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Take-Two Interactive Software, Inc. (TTWO) Entices Near-Term Bears

Put players pummel TTWO, despite video-game release

by 9/17/2013 1:01 PM
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Take-Two Interactive Software, Inc.'s (NASDAQ:TTWO) Rockstar Games unit released its long-awaited Grand Theft Auto V for PlayStation3 and Xbox 360 gaming consoles today, yet the stock is off 3% to hover at $16.83. This price dip hasn't gone unnoticed by option bears, as around 9,100 puts have crossed the tape -- a whopping 22 times the equity's expected intraday volume. What's more, the stock's 30-day, at-the-money implied volatility (IV) has climbed 6.6 percentage points to rest at 51.8%.

Most popular is the October 17 put, which has seen nearly 2,600 contracts change hands -- the majority of them at the ask price, pointing to buyer-driven activity. These soon-to-be front-month puts were exchanged for a volume-weighted average price (VWAP) of $1.14. This option presently holds just 366 contracts in open interest, and IV has increased 3.8 percentage points since the opening bell, confirming the initiation of new bearish bets.

In order for the traders to profit from their bought-to-open puts, TTWO must backpedal below breakeven at $15.86 (strike price less the VWAP) by October expiration. This denotes a decline of 5.8% from the equity's current price, as well as territory not explored on daily closing basis since early July. Given the put's delta of negative 0.49, it appears the market forecasts a nearly 50% chance of the option moving in the money during its lifetime. Should the security remain north of the strike price between now and the close on Oct. 18, the put buyers will be forced to part with the initial premium paid.

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has been a longer-term technical standout, gaining nearly 53% year-to-date, and outpacing the broader S&P 500 Index (SPX) by more than 8 percentage points during the past three months. However, the shares suffered a bearish gap last week, after Pacific Crest downgraded TTWO to "sector perform" from "outperform." The brokerage firm expressed concern over a buy-ahead, sell-after scenario regarding the aforementioned video game release.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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