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Acquisition News Lures Call Players to Lions Gate Entertainment

But some of LGF's bullish audience may be skeptics in disguise

by 1/27/2012 1:44 PM
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Lions Gate Entertainment (LGF - 10.42) is off to a stellar start in 2012, particularly after its acquisition of independent film studio Summit Entertainment earlier this month. As such, more than 3,200 calls have crossed the tape so far today, representing seven times the equity's expected intraday volume. Roughly 1,800 of these calls have been exchanged at the out-of-the-money March 12 strike -- all of them at the ask price, suggesting they were bought. This option currently holds open interest of just 706 call contracts, pointing to an influx of newly opened positions. By buying these calls to open, traders are expecting the stock to power north of the $12 level by the time back-month options expire.

This preference for calls over puts appears to be more of the same for the film titan. The Schaeffer's put/call open interest ratio (SOIR) stands at 0.48, which confirms that calls more than double puts among options slated to expire within three months. This ratio ranks in the 30th percentile of its annual range, signaling that traders have been more bullishly oriented toward the stock just 30% of the time during the past year.

Further echoing this optimistic sentiment toward LGF is its 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio, which checks in at a whopping 45.46. In other words, calls bought to open have outnumbered puts by more than 45 to one over the past two weeks.

However, short interest on the movie maven spiked by 34.69% during the past two reporting periods, and now accounts for a hefty 20.13% of the equity's float. This could indicate that short sellers looking to hedge their bets are responsible for some of the recent call volume.

Technically speaking, LGF has gained more than 25% this month alone, and has bested the broader S&P 500 Index (SPX) by almost 30% during the past 20 sessions. What's more, the stock is on pace to finish a fourth consecutive month above its 50-month moving average, which had acted as resistance since September 2008.

At last check, however, LGF is down about 5% to hover at the $10.42 level.


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