Options Bulls Press Play On EA Stock Ahead Of Earnings

EA recently pulled back to a bullish trendline

Managing Editor
Jul 26, 2018 at 2:46 PM
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Electronic Arts Inc. (NASDAQ:EA) is gearing up for its fiscal first-quarter earnings report after the close today, and options traders are piling on. The video game stock has cooled off lately, but could be poised to climb again in the coming weeks, if history is any guide. 

The options market is pricing in a 7.4% next-day swing for EA stock, regardless of direction. This compares to the 4.3% single-session post-earnings move the shares have averaged over the past eight quarters -- where all but two reactions were positive. Last May, EA stock added nearly 6% the day after reporting, on its way to a fresh record high. 

Ahead of the big event, options traders are coming out in droves. Over 95,000 EA options have changed hands today -- 12 times what's typically seen at this point and volume pacing for the 100th percentile of its annual range. Most popular today are the August 150 and 165 calls, although most of the action appears to be the possible roll of a spread to the September 130 put and September 150 and 170 calls. Separately, it looks like one trader may have initiated a bull call spread at the August 143 and 150 calls, buying to open the former and selling to open the latter.

Whatever the motive, today's appetite for short-term calls is par for the course. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.16 indicates that open calls handily outnumber puts among options expiring within three months. In fact, EA's SOIR is at the bottom of its annual range, suggesting near-term traders haven't been more call-biased in the past year.

Looking at the charts, Electronic Arts stock is down 2% to trade at $143.51 today, after notching a record high just above the $151 level on July 13. However, this recent pullback takes EA to a key trendline with bullish implications.

The stock is now within one standard deviation of its 40-day moving average, after a lengthy stretch above this trendline. There have been nine other times over the last three years where EA has pulled back to its 40-day after trading above it for a significant length of time. Following those nine prior signals, the security went on to average a gain of 3.73% over the next month, and was higher 78% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. A similar uptick from current levels would put the stock back near $149.

EA Stock Chart

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