Buy The Dip On This Video Game Stock

Options traders have been extremely call-heavy toward ATVI

Managing Editor
Oct 11, 2018 at 2:17 PM
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Yesterday, Activision Blizzard, Inc. (NASDAQ:ATVI) moved 5.2% lower with the broad market sell-off, extending a recent pullback from the past week. The good news is that this dip could have bullish implications in the next month, if history is any guide. 

ATVI is now within one standard deviation of its 200-day moving average, after a lengthy stretch above this trendline. In the last two years, there have been nine other signals of this kind, after which the shares were up an average of 5.77% a month after and positive 78% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. At last check, ATVI was up 1.8% at $74.89, so a similar rebound would have the equity erasing its losses from the past week.

Pullbacks ATVI

Activision Blizzard stock nabbed a record high of $84.67 on Oct. 1, and boasts a 18% lead in 2018. Despite the stock's overall technical strength, short sellers are piling on. Short interest has more than doubled since Aug. 1 to 22.42 million shares, the most since Oct. 2016. This represents more than three days of pent-up buying power, at the stock's average daily trading volume.

Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), calls are in vogue. ATVI's 10-day call/put volume ratio of 2.61 ranks in the 84th annual percentile, meaning the rate of call buying relative to put buying has been quicker than usual.

Digging deeper, the weekly 10/12 75.50-strike call saw the largest increase in open interest during this time frame, where it looks like mostly buy-to-open activity. If this is the case, options traders are banking on a bigger rally by the time the options expire tomorrow. 

 

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