Video Game Stock Named a "Best Idea" at Wedbush

ATVI options are attractively priced, to boot

Managing Editor
Apr 1, 2019 at 9:53 AM
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The shares of Activision Blizzard, Inc. (NASDAQ:ATVI) are up 0.9% to trade at $46.44 this morning, after Wedbush added the video game maker to its "Best Ideas" list. In the note, the brokerage firm believes ATVI could see "significant outperformance" in 2019 and that strength continuing into 2020, when the company could realistically post earnings per share of $3.00 -- well above current consensus estimates.

It's been a lackluster start to 2019 for Activision Blizzard stock. The shares have recently consolidated below the $48 level, and a breakout last week was contained by their 100-day moving average. Even with today's mini-rally, ATVI is still sitting churning below its year-to-date breakeven level. 

Meanwhile, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) suggests that speculators have been preferring ATVI calls. The equity's 10-day call/put volume ratio across the exchanges is 2.72, indicating call buying has nearly tripled put buying in the last two weeks. However, considering short interest increased by nearly 50% in the most recent reporting period, its possible those call options are being used to hedge against any upside risk.

Whatever the motive, traders may want to consider call options to speculate on the equity's short-term trajectory. ATVI's Schaeffer's Volatility Index (SVI) of 32% sits in only the 13th percentile of its annual range. From a volatility perspective, this implies that front-month options are unusually cheap at the moment.
Plus, the security's Schaeffer's Volatility Scorecard (SVS) stands at 87 out of a possible 100. This means ATVI has tended to make outsized moves over the last year, compared to what the options market had priced in -- a potential boon to premium buyers.

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