Stocks quoted in this article:
Option traders are blitzing Activision Blizzard, Inc. (NASDAQ:ATVI) today. Calls are the clear options of choice, with more than 9,500 contracts on the tape, versus an expected intraday volume of fewer than 900. What's more, the stock's 30-day at-the-money implied volatility is 1.9% higher at 20.4%, signaling increased demand for short-term options.
The vast majority of this morning's volume has transpired at the September 23 call, where 9,321 contracts are on the tape. According to Trade-Alert and data from the International Securities Exchange (ISE), these calls are being bought to open at a volume-weighted average price (VWAP) of $0.56. Therefore, even though the calls are currently at the money -- with ATVI up 0.4% at $23.11 -- the traders need the shares to rally more than 1.9% to reach the at-expiration breakeven mark of $23.56 (strike plus VWAP). Gains are theoretically unlimited north of here, while losses are capped at the initial premium paid, should the equity be sitting below $23 at the close on Friday, Sept. 19 -- when the front-month contracts expire.
Taking a step back, Activision Blizzard, Inc. (NASDAQ:ATVI) has had a strong 2014, with the shares gaining nearly 30%, riding atop support at their 40-day moving average. In fact, three weeks ago, the video game stock touched a record high of $23.79 in the wake of a second-quarter earnings beat, before entering a period of consolidation at the aforementioned trendline.