Option Bulls Blitz DreamWorks Animation SKG, Inc.

By Schaeffer's Investment Research,

Shutterstock photo

As of 11:13 a.m. EDT, shares of DreamWorks Animation SKG, Inc. ( DWA ) were 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. ( 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.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research .

Below, find some more great content from Schaeffer's Investment Research:

Daily Game Plan - Pre-Fed Rally

The Kroger Co. ( KR ) Lures a Few Optimists Out of Hiding

FedEx Corporation ( FDX ) Option Bulls Emerge as Earnings Loom

Twitter: @schaeffers

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

This article appears in: Investing Options
Referenced Stocks: DWA , FDX , KR , NFLX

More from Minyanville




Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com