LGF is releasing its final movie of the teen mega blockbuster twilight today. The franchise has been widely popular and has been a boon to the relatively small movie production company Lions Gate Films. Typically upon movie releases for LGF we see a run up in the stock prior to the release and then a sell off upon release. Typical for Hollywood to buy the rumor and sell the news. There are signs this time might be different, Early returns are already strong, with one report stating that the film grossed 30.4 million from screenings at 10 pm last night and at least one investor is planning on this final addition to buck the trend and beat expectations on this opening weekend. In one trade an investor bought 600 December 17 calls for .29 cents. He is outlaying $17,400 to get long 60,000 shares over 17. This is an attractive way to play the upside in this stock; we have a defined risk, and don’t lose any more than our original capital if the stock does indeed sell on the news.
The CBOE Correlation Index (KCJ) is close to the lowest level we have seen since it was first listed in 2007. The KCJ measures the implied movement of the S&P 500 components options, compared to the implied movement of the S&P 500 index options. Simply put, the higher the number, the more likely all stocks are going to move together. Conversely, a low number will be characterized by sector rotation, and flat markets; one sector moves higher, another moves lower. (Source: Access Hollywood) Correlation, for lack of a better term, is correlated with volatility. Not surprisingly, 30-day S&P 500 historical volatility is near the low level of 6.5%. Currently at 33.5, KCJ is sitting close to rock bottom, lower than where it was in 2007, (but not lower than where Lindsay Lohan was in 2007). So far this year, the market has been able to grind higher, characterized by leadership in FANG(Facebook Apple/Amazon, Netflix, Google) and sector rotation. A...
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