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International Game Technology (NYSE:IGT) is up 1.7% to trade at $19.25 this afternoon, as the stock attempts to rebound from negative price action spurred by a downgrade to "hold" from "buy" at Deutsche Bank on Friday. What's more, call activity has ramped up to roughly three times the intraday norm, with 7,250 calls being exchanged thus far, compared to just 174 puts.
Nearly three-fourths of today's call volume has changed hands at the near-the-money October 20 call. The majority of the contracts crossed in one sweep, as one trader purchased several small blocks -- totaling 5,012 contracts -- across multiple exchanges for the ask price of $0.40 apiece. Considering implied volatility spiked up to 3.7 percentage points at the time of the trades, it is possible that fresh long call positions were initiated.
With this play, today's call buyer anticipates IGT will head back into territory it occupied before its news-driven bearish gap on Friday. Specifically, he expects the stock to surpass the breakeven rail of $20.40 (strike price plus the ask price) by the close on Oct. 18, when front-month options expire.
The trader was willing to pay a pretty penny for his bullish bets, considering the calls' implied volatility of 41.3% towers over IGT's 20-day historical (realized) volatility of 32%. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) is relatively low at 18, indicating that IGT hasn't been prone to making outsized moves over the past year, relative to what its option prices have projected. As such, should the stock fail to regain its stance above the 20 strike over the next two-plus weeks, the call buyer will risk losing the relatively expensive premium paid per contract.
From a broader technical perspective, International Game Technology (NYSE:IGT) has tacked on 47.5% over the past year, and hit a three-year high of $21.20 on Sept. 19, before its aforementioned dip on the charts.
Fundamentally speaking, IGT last Wednesday won the American Gaming Association's (AGA) "Voice Communications Award" at the Global Gaming Expo (G2E) for producing the industry's first interactive annual report. Such good news, however, was quickly overlooked, after Deutsche Bank analyst Carlo Santarelli lowered IGT's rating, believing that the gaming sector will likely face multiple challenges that will ultimately keep fiscal 2014 earnings-per-share estimates from going higher.
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