Dreamworks Animation SKG, Inc. (DWA) is creates and exploits branded family entertainment, including animated feature films, television series and specials, live entertainment properties and related consumer products. The stock is currently trading around $23.78 at the lower end of its 52 week range of $18.16-$29.75. The stock has been out performing the market this year rallying 6.45% year to date. DWA is scheduled to report earnings after the closing bell today, and the stock is down $0.03 or 0.13% on the session ahead of the close.
Over the past 12 quarters DWA has rallied on earnings day 5 times with an average move of 9.14%. The stock appears bearish on a chart going into the release having fallen through the Ichimoku Cloud and continued trading below the cloud in the past month on the daily bars. Over the past 12 quarters DWA has rallied on earnings day to the nearest expiration 5 times with an average move of 10.82%. Investors are mainly watching to see how the top line performs due to foreign currency movements and the bottom line impacted by costs associated with the expansion of the Awesomeness-TV operations. With the stock trading below the cloud, disappointing earnings history and high costs it is hard to justify anything but a short position in DWA.
The options market is currently implying a move of around $1.7 or 7.2% in DWA by the end of this week giving us targets of $22.08 and $25.48.
Trade: Buy this week’s 23-22 Vertical put spread for $0.28
Risk: $28 per lot
Reward: $72 per lot
Break Even: $22.72