Options Skeptics Assail Electronic Arts Inc. (EA) Ahead of Earnings

Electronic Arts Inc. (EA) will report earnings tomorrow night

Oct 31, 2016 at 2:08 PM
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Electronic Arts Inc. (NASDAQ:EA) has hit a snag ahead of the video game maker's earnings report tomorrow night. The shares are down 2.2% at $77.71, and it appears one group of options traders is betting against a short-term EA breakout.

Diving right in, EA calls are being exchanged at 1.7 times the usual intraday clip, and easily outstripping puts. However, not every call trader is necessarily bullish. The stock's most active option overall is the weekly 11/4 83-strike call, where speculators are seemingly selling to open positions. In other words, these traders think $83 will act as a ceiling through week's end, when the series expires.

This wouldn't be all that unusual, either. During the past two weeks across the major options exchanges, EA calls have been bought to open and sold to open at roughly the same rate -- 8,087 contracts to 8,149.

However, this skepticism is a bit surprising, in light of the stock's historical post-earnings success. In five of the past eight quarters, the shares have gained in the session following the company's earnings report. This includes the last two quarters, when EA popped 2.4% after its Aug 3. release and an even more impressive 13.7% after its May 11 report.

Speaking of skepticism, a build in negative sentiment is clear from mounting levels of short interest. During the most recent reporting period, short interest on EA climbed 8.2% to nearly 20 million shares. At the stock's average trading rate, it would take eight sessions to cover these positions.

Suffice it to say, if Electronic Arts Inc. (NASDAQ:EA) can top earnings expectations tomorrow night, a short-squeeze situation could send the shares upward. This could help the stock build on its already impressive 13% year-to-date lead, and fuel a run past EA's Oct. 4 all-time high of $86.07.

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