Schaeffer's Trading Floor Blog

Ahead of Earnings: Take-Two Interactive Software, Inc. (TTWO)

TTWO will report its fiscal third-quarter results after Monday's close

by 1/31/2014 11:42 AM
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With Take-Two Interactive Software, Inc. (NASDAQ:TTWO) headed to the earnings confessional after Monday's close, put players have been increasing their presence in the stock's options pits of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio has risen to 0.41 from 0.02 since last Friday. While the current ratio shows that more calls have been bought to open over puts, it ranks in the 84th percentile of its annual range, meaning long puts have been initiated (relative to calls) at a faster-than-usual speed.

Similarly, TTWO's Schaeffer's put/call open interest ratio (SOIR) of 0.55 ranks higher than 70% of comparable readings taken in the past year, implying short-term speculators are more put-heavy than usual. Drilling down on the front three-months' series of options, peak put open interest is found at the March 18 strike, where 7,042 contracts reside. For those that purchased these puts (to open), this suggests the belief that the stock -- currently perched at $19.10 -- will drop 5.8% by the time the options expire on Friday, March 21.

This skepticism among option players is surprising, considering TTWO has tacked on roughly 57% year-over-year. As such, a portion of the recent put buying -- particularly at out-of-the-money strikes -- could be at the hands of shareholders protecting their portfolios against any near-term downside.

Outside of the options pits, sentiment toward Take-Two Interactive Software is mixed. Among covering analysts, no fewer than nine out of 14 deem the equity worthy of a "strong buy" recommendation, while the remaining five have offered up tepid "hold" suggestions. Meanwhile, the consensus 12-month price target of $21.48 sits in territory not explored by the stock since September 2008. Additionally, the equity received a price-target hike at Stifel earlier this week.

Investors, however, have taken a liking to shorting the stock. In fact, a healthy 12.1% of the equity's float is sold short, and it would take nearly seven sessions to cover these shorted shares, at TTWO's average daily pace of trading.

These shorts could find themselves scrambling to hit the exits, should history repeat itself in the wake of Monday's scheduled event. Following Take-Two Interactive Software, Inc.'s (NASDAQ:TTWO) past eight turns on the earnings stage, the stock has averaged a gain of 2% and 5.6% in the subsequent day and week, respectively. For the company's fiscal third quarter, Wall Street is projecting a per-share profit of $1.37 -- roughly double TTWO's year-ago results.

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