Coinstar Draws the Bulls

Jun.30.11 | About: Outerwall Inc. (OUTR)

By David Russell

The bulls were active yesterday in Coinstar (NASDAQ:CSTR), which seems to have some interesting things going on. More than 2,400 August 57.50 calls were purchased against open interest of just 338 contracts. Premiums started at $1.55, and then rose as the stock climbed, ending the session at a high of $2.10.

CSTR closed up 3.97 percent at $53.49, and has gained 12 percent in the last week. The company, traditionally known for its change-counting machines, has been reinventing itself as a provider of DVD rentals. That business, Redbox, now dominates the revenue stream and is growing at more than 10 times the pace of coins.

Investors were stunned the last time results came out on April 28, causing the shares to gap higher. Earnings and revenue both exceeded consensus, and management raised guidance. And, after proving its ability to drive business with promotions like $1 movie rentals, CSTR is starting to offer video games at more than 21,000 kiosks this month.

The stock followed the rest of the market lower in early June, but quickly bounced at its 100-day moving average. Short interest was also 35 percent of the float in mid-June, which represents a hefty 15 days of average trading volume. Given its strength in the last week, CSTR could now be poised for a rapid squeeze higher.

Overall options volume in the stock was five times greater than average yesterday, with calls outnumbering puts by more than 2 to 1, according to Heat Seeker.