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Lions Gate Sees a Jump in Call Volume Ahead of 'Hunger Games' Release

LGF's positive price action may have encouraged call players

by 3/20/2012 11:27 AM
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Lions Gate Entertainment (LGF - 14.47) was abuzz with bullish options activity on Monday, as approximately 15,000 calls changed hands, which was more than triple the equity's average daily volume. Over 4,800 of these calls were traded at the April 14 and 15 strikes -- the majority of them at the ask price, pointing to buyer-driven activity. Open interest climbed at both strikes overnight, signaling that some of the volume consisted of newly opened positions. The 14 strike now holds peak call open interest of 6,317 contracts, while the 15 strike is close behind with a total of 4,195 calls in open interest.

This preference for calls over puts is more of the same for the film studio titan. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 7.62 for LGF. In other words, investors have bought to open more than seven calls for every put during the last two weeks.

However, short interest on LGF jumped by about 20% during the past two reporting periods, and now accounts for a hefty 29% of the equity's float. This raises the possibility that some of the recent call volume could be the result of hedging activity by short sellers.

In terms of technical performance, LGF has had an excellent start to 2012, having gained a whopping 74% so far this year, and besting the broader S&P 500 Index (SPX) by close to 56% during the past 60 sessions. On the charts, the stock has managed to surmount the $14 level, which acted as troublesome resistance for nearly a month. In fact, the equity tagged a new record high of $14.78 earlier in the session.

At last check, LGF is up about 1.5% and is trading at $14.47. The stock received a price-target hike to $14 from $12 at BMO this morning, and was started at "overweight" by J.P. Morgan. These bullish brokerage notes come just ahead of the studio's widely anticipated release of The Hunger Games on March 23. Analysts at Evercore Partners and Wunderlich Securities are predicting that the film will gross between $200 million and $230 million.


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