Call Options Or Put Options On Lions Gate Entertainment (LGF)?

| May 30, 2014 | 0 Comments

Lions Gate Entertainment (LGF)It’s been a tough day for Lions Gate Entertainment (LGF) after missing earnings, with the stock down over 12%. Movie producer LGF is most known for its ultra popular Hunger Games movies.

Currently, LGF shares are sitting at $25.85. The stock’s up just 5% from the 52-week low of $24.54 and is 31% below the 52-week high of $37.68.

Is this an opportunity to buy call options on LGF because of a case of overreaction by sellers? Or should you buy put options on LGF because of the company’s disappointing earnings results?

The bulls make a convincing argument…

LGF is selling off hard today after disappointing earnings. But were the results really that bad?

Fiscal fourth quarter adjusted earnings per share came in at $0.42. Analysts were expecting $0.40. So that’s actually a beat. Yes, revenues were well below expectations, but the company only had 13 wide releases to theatres this year compared to 19 in the year before.

More importantly, LGF has the next installment in the very popular Expendables series coming out this summer. Expendables 3 should give a nice boost to the stock once the numbers start coming out.

But the bears have a compelling case as well…

While the latest Hunger Games movie performed extremely well, the highly anticipated Divergent movie significantly underperformed. The Divergent series is supposed to be the next big thing for LGF, so the worse than expected results are not a good sign.

After all, analysts expected $855 million in revenues and the actual result was just $722 million. That’s quite a miss. Home entertainment numbers were down big from the prior year and that’s a very important source of revenues.

With Divergent not doing as well as hoped, it may be very difficult for LGF to meet expectations by investors and analysts moving forward.

So is LGF’s plunge an overreaction, or is time to take a bearish stance on the movie producer?

If you think the bulls are right, take a look at buying the LGF July $26 calls for around $1.40.

If you think the bears are right, take a look at buying the LGF July $26 puts for around $1.50.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.