IMAX (IMAX – option chain) stock is trading lower today after the company announced the weekend results from Dreamworks’ (DWA) newest “Shrek” movie. Thus far, traders have not been too impressed with the Shrek results in general, pushing DWA much lower yesterday, and it looks like the IMAX receipts are no different. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on IMAX.
This morning, IMAX opened at $15.99. So far today the stock has hit a high of $16.20 and a low of $15.31. As of 11:55, IMAX is trading at $16.05, down $0.85 (-5.0%). The chart for IMAX looks bearish.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $22.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in four months as long as IMAX is below $22.50 at September expiration. IMAX would have to rise by more than 39% before we would start to lose money. Learn more about this type of trade here.
IMAX hasn’t been above $21.30 at all in the past year and has shown resistance around $20 recently.
UPDATE: More IMAX stock coverage:
Investors.com: Rebound Efforts Step Up In Late Trade
Comtex SmarTrend: Imax has the Lowest Relative Performance in the Movies & Entertainment Industry (IMAX, NWS, NWSA, DIS, VIA.B) | Relatively High EPS Growth Detected in Shares of Imax in the Movies & Entertainment Industry (IMAX, NWSA, NWS, DWA, VIA)