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Option Brief: Electronic Arts Inc. (NASDAQ:EA) was once again popular among call buyers yesterday, despite an "unacceptable/stupid" string of controversial April Fool's Day tweets aimed at a competitor. In fact, the shares of EA rose 1.6% on the day, and the options crowd is rolling the dice on more upside through the end of the week.
By the close, EA had seen more than 9,700 calls cross the tape -- roughly four times the norm, and more than twice the number of puts exchanged. More than half of the action transpired at the weekly 4/4 29.50-strike call, where 5,212 contracts changed hands. About two-thirds of the weekly calls traded at the ask price, implied volatility jumped 7.2 percentage points, and open interest surged by 4,908 contracts overnight -- all signs of newly bought bullish bets.
By purchasing the calls at a volume-weighted average price (VWAP) of $0.21, the buyers stand to profit if EA is sitting north of $29.71 (strike plus VWAP) at Friday's close, when the options expire. Amid the equity's advance, delta on the calls jumped to 0.50 from 0.31 at Monday's close, implying a roughly 50/50 chance of expiring in the money. However, even if EA remains beneath the strike through the week, the most the buyers are risking is the initial premium paid for the calls.
Now is an opportune time to place short-term bets on the videogame maker, from a buyer's perspective. The stock's Schaeffer's Volatility Index (SVI) of 29% sits just 11 percentage points from a 52-week low, suggesting EA's short-term contracts are attractively priced, historically speaking.
On the charts, the shares of Electronic Arts Inc. (NASDAQ:EA) have added more than 28.3% so far in 2014, and touched a five-year high of $30.56 on March 21, before pulling back to test their 10-week moving average. In early trading, EA is fractionally lower at $29.43.