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Pre-Earnings Take-Two Interactive Software, Inc. (TTWO) Bears Active

Take-Two Interactive Software, Inc. will report earnings after Tuesday's close

by 5/9/2014 10:14 AM
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Option Brief: Take-Two Interactive Software, Inc. (NASDAQ:TTWO) put players have been making their presence known in the weeks leading up to the company's after-the-close earnings report next Tuesday. This recent trend was witnessed in yesterday's session, where puts traded at five times the daily average, and outpaced calls by a more than 2-to-1 margin. Diving deeper, it appears a number of speculators are betting on another post-earnings slide.

The most active strike by a mile on Thursday was TTWO's May 21 put, where nearly all of the 2,576 contracts traded did so at the ask price, pointing to buyer-driven volume. Implied volatility (IV) jumped 8.4 percentage points, and open interest rose the most of any strike overnight, making it safe to assume that a fresh batch of bearish bets was initiated. With TTWO trading at $20.76, these puts are currently in the money. However, breakeven for the put buyers at next Friday's close -- when the options expire -- is $20.09, or the strike less the volume-weighted average price of $0.91.

This skepticism toward TTWO is a bit surprising, considering the equity has rallied nearly 20% in 2014. What's more, Thursday's put buyers were willing to pay up to place their bearish bets. Ahead of Tuesday's earnings report, TTWO's Schaeffer's Volatility Index (SVI) has soared to 56%, and ranks in the 79th percentile of its annual range. Plus, the equity's 30-day at-the-money IV is lingering near 50.2% -- its loftiest perch since early February -- after jumping 7.3% yesterday. In other words, premium on TTWO's front-month options is expensive, from a volatility perspective.

Overall, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has put in a strong performance on the earnings stage, besting analysts' bottom-line estimates in six of the past eight quarters. Post-earnings, the equity has gone on to average a gain of 0.4% in the subsequent session. While this may be discouraging news for Thursday's put buyers, following TTWO's last turn in the earnings confessional in early February, the stock logged a single-session loss of 9.7%.


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