Activision Blizzard, Inc. (ATVI) Puts Run Hot as Paulson, Others Trim Stakes

Activision Blizzard, Inc. (ATVI) is getting hurt by profit-taking news, but one potential put seller is keeping the faith

Aug 16, 2016 at 1:57 PM
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Activision Blizzard, Inc. (NASDAQ:ATVI) is getting whacked, following last night's revelation that hedge fund Paulson & Co. reduced its stake in the video game maker by roughly 68% last quarter. The pain is being exacerbated by news that a number of major shareholders have taken profits on the long-term outperformer, possibly including Morgan Stanley and Fidelity Investments. Meanwhile, with the stock down 3.5% at $40.02, put options are trading at double the usual intraday rate.

Digging deeper, put volume is running in the 95th percentile of its annual range. The most active option is the weekly 9/23 37.50 strike, where it appears that a trader may have sold to open a block of 5,400 contracts for $0.36 apiece -- expecting a short-term floor at the $37.50 level. For his efforts, the speculator collected a credit of nearly $195,000 (premium received * number of contracts * 100 shares per contract), which represents the transaction's maximum potential gain, assuming the option expires out of the money. Delta on the put currently stands at negative 0.21, giving the option a slim 1-in-5 chance of expiring in the money.

More generally speaking, put buying has been quite popular on ATVI. While call-skewed on an absolute basis, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.60 ranks in the bearish 85th percentile of its annual range. Given that ATVI has fared well in 2016, a portion of these long puts may have been initiated by shareholders seeking a hedge. However, if "vanilla" bears begin abandoning ship, it could add fuel to the stock's fire.

One group that's fully on board ATVI's bullish bandwagon is the brokerage crowd. Eleven of 15 analysts rate the shares a "buy" or better, compared to four "holds" and not a single "sell." Plus, following a blowout earnings report, ATVI received a raft of price-target hikes, bringing its consensus 12-month price target to $46.31 -- record-high territory.

As alluded to, Activision Blizzard, Inc. (NASDAQ:ATVI) has been a technical titan since its February low of $26.49. Since then, the video game stock has advanced roughly 51%, and has once against found a foothold atop its 50-day moving average.

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