DreamWorks play bets on blockbuster

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DreamWorks Animation had a big movie release over the weekend, and one trader is wagering that it will lift the stock.

"Madagascar 3: Europe's Most Wanted" cost $145 million to produce and was released on Friday. The options activity focused on the July 20 calls, bought for $0.28 to $0.30, and the December 12.50 puts, which sold for $0.30 to $0.35.

The position produced a credit about $0.05 and stands to benefit from a rally over the next six weeks, but the trader is potentially on the hook for losses through late in the year. Some 2,500 contracts changed hands at each strike, more than triple previous open interest in each.

DWA rose 0.06 percent to $18.01 on Friday and has been basing out above $16 since October. The strategy is specially designed to time a near-term break above its recent range and takes advantage of the greater time value in the December options to finance the upside bet.

The heavily shorted stock has never traded below $16, which could have given the trader confidence writing puts at $12.50. (See our Education section)

Overall option volume was 19 times greater than average in the session.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: DWA

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