Call Options Or Put Options On Outerwall (OUTR)?
Outerwall (OUTR) has been quite the volatile stock lately. The owner of Redbox, formerly called Coinstar, is competing in the ultra-competitive DVD/Blu-ray and video game rental space.
OUTR shares are trading at $62.66, up nearly 20% since last week. The stock’s up 54% from the 52-week low of $40.50 and is 4% below the 52-week high of $65.60.
Is this an opportunity to buy call options on OUTR after activist Jana Partners took a 13.5% stake in the company? Or should you buy put options on OUTR because the company has been struggling to grow revenues and profits?
The bulls make a convincing argument…
OUTR’s Redbox business is the only major player in the DVD kiosk space. Despite streaming video, the overall DVD kiosk rental business is growing as it provides the cheapest alternative to movie rentals.
What’s more, Redbox is a cash-flow generating machine. Regardless of revenue/profit growth, one thing OUTR doesn’t have any issues with is generating cash.
Perhaps that’s one major reason activist Jana Partners just took at 13.5% stake in the company. No activist is going to spend over $200 million for a company without a profitable future ahead.
But the bears have a compelling case as well…
While OUTR shares are climbing on news of a major activist stake being taken, the company still has its share of major problems.
In fact, the stock plunged in September when the company substantially lowered outlook. Just about every important metric was lowered from revenues to profits.
There’s just so much competition in this space from streaming video to at home movie delivery. And, the cost of content continues to increase. OUTR has a lot of work ahead of it in order to make sure Redbox (or its other businesses) remain relevant.
So is Jana Partners’ stake in OUTR a reason to be bullish, or is the company’s lowered guidance a reason to sell?
If you think the bulls are right, take a look at buying the OUTR November $65 calls for around $2.00.
If you think the bears are right, take a look at buying the OUTR November $55 puts for around $2.25.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
