Getting Big Gains as IMAX Drops

My indicators are giving bullish-to-neutral readings this week, a mild downgrade from the past two weeks of bullish readings, and because I’ve recommended two bullish trades this week, I’m giving you a bearish trade on IMAX Corporation (NYSE:IMAX).

We have seen some choppy trading as the S&P 500 remains in a resistance zone from about 3,230-3,330. The S&P 500 is barely changed from last Friday’s close.

Daily Chart of S&P 500 Index — Chart Source: TradingView

I expect to see a pop in the Nasdaq today following some stronger-than-expected earnings from Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) yesterday, but the broader market could be stuck going sideways for a while longer.

Even with China gradually easing its cinema restrictions, the entertainment industry is stuck in place. Movie premiers are delayed, and film and TV productions have either been changed or shut down.

That leaves IMAX in a very bad spot.

How IMAX Earns its Money

The company sells, leases and maintains IMAX premium theater systems. According to its second-quarter earnings report, the company suspended all regular maintenance. That means it lost one major source of revenue from this segment.

IMAX also collects on revenue-sharing agreements with theaters that use its products. Its revenue from these agreements declined 85.5% year-over-year.

Its film distribution and post-production business is also suffering. There aren’t many films to digitally remaster, and big movie premiers won’t attract consumers.

The company may be looking to make up for that with the previously announced Hulu partnership, but that can only help so much.

All this paints a grim picture, but IMAX jumped after reporting earnings because it posted a smaller loss per share than expected.

That’s very good for IMAX, but it doesn’t change the fact that we are still relatively far away from a vaccine making it safe to go out again.

Testing $10

IMAX has been making lower higher since June, and now that it has dropped below its 50-day moving average, which acted as support last week, I think it could have new, lower resistance.

Daily Chart of IMAX Corp. (IMAX) — Chart Source: TradingView

The stock has some support just above $10, and I think it could retest or even break below that level as the pandemic continues paralyzing the entertainment industry.

Buy to open the IMAX Corp. (IMAX) Sept. 18th $10 Puts (IMAX200918P00010000) at $0.50 or lower.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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