3 Game Stocks That Could Take Off

While low expectations surround high-flying Activision Blizzard, Electronic Arts and Take-Two Interactive Software have each pulled back near historically bullish trendlines

Mar 29, 2017 at 10:58 AM
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Video game stocks have been flying under the radar, despite the sector's strong performance in the past 12 months. The PureFunds Video Game Tech ETF (GAMR) -- which celebrated its one-year trading anniversary on March 10 -- has surged nearly 30% in the last 12 months to trade at $34.19, and topped out at a record high of $34.50 on March 20. Among GAMR's holdings, outperforming Activision Blizzard, Inc. (NASDAQ:ATVI) is surrounded by skepticism, while Electronic Arts Inc. (NASDAQ:EA) and Take-Two Interactive Software, Inc. (NASDAQ:TTWO) have recently pulled back near historically bullish trendlines. With options priced at relatively affordable levels, it may be an opportune time for premium buyers to pull the trigger on shares of ATVI, EA, and TTWO.

Activision Blizzard Stock Hits Record High

ATVI hit a record high of $50.30 earlier today, and was last seen trading up 1% at $50.25. This is just more of the same for the stock -- up 39% year-to-date, after a post-earnings bull gap in mid-February shot ATVI shares past former highs in the $45.50 region. Any short-term pullbacks could find an options-related foothold at $48, which is home to peak front-month put open interest of 15,427 contracts.

ATVI options open interest

Those looking to bet on Activision Blizzard, Inc.'s near-term trajectory with options are in luck. For starters, ATVI stock's Schaeffer's Volatility Index (SVI) of 20% ranks lower than 99% of all comparable readings taken in the past year -- meaning historically low volatility expectations are currently being priced into short-term options. Plus, its Schaeffer's Volatility Scorecard (SVS) of 94 suggests the gaming stock has made bigger moves than the options market has priced in over the last 12 months, a potential boon to premium buyers.

Electronic Arts Shares Near Historically Bullish Trendline

After topping out at a record high of $91.82 on March 16, EA pulled back to support in the $88-$89 region -- home to its former highs and its rising 30-day moving average. Based on its current perch at $89.80, EA stock is within one standard deviation of its 40-day moving average, a signal that has translated into extended gains for the shares in the past three years. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, in the 12 previous times EA has neared this trendline, the stock has averaged a 5.4% gain in the subsequent 21-day period, and has been positive three-quarters of the time.

ea stock daily price chart

The shares could also benefit from an unwinding of skepticism among options traders. Over the past 50 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), EA has racked up a 50-day put/call volume ratio of 0.98 -- in the 93rd annual percentile. What's more, it seems to be an affordable time to purchase premium on Electronic Arts Inc.'s short-term options. The stock's SVI of 20% is docked in the 2nd percentile of its annual range.

Take-Two Interactive Stock Could Benefit from More Short Covering

TTWO also pulled back after notching its all-time peak of $60.20 in mid-February. More recently, the shares bounced from their rising 40-day moving average -- last seen trading at $58.94 -- and if history is any guide, additional gains could be on the horizon. In fact, in the 13 other times this signal has flashed in the past three years, TTWO stock has gone on to average a 21-day gain of 3.2%, and has been positive two-thirds of the time.

ttwo stock daily price chart

A continued rise could have more short sellers hitting the exits on TTWO. Despite falling 14.6% in the most recent reporting period to 4.6 million shares, it would still take shorts nearly four sessions to cover the remaining bearish bets, at the average pace of trading. Meanwhile, it appears to be a prime time for premium buyers to strike on TTWO's near-term options. Take-Two Interactive Software, Inc.'s SVI of 24% is perched lower than 99% of comparable readings taken in the last 12 months.

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