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Why bears are gathering at Lions Gate

David Russell (david.russell@optionmonster.com)

The bears are trying to attack Lions Gate Entertainment with the shares near all-time highs.

optionMONSTER's Depth Charge monitoring program detected the purchase of some 17,000 June 23 puts for $1.04 to $1.20 in volume that dwarfed the strike's previous open interest of just 518 contracts. Premiums increased as the stock rose, illustrating a strong buying pattern.

Puts normally move in the opposite direction as the shares because they're essentially insurance policies against lower prices. Traders buy them to hedge a move to the downside or to speculate on a drop. They can be safer than simple short selling because there is no upside risk. (See our Education section for more)

LGF is up 1.31 percent to $24.02 in late-morning trading and has broken out to new all-time highs. The studio's shares rallied some 50 percent in the first quarter and have been consolidating since. Its last two earnings reports have beaten expectations.

Today's bearish activity hit earlier in the session with the stock near the top of the recent range, so the trader apparently sees resistance on LGF's chart.

Total option volume is 9 times greater than average in the name so far today, with puts outnumbering calls by a bearish 16-to-1 ratio.

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