Call Volume Ramps Up On Swinging Electronic Arts Inc. (EA)

Electronic Arts Inc. (NASDAQ:EA) calls are trading at four times the average intraday pace

Aug 3, 2016 at 10:44 AM
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Electronic Arts Inc. (NASDAQ:EA) initially swung 3% higher on the company's unexpected fiscal first-quarter profit and a round of price-target hikes. However, the video game maker's lackluster current-quarter forecast and a price-target cut to $93.65 at Benchmark has sent EA stock down 1.4% to trade at $75.72. Nevertheless, call players are continuing to swarm EA's options pits, with call options crossing the tape at four times the average intraday pace.

Today's accelerated call volume just echoes Tuesday's pre-earnings action on EA. In fact, around 55,000 EA calls changed hands yesterday -- 10 times what's typically seen on an average day -- and thanks to the onslaught of new positions created, call open interest is now docked at a 52-week peak.

According to Trade-Alert, a healthy portion of the activity was a result of one speculator initiating a 2:1 call ratio spread using EA's weekly 8/5 80-strike and 8/12 76-strike calls. In other words, the trader expects the stock to rally north of $76 by next Friday's close -- when the 8/12 series expires -- but struggle south of the round $80 mark through this Friday's close, when the 8/5 series expires.

Outside of the past two days of trading, though, it's been put buyers who have been flooding EA's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 1.68 rests in the 92nd annual percentile. In other words, puts have been bought to open over calls at a near-annual-high clip.

Echoing this put-heavy backdrop is EA's Schaeffer's put/call open interest ratio (SOIR) of 1.63, which indicates puts nearly double calls among options set to expire in three months or less. Plus, this ratio ranks just 10 percentage points below a 52-week peak, suggesting short-term traders have rarely been as put-skewed toward EA as they are now.

This skepticism is seen outside of the options pits, as well. In fact, short interest surged 11.3% in the most recent reporting period to 23.7 million shares. At EA's average daily pace of trading, it would take almost two weeks to cover these bearish bets.

What's impressive is that EA was able to notch a record high of $79.99 amid this intense selling pressure -- speaking volumes to its underlying strength. Longer term, the stock has surged 43% off its early February annual low at $53.01, and is finding support today in the $75-$76 region, home to EA's 50-day moving average and its late-2015 highs. Should the shares of Electronic Arts Inc. (NASDAQ:EA) continue to bounce from support, an unwinding of skepticism both in and out of the options pits could help EA extend its longer-term trajectory.

EA daily August 3

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