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Options Buyers Lick Their Chops Ahead of ‘Hunger Games’ Opening

Call volume is active in Lion’s Gate Films before a presumed big box-office weekend


The Hunger Games hits theaters at midnight on Friday, and fans are certainly planning ahead for the first mega movie event of 2012. According to Deadline, online ticket vendors and have pre-sold a combined 1 million tickets for this weekend’s shows. Fandango notes that 1,200 showtimes are already sold out at its site and that 92% of all ticket sales Monday morning were for this film. The buzz surrounding the first big-screen adaptation of the widely read trilogy may even trump those silly little Twilight vampires.

Early estimates predict an opening-weekend box office haul of $125 million. And it’s only uphill from there, as many theatergoers are already predicting that The Hunger Games will be a film they’ll want to see more than once. This could be great news for Lion’s Gate Entertainment (NYSE:LGF), the studio backing the film.

As previously noted, Lion’s Gate most successful films to date were The Expendables (domestic gross of $103 million; worldwide gross of $274 million) and Fahrenheit 9/11 ($120 million domestic, $222 million worldwide). The Hunger Games might surpass both of these domestic box-office milestones in its first three days of release.

Option players are perhaps as anxious for the film’s release as the nation’s pre-adolescent contingent. On Monday, 15,000 calls changed hands compared to just 4,000 puts. It was more of the same on Tuesday, with about 15,000 calls trading and just 4,000 puts. This overall volume of 19,000 is more than triple the stock’s average daily options volume.

On Monday, the April 14 and 15 strikes were especially popular, and most of the calls were trading at or near the ask price, indicating demand was on the buying side of the fence. Tuesday, it was the April 15 and 16 strikes in focus, and again the activity appeared to be call buyers.

Call buyers risk losing 100% of the premium they pay if the stock fails to rise above the purchased strike price in time for expiration. On the other hand, potential gains are unlimited if the underlying stock moves higher. Breakeven for a long call price is the strike price plus the premium paid to enter the trade.

LGF shares have been on a bullish tear, up 74% year-to-date and 9% in the last five days alone. Some of this move could be the result of short-covering activity, as almost one-fifth of the stock’s float is short. As LGF continues to advance, more short sellers could be spooked into closing their positions by buying back the stock.

It’s clear that expectations for The Hunger Games are quite frothy, and this could be a risk for these short-term call buyers. While pre-opening ticket sales are a pretty good sign of success, anything short of utter box-office domination might be a disappointment to a hopeful crowd, resulting in some “buy the rumor, sell the news” blowback.

Are you planning on seeing The Hunger Games on opening weekend? If so, do you already have your ticket?

As of this writing, Beth Gaston Moon does not own any shares mentioned here. 

Article printed from InvestorPlace Media,

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