Activision Blizzard, Inc. (ATVI) Option Bear Puts $1M on the Line

A bearish options trader bought to open over 2,400 puts on Activision Blizzard, Inc. (NASDAQ:ATVI)

by Alex Eppstein

Published on May 20, 2016 at 2:44 PM

Activision Blizzard, Inc. (NASDAQ:ATVI) is off 0.4% at $37.66, and if one bearish options trader has her druthers, there will be more losses to come. According to Trade-Alert, the speculator bought to open a sweep of 2,442 August 41 puts for $4.50 apiece. In other words, she's counting on the video game stock to breach $36.50 (strike less premium paid) by August options expiration, and risking nearly $1.1 million in the process (premium paid * number of contracts * 100 shares per contract).

Due to the sweep, puts are outstripping calls 5,414 contracts to 4,586. Historically speaking, this is highly unusual. Based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders in the last two weeks have bought to open 22.33 calls for every put. What's more, this top-heavy call/put volume ratio ranks in the high 97th annual percentile, signaling a pronounced preference for long calls over puts.

That optimism is shared within the analyst community. In fact, 82% of brokerage firms tracking ATVI consider it a "buy" or better, with not a single "sell" rating to be found. Plus, the stock's consensus 12-month price target of $42.02 sits in record-high territory -- and represents a healthy 11.6% premium to current trading levels.

Wall Street has reason to be hopeful. ATVI has surged 42% since its year-to-date low of $26.49 in mid-February. In fact, it's possible today's put buyer could simply be a shareholder trying to hedge her long stock position against an unforeseen pullback.

However, it should be noted that the video game stock has been repeatedly rejected by the round $40 level in the past six months. Potentially reinforcing resistance are heavy call open interest levels directly overhead. In the weekly 5/27 series, for instance, Activision Blizzard, Inc.'s (NASDAQ:ATVI) 38, 38.50, and 39.50 strikes carry 20,383, 18,543, and 30,511 contracts, respectively -- which could serve as a short-term options-related speed bump.

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