1:35pm (EST)

Imax (IMAX, $9.28, up $0.08) is setting a new 52-week high today and for those of you who have followed me for years know I mention this company quite often. In fact, on July 29th I had this to say (quotes are from that day):

“One last thought…Most of you know my “dislike” for Barron’s magazine. We had a few sweet Imax (IMAX, $8.78, down $0.22) trades that were making us some great returns before Barron’s ruined the momentum in the stock.

On June 25th, we went long the July 7.50 calls (IMQGU) at 35 cents and we played the trade like a fiddle. We had set an exit to be out by the July 4th weekend and we were for a profit of 143%. We were out at 85 cents.

Then came the Barron’s weekend article as Imax was setting 52-week highs and the height of the summer movie releases were about to hit.

The September 7.50 calls (IMQIU, $1.55, down $0.20) were at 85 cents in June and were stopped out at $1.00 on July 6th that Monday. As you can see, they have doubled. The December 7.50 calls (IMQLU, $1.90, down $0.05) were at $1.25.

Imax lost more than 10% after that Barron’s article but has since rebounded. I haven’t lost site of Imax and some of you may have kept the December calls open. Congrats.

Keep these on your Watch List but I wouldn’t pull the trigger again right now. Let’s see where they are next week.” (END)

Well, the September 7.50’s are at $1.90 and the December 7.50’s are at $2.20. Naturally, if you held onto these positions then you are doing rather well. Once the trade was busted these calls options took a hit but we made decent money and moved on to other trades. I just wanted to point this out because the stock is up 20% since Barron’s said to sell it.

I will agree that the stock is risky because Imax hasn’t turned a profit in years. That could all change Thursday when the company reports current earnings. Wall Street is expecting a profit of 2 cents. Last quarter, Imax was expected to lose 8 cents a share and came in at a loss of 6 cents. There are only 5 analysts who follow the company so the chance for upgrades are there if Imax does report a profit or beats estimates.

The risk here is enormous though. The August 10 calls (IMQHB, $0.20, flat) would be a huge bet on the stock making a run to over $10 but only 13 contracts have traded thus far. The September 10 calls (IMQIB, $0.40, down $0.05) have traded 30 contracts. If Imax is at $10.50 then the August 10’s are a double and whoever SOLD you the right to buy the stock at $10 will have to do so. But the call options would be a DOUBLE because they will be worth at least 50 cents.

For the September 10’s, Imax would need to trade near $11 for the call options to double. One way to look at playing the 10’s…If you buy 10 contracts of the August 10’s you are risking $200, for the September 10’s you are risking $400 if you buy 10 contracts. Some people make bigger bets than this on a blackjack table so take it for what it is.

The easy money has already been made but I have a strange gut feeling on this one…meaning it could go either way. If I were putting up cash, I would swing the bat on the September 7.50’s which are currently under $2.00. Don’t pay more than $2.00 and use limit prices…especially if you are playing the 10’s.

I don’t think Imax trades lower after it reports earnings but $10 could be a huge hurdle. Then again, Imax is making news nearly every day…

Rick Rouse
Rick@MomentumOptionsTrading.com