Eastman Kodak Dives on Credit Line Draw; Opportunity?

Shares of Eastman Kodak EK are screaming lower this morning. Currently, shares are off by 22.69% trading at $1.84. The name has been ticking lower for the past two months following a test and fail at the 200-day moving average. Today's gap in EK now places the stock very near the mid-August low of $1.75 (also the 52-week low). This sell off looks to have been perpetrated due to the company announcing that it has tapped its credit line for $160 million, for “General Purposes.” While generally tapping a credit line is a bad sign, many companies do so ahead of the end of the year to finance inventory additions in anticipation of the holiday shopping season. It is up for debate whether or not EK has done so for this reason or some other liquidity reasons. It should be noted that, if Eastman Kodak was actually in a liquidity squeeze, they would have to make a different disclosure about this credit drawdown or face legal actions if and when the company did not become a going concern. So that, as well as the potential for a double-bottom, sets shares up for a short-to-medium term rally. You can play it by buying shares here and stopping out below the 52-week low or you can buy the Jan2012 $1.50/2.50 call spread for $0.35. Note that Eastman Kodak has 25.62% short interest. Eastman Kodak Company is engaged in the sale of imaging products, technology, solutions and services to consumers, businesses and professionals. Kodak operates in three segments: Consumer Digital Imaging Group, Graphic Communications Group and Film, Photofinishing and Entertainment Group.