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Bull sticks with pawnbroker EZCorp

By: optionMONSTER
Posted: 11/10/2010 7:13:00 AM
Referenced Stocks: EZPW

The credit draught has been good for pawnbroker EZCorp, and one investor is looking for more gains with the stock at all-time highs.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 3,600 December 25 calls for $1.25 and the sale of a matching number of November 22.50 calls for $2.50. Volume in the November contracts was below open interest, indicating a long position in the contracts was rolled from one strike to the other.

EZPW The trade let the investor recover $1.25 of principal while adding a month of upside exposure. The trade also more than tripled the position's gamma to 16 from about 5, which will increase leverage if the stock continues to rally. (See our Education section)

EZPW fell 0.24 percent to $24.96 yesterday and but up 39 percent since the beginning of September. It reported better-than-expected earnings and revenue on Nov. 5 as borrowers hock valuables because they can't borrow from banks. Management also issued bullish 2011 guidance and said it had opened or acquired 127 new locations in the last fiscal year.

Despite its big run, EZPW is trading for less than 10 times forward earnings and has as price/earnings growth ratio of only about 0.66, which could be leading some investors to expect further upside.

Overall option volume in the stock was 26 times greater than average yesterday, with calls accounting for 91 percent of the activity.

(Chart courtesy of tradeMONSTER)