Speculators Single Out Gannett Co., Inc. and Madison Square Garden, Inc.
Media mogul Gannett Co., Inc. ( GCI ) and basketball behemoth Madison Square Garden, Inc. ( MSG ) were both favorites in the options pits on Wednesday. In fact, both stocks were singled out for spread strategies, after GCI received upbeat analyst attention and MSG attracted buyers stricken with LeBron James Fever. Let's take a look...
Gannett Co., Inc. ( GCI )
The shares of GCI ticked higher yesterday, after analysts at Zacks Investment Research noted improving advertising trends for the publisher. As a result, one spread strategist employed puts to bet bullishly on the stock, but hedged his bets in the event of a pullback.
More specifically, the investor sold several hundred August 16 puts for the bid price of $2.54 apiece, and simultaneously purchased an equal amount of August 14 puts for the ask price of $1.28 each. In other words, the trader initiated a bull put spread on GCI for a net credit of $1.26 per pair of puts.
By constructing the credit spread, the strategist is hoping the shares of GCI finish north of the $16 level when August-dated options expire. In this best-case scenario, the puts will expire worthless, allowing the trader to retain the entire premium received at initiation - which represents the maximum potential reward on the play.
Meanwhile, the addition of the purchased 14-strike puts limits the trader's maximum potential risk at $0.74 per pair of puts (difference between strikes minus net credit), should the shares of GCI backpedal beneath the $14 level within the puts' lifetime. Nevertheless, the investor will avoid the red as long as the stock settles no lower than breakeven at the $14.74 level (sold put strike minus net credit) at expiration.
On the charts, the shares of GCI have struggled lately, underperforming the broader S&P 500 Index ( SPX ) by 10% during the past 60 sessions. However, the stock recently bounced off support in the $13 level, which has acted as a technical backstop in 2010. Nevertheless, it may have been wise for the spread strategist to guard his position against a near-term retreat, as any rally attempts by the stock could be stifled by its 10-week and 20-week moving averages.
Madison Square Garden, Inc. ( MSG )
Moving on, MSG was a star in the options arena yesterday, as the owner of the New York Knicks capitalized on hopes LeBron James would sign with the team. Like an NBA version of The Bachelor , James has batted his eyelashes at many suitors over the past few weeks, meeting with several teams and even having dinner with Jay-Z, a minority owner of the New Jersey Nets.
Nevertheless, the two-time MVP for the Cleveland Cavaliers will put an end to the media madness tonight, with James slated to announce his decision during a one-hour broadcast on ESPN.
Ahead of the event, one options trader took the neutral road less traveled by implementing a short-term strangle on MSG. More specifically, the investor bought symmetrical blocks of July 20 puts and July 22.50 calls for the ask prices of $0.60 and $0.50, respectively. As such, the strategist initiated the strangle for an initial debit of $1.10 per pair of contracts, which represents the maximum potential risk on the play.
To make money, the investor needs the shares of MSG to make a monstrous move in either direction before the options expire. If LeBron deflates MSG shareholders' hopes tonight by not signing with the Knicks, a pullback beneath the $18.90 level (put strike minus net debit) would generate a profit on the play. On the flip side, should King James opt for the Big Apple, a rally north of the $23.60 level (call strike plus net debit) would result in a profit.
Technically speaking, the shares of MSG haven't exactly been known for volatility. In fact, the Wall Street freshman has spent most of its relatively short life bouncing between support in the $19.50 level and resistance in the $22.50 area. However, with all of the media hype surrounding James's future in the NBA, there's no telling what's in store for the security after tonight.