Stocks quoted in this article:
Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has jumped 4.3% today, as rumors swirl that the video game maker could be a potential takeover target for sector peer Activision Blizzard, Inc. (NASDAQ:ATVI). In the stock's options pits, calls are running at 25 times the average intraday pace, with 16,000 contracts on the tape. As a point of comparison, fewer than 500 puts have been exchanged.
Traders are showing a preference for short-term contracts, as evidenced by the equity's 30-day at-the-money implied volatility, which is up 32.7% at 36.8%. Buy-to-open activity has been detected at TTWO's October 25 call, and according to Trade-Alert, a portion of the activity could be a result of speculators rolling up their now in-the-money September 23 and 24 calls to bet on more upside.
The volume-weighted average price (VWAP) for the October 25 calls is $0.56, making breakeven at the close on Friday, Oct. 17 -- when back-month options expire -- $25.56 (strike plus VWAP), a level not seen by the stock since August 2008. Profit will accrue on a move north of here, while losses are capped at the initial premium paid, should TTWO close south of the strike at expiration.
Today's move higher only highlights Take-Two Interactive Software, Inc.'s (NASDAQ:TTWO) withstanding technical tenacity, with the shares up 35% year-to-date to trade at $23.42. In spite of this, short interest accounts for 17.5% of the stock's available float. Should the security continue to make ground, an unwinding of these short positions could help fuel more gains. At present, it would take almost six sessions to cover all of TTWO's shorted shares.