In the OOP, back on 4/28, our plan for IMAX was:
We like IMAX because they drop off when the box office slows, which has nothing at all to do with the company, which is adding more and more screens every day. It was one of our original OOP stock picks but then we got called away and I was very upset in Oct that I missed $28 and then failed to buy at $30 so now I don't want to be greedy.
- In the OOP, let's sell 5 IMAX Dec $29 puts for $2 ($1,000) and see how they go before adding a bull call spread.
- In the LTP, let's sell 15 IMAX Dec $29 puts for $2 ($3,000) and see how they go before adding a bull call spread.
In both cases, they are amounts we would be happy to double down if we get a better price (ie. IMAX goes lower).
Well, IMAX did go lower and I do still like them because Q2 will have revenues from Fate of the Furious (4th biggest IMAX opening ever), Guardians of the Galaxy, which has only this week finally been succeeded by Aleins, which is another hit and next comes Pirates, Transformers and Wonder Woman – both likely hits as well. On top of that, IMAX is adding a VR segment that gives them additional growth opportunities. Analysts are expecting $105M for Q2 revenues but Furious alone was good for about $30M and $105M is 15% more than last year – even if that's all they do.
So, in short, it's time to execute a larger play:
OOP:
- Sell 5 (more) IMAX Dec $29 puts for $4.30 ($2,150)
- Buy 10 IMAX Dec $23 calls for $4 ($4,000)
- Sell 10 IMAX Dec $28 calls for $1.40 ($1,400)
That's net $450 on the new $5,000 spread with $4,550 (1,011%) upside potential. Our worst case is owning 1,000 shares of IMAX (including our original 5 short puts) for net $27.10.
LTP:
- Sell 10 (more) IMAX Dec $29 puts for $4.30 ($4,300)
- Buy 20 IMAX Dec $23 calls for $4 ($8,000)
- Sell 20 IMAX Dec $28 calls for $1.40 ($2,800)
That's net $900 on the $10,000 spread with $9,100 (1,011%) upside potential. Our worst case is owning 1,000 shares of IMAX (including our original 5 short puts) for net $27.10.
We will also pick IMAX as a straight stock pick ($25.50) for TradeExchange.
