Unusual upside bets in DreamWorks

By David Russell,

Shutterstock photo

DreamWorks Animation attracted bullish option activity after reports that it will enter a joint venture with two Chinese media groups.

The studio does not usually see much option trading, but yesterday our Heat Seeker detected more than 3,000 March 20 calls bought against open interest of 1,944 contracts. Most of them traded for $0.50 to $0.70.

Long calls such as these lock in the price that traders must pay to buy shares. These options can provide significant leverage if their underlying stock moves higher, but they will expire worthless if the shares fail to rally. (See our Education section)

DWA rose 4.64 percent yesterday to $19.17 as the broader market fell. The stock began the year trading just pennies above its 52-week low of $16.34 and is still down 50 percent from its high of $28.90 reached last March.

Total volume in the name reached 4,436 options yesterday, more than 13 times its daily average. All but 45 of those contracts were calls, a reflection of the session's bullish sentiment.

For the options purchased yesterday to turn a profit, DWA would need to gain roughly 7.5 percent by the time they expire in on March 16. The company is scheduled to report earnings on Feb. 28 after the bell.

The Financial Times reported yesterday morning that DreamWorks will build a studio in Shanghai as part of a deal with the state-run China Media Capital and Shanghai Media Group. The facility will be used to develop television, movie, and live productions for the Chinese market, according to the report.

(A version of this post appeared on InsideOptions Pro yesterday.)

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

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This article appears in: Investing Options
Referenced Stocks: DWA

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