Take-Two Interactive Software Stock Sees Surge in Pre-Earnings Call Buying

Take-Two Interactive Software will report fiscal second-quarter earnings after tomorrow's close

Nov 6, 2017 at 11:16 AM
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While the busiest part of earnings season has passed, there are still plenty of high-profile names that still have yet to report. Grand Theft Auto parent Take-Two Interactive Software, Inc. (NASDAQ:TTWO) will take its turn in the earnings confessional after tomorrow's close, and options traders are hoping the stock follows in the footsteps of sector peer Activision Blizzard (ATVI) -- which shot to a record high last Friday following the video game maker's results, though the shares eventually closed the session lower.

Specifically, options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 5.25 calls for each put over the past 10 days. The resultant call/put volume ratio ranks higher than 77% of all comparable readings taken in the past year, signaling accelerated demand for bullish bets relative to bearish.

Echoing this is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.37. Not only does this show that calls significantly outweigh puts among options set to expire in three months or less, but it ranks lower than 74% of all similar readings taken in the last 12 months.

Diving deeper, peak open interest is found at the November 100 and 110 calls, where nearly 16,000 contracts collectively reside. It's not entirely clear how these calls are being used, but it looks like most of the positions here were initiated in late September when TTWO was trading around $98. While vanilla options bulls may have opened the calls to bet on bigger gains, it's also possible the options were used to construct a long call spread.

Regardless, it's getting pricey to buy premium on short-term options. With volatility expectations on the rise ahead of earnings, TTWO's 30-day at-the-money implied volatility (ATM IV) of 42.3% ranks in the 99th annual percentile. For the sake of comparison, the stock's 30-day historical volatility is docked at 18.9%.

Historically speaking, Take-Two Interactive Software stock's post-earnings price action tends to side with the bulls. In the last eight quarters, the equity has finished higher in the session following the company's results each time -- averaging a 5% return. This time around, the options market is pricing in an 11.1% swing, regardless of direction, based on ATM IV data.

Another post-earnings pop isn't out of the question, either, considering TTWO's stock's momentum is currently to the upside. The shares are up 120% year-to-date -- including today's 1% drop to trade at $107.77 -- which recent pullbacks quickly contained by the 30-day moving average. Plus, Take-Two stock is within a chip shot of taking out last Wednesday's record high of $111.11.

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