeds current open interest levels, and IV has climbed 5.4 percentage points, it's likely that new long positions have been created here.
By purchasing the calls to open, traders are betting on the film giant to muscle north of $33 by the close on Dec. 20. However, short interest on LGF surged by 23% during the last two reporting periods, and now accounts for 10.5% of the equity's available float. In other words, some of today's out-of-the-money call buyers may be skeptics looking to hedge their bearish bets against a potential earnings-induced move higher.
As noted earlier, Lions Gate Entertainment Corp. (USA) (NYSE:LGF) is slated to reveal fiscal second-quarter earnings before the opening bell tomorrow, and has bested consensus bottom-line estimates in each of the past four quarters. Meanwhile, the studio's release of Catching Fire -- the long-awaited sequel to The Hunger Games -- will hit theaters on Nov. 22. The first film, based on Suzanne Collins' massively popular book trilogy, raked in $691 million globally.