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Option Idea of the Week: Activision Blizzard, Inc. (ATVI)

Why option bulls should keep an eye on ATVI

by 11/22/2013 10:53:21 AM
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On the technical front, Activision Blizzard, Inc. (NASDAQ:ATVI) has been an outperformer in 2013, gaining about 63% year-to-date to trade at $17.30, and besting the broader S&P 500 Index (SPX) by around 37 percentage points during the same time frame. On the charts, the stock's last two pullbacks were cushioned by its 100-day moving average, after which ATVI bounced higher. In addition, the $16 area also contained a few moves lower following the equity's bullish gap in late July. This technical stamina -- coupled with the security's pessimistically skewed sentiment backdrop -- could be priming the video game guru for another run higher.

Daily Chart of ATVI since June 2013 With 100-Day Moving Average

Speaking of said skepticism, options traders seem to be doubtful of ATVI's prospects lately. In fact, the stock's 50-day put/call volume ratio of 0.36 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) registers higher than 74% of comparable readings taken during the past year, confirming speculators have been scooping up puts relative to calls at an accelerated pace in recent months.

In similar fashion, ATVI's Schaeffer's put/call open interest ratio (SOIR) of 0.52 is just 2 percentage points shy of a 12-month peak. Or, in simpler terms, near-term traders have rarely been more put-focused toward the security during the past 52 weeks. This bevy of put positions -- particularly at underfoot strikes in the December series of contracts -- could end up translating into options-related support down the road.

Also of note, short interest surged by 14.7% over the last two reporting periods, and now these bearish bets make up a healthy 3.5% of ATVI's available float. With nearly 15 million shares presently sold short -- the most since mid-March -- the security could potentially benefit from some short-covering activity over the next several weeks.

Lastly, ATVI's Schaeffer's Volatility Index (SVI) of 26% ranks lower than all but 8% of other such readings collected over the last 12 months, suggesting the stock's near-term options are relatively cheap right now. As such, speculators wanting to wager on additional gains for Activision Blizzard, Inc. (NASDAQ:ATVI) may want to consider buying the equity's in-the-money January 2014 14-strike calls, which are currently asked at $3.50.


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