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Activision Blizzard Traders Call a Top

Call sellers zero in on ATVI's February series of options

by 11/1/2012 2:37 PM
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Put activity has been running hot on Activision Blizzard, Inc. (NASDAQ:ATVI - 11.23) lately, according to data pulled from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 10-day put/call volume ratio sits at 3.00, indicating puts bought to open have tripled calls during the past couple of weeks. This ratio is just one percentage point shy of a bearish peak, which means traders have been snapping up puts over calls at a near annual-high pace.

Today's ATVI trading activity runs counter to this put-heavy trend, as roughly 11,000 calls have changed hands so far. This is almost five times the norm, and more than double the number of puts traded. One of the more popular options has been the February 2013 12 strike, where nearly 2,300 calls have been exchanged. However, more than half of them crossed at the bid price, suggesting they were sold. Since this option is currently home to fewer than 1,400 contracts, we can assume that new positions are being added here. By writing the calls to open, the speculators are expecting the stock to remain south of the $12 mark through February expiration. This would render the options worthless, and allow them to pocket the net credit received from the call sales.

Meanwhile, sentiment toward ATVI among the brokerage bunch is overwhelmingly bullish. In fact, the video game guru boasts 16 "strong buy" endorsements, compared to four "holds" and not a single "sell" recommendation. What's more, the equity's average 12-month price target sits at $15.69, reflecting expected upside of 44% to yesterday's closing price of $10.89.

This confidence in ATVI is somewhat surprising, considering the stock's year-over-year loss of about 18%, and year-to-date decline of nearly 9%. The equity has also lagged the broader S&P 500 Index (SPX) by more than seven percentage points during the past two months. On the charts, the security just finished a fourth consecutive month beneath resistance at its 50-month moving average.

It should be noted, however, that ATVI is scheduled to report third-quarter earnings on Nov. 7. A positive earnings report could place the aforementioned February calls in the money, at which point the sellers risk assignment and a loss on their bearish bets.

At last check, ATVI is up more than 3% to wink at the $11.23 level.


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