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Bulls Swarm Electronic Arts Amid New Video Game Launch

Speculators zero in on EA's March-dated calls

by 2/5/2013 1:05 PM
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Electronic Arts Inc. (NASDAQ:EA - 16.86) has enjoyed a 5.4% spike today, amid the launch of its Dead Space 3 video game in North American retail stores and on Origin.com. As a result, bullish betting has accelerated on EA with brute force, as roughly 41,000 calls have changed hands -- almost 13 times the norm. By contrast, fewer than 3,600 puts have traded.

Snagging the lion's share of the action is the March 17 call, where nearly 30,750 contracts have been exchanged. According to Trade Alert, a large block of more than 26,000 calls were purchased at this strike for $0.44 each. Meanwhile, today's volume exceeds current open interest levels, while implied volatility has ticked slightly higher during the course of the session -- both indications of buy-to-open activity. In order for the trader to secure a profit on these calls, EA must surmount the breakeven rail of $17.44 (strike price plus initial premium paid) by back-month expiration. This would entail a 3.4% move higher from the stock's present perch. Also of note, the options' delta rests at 49, implying there's a 49% chance these bullish bets will finish in the money.

This campaign for calls over puts is nothing new for the video game giant. EA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio stands at 7.21, with calls bought to open outstripping puts by a margin of more than 7-to-1 during the past couple of weeks. This ratio arrives in the 69th annual percentile, denoting a healthier-than-usual appetite for calls over their bearish counterparts.

Likewise, EA's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.22, indicating calls more than quadruple puts among options with a shelf-life of three months or less. This ratio sits just 4 percentage points above an annual low, meaning near-term traders have rarely been more call-heavy toward the stock during the last 12 months.

EA has been a technical outperformer lately, boasting a year-to-date gain of about 16%, and outpacing the broader S&P 500 Index (SPX) by almost 11 percentage points over the past 60 sessions. Should the shares continue their upward trajectory, today's bulls could find themselves collecting a profit ahead of March expiration.


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