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Earlier today, Activision Blizzard, Inc. (NASDAQ:ATVI) was the subject of a bullish call spread. Just after midday, a block of 8,268 January 2014 18-strike calls traded at the ask price of $0.85, while a matching block of 8,268 January 2014 23-strike calls were exchanged at the bid price of $0.10. Volume is outstripping open interest at both strikes, signaling the initiation of new positions. Since it appears the lower-strike calls were purchased and the higher-strike calls were sold, this appears to be a new long call spread on ATVI.
Essentially, this speculator is looking for ATVI to rally up to $23 by the time January-dated options expire. The maximum potential gain is equal to the difference between the two call strikes, less the initial net debit. The spread was opened for a cost of $0.75, so the most the trader stands to make on a bullish move is $4.25.
Meanwhile, the maximum potential loss is limited to the net debit of $0.75. The trader will swallow this entire amount if ATVI remains at or below the purchased call strike of $18 through January expiration.
On the charts, Activision Blizzard, Inc. has added about 1% today to trade at $15.77. Earlier in the session, the stock tagged a four-year peak of $16.11, extending its recent string of new highs. Year-to-date, the shares have advanced 48.5%. To put that rally in perspective, today's call spread player will begin to profit once ATVI rises above breakeven at $18.75 (purchased call strike plus net debit) -- roughly 19% north of the stock's current price.