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Bulls Flock to Floundering Activision Blizzard

Speculators honed in on ATVI's 12-strike calls

by 6/8/2012 8:42 AM
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The shares of Activision Blizzard, Inc. (ATVI - 11.78) spent Thursday's session in the red, after Bloomberg News reported that Vivendi SA executives will meet on June 22 to discuss selling all or part of the French firm's 61% stake in the videogame maker. Nevertheless, the stock captured the attention of short-term call traders.

By the closing bell, ATVI had seen roughly 16,000 calls cross the tape -- about three times its average daily call volume. For comparison, just over 4,000 ATVI puts changed hands during the course of the session.

Garnering notable attention were the stock's June- and July-dated 12-strike calls, which saw open interest swell by around 2,500 and 6,000 contracts overnight, respectively. Plus, the majority of the near-the-money calls crossed at the ask price, pointing to newly bought bullish bets. By purchasing the 12-strike calls to open, the traders are expecting ATVI to reclaim its perch north of $12 within the options' lifetime.

However, yesterday's affinity for near-term calls is par for the course for ATVI. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.27 indicates that calls nearly quadruple puts among options expiring within three months. Even more telling, perhaps, this ratio sits just four percentage points from an annual low, implying that short-term options players have rarely been more call-biased toward ATVI during the past year.

Echoing that optimism, the equity sports 14 "strong buy" endorsements from analysts, compared to five lukewarm "holds" and not a single "sell" or worse rating. Plus, the consensus 12-month price target on the stock stands at $15.71, implying expected upside of 33% to ATVI's closing price of $11.78 on Thursday.

Technically speaking, the shares of ATVI have been relatively stagnant over the past several months, bouncing along between support in the $11.50 region and resistance in the $13-$13.50 neighborhood. From a longer-term perspective, the stock may also find a speed bump in the form of its 60-month moving average. This trendline underscored ATVI's series of higher lows from late 2008 until just last month, and could now switch roles to serve as resistance.

Monthly Chart of ATVI since December 2008 With 60-Month Moving Average


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