Pre-Earnings King Digital Entertainment plc (KING) Bull Ups the Ante

One King Digital Entertainment PLC (KING) option trader rolled her bullish bet up

by Karee Venema

Published on Feb 10, 2015 at 2:41 PM
Updated on Apr 20, 2015 at 5:32 PM

King Digital Entertainment PLC (NYSE:KING) is following the broader equities market higher today, and was last seen up 3.1%. Against this backdrop, call volume is soaring, with one trader in particular gambling on some post-earnings upside after the "Candy Crush" parent unveils its fourth-quarter results this Thursday evening.

Specifically, the stock's February 13.54 and 15.54 calls have seen the most action. According to Trade-Alert, the lower-strike calls are being sold to close, while the higher-strike calls are being bought to open, as one speculator rolls her bullish bet up. In other words, she now expects KING to rally above $15.54 by next Friday's close, when front-month options expire.

With KING's quarterly earnings report just days away, short-term speculators are willing to pay a pretty penny to place their bets. For starters, the equity's 30-day at-the-money implied volatility of 86% ranks higher than 99% of similar readings taken since the stock began trading last March. What's more, the security's Schaeffer's Volatility Index (SVI) of 1.05 is perched at a record peak. Summing it all up, premium on KING's front-month options is pricing in relatively lofty volatility expectations at the moment.

Technically speaking, KING has been charting a path lower in 2015, off 9% to trade at $13.84. Unfortunately for today's call buyer, the stock could be poised to resume this downtrend after it reports earnings on Thursday. In the three other times King Digital Entertainment PLC (NYSE:KING) has stepped into the earnings confessional since going public, the stock has averaged a loss of 10.8% in the subsequent session.


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