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Electronic Arts Option Players Forecast a Solid Quarterly Showing

EA's February 16 call is popular in today's session

by 1/28/2013 1:57 PM
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Option players are feverishly accumulating calls on Electronic Arts Inc. (NASDAQ:EA - 14.99) today, as the gamer prepares to step into the earnings limelight later this week. Roughly 23,000 contracts have crossed the tape, representing about 10 times the average intraday volume for call options. By comparison, fewer than 1,200 puts have changed hands.

Short-term speculators have turned their attention to EA's February 16 call, which has seen around 7,900 contracts trade. Nearly all of these have gone off at the ask price, and implied volatility was last seen 2.7 percentage points higher, indicating buy-to-open activity. By purchasing these out-of-the money calls for a volume-weighted average price (VWAP) of $0.24, traders need the stock to rally 8.3% to finish above breakeven at $16.24 (strike price plus VWAP) by the close on Friday, Feb. 15, when front-month options expire.

Today's bullishly slanted bias is just more of the same for options traders. For starters, the stock sports a 10-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE)/NASDAQ OMX PHLX (PHLX) call/put volume ratio of 58.46, which ranks higher than 97% of other such readings taken in the past year. In other words, calls have been bought to open over puts with more rapidity just 3% of the time within the last year.

What's more, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.21 stands just one percentage point above an annual nadir. Simply put, short-term speculators have rarely been more call-heavy toward the stock.

On the charts, EA has displayed some positive price action in recent months. In addition to outperforming the broader S&P 500 Index (SPX) by nearly 17 percentage points over the past 60 sessions, the stock has rebounded 27% from its most recent low of $11.80, tagged on Oct. 26.

Fundamentally, EA is scheduled to unveil its quarterly earnings report after the market closes on Wednesday, with Wall Street calling for a profit of 56 cents per share in the company's fiscal third quarter. EA has beaten analysts' projections in each of the last two quarters, and the stock has enjoyed a move to the upside following the respective results. Today's call buyers could be hoping for history to repeat itself, but will only be out the initial premium paid should EA fail to live up to expectations.


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