DWA: Reader's Choice (includes video)

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DreamWorks (DWA) is one very interesting stock right now! To begin, consider this evidence: 1) at worst, DWA will have flat earnings over the current fiscal year; 2) for fiscal year 2013 (ending in December) DWA is projected to increase their 2012 fiscal year earnings by at least 10%; 3) DWA has zero debt and $1.00 per share in cash; 4) DWA has a float of 66 million shares, and 19 million of those shares have been sold short. Yes, 29% of the common share float of DWA is now sold short!

I had a decade of experience trading the stock and especially the options of another great movie making corporation. That company back, in the 1980s, was known as MCA. You would know them today as Universal Studios and of course, Universal Theme Parks. MCA was not a stock to trade for anyone with a questionable ticker or high blood pressure because itcould move from a 35 volatility to a 70 volatility or higher while you took your first bite of your lunchtime sandwich.

Those wild days trading MCA for me are still quite vivid. And one good movie can catalyze a big stock price move, like "Back to the Future" among others did such for MCA. But never, ever was MCA shorted the way DWA has been shorted today.

DWA is a well-managed company in a hit and miss business -- movie making. It has no debt, cash on hand and some of the best talent in that business. What might be forming for DWA's common stock now is much higher volatility as we go into the summer movie season. On, and by the way, it has Madagascar 3D ready for release on June 8.

Technically DWA has been trying to make a tradable, decent bottom. The $20 level has been tough resistance, however. It has been on a steady downward path in price since it hit $37 in November 2010. Thus, DWA has to overcome technical resistance to turn bullish. But with so much short covering potential as upside firepower that resistance can be quickly overcome given the right circumstances.

 

Before we get into the options strategy, let's review some more fundamental metrics and the chart with Jill and Scott in the T3/OP all-in-one video (also found under the OptionsTV tab):



This trade is a high risk trade because it is biased to the upside. It is however 100% risk controlled as it is an unhedged long call set up. The reward potential is of course unknown. Thus, this trade is a high risk "shooter", so please consider that before initiating a position. It does have time working in its favor, but price action has to be favorable over that time. In other words, a short squeeze would be welcome.

Trades: Buy to open 3 DWA September 17.5 calls for $1.25.

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At the time of publication, Skip Raschke, Jill Malandrino and Scott Redler held no positions in the stocks or issues mentioned.