Near-term options traders are pricing in low volatility expectations for ATVI stock
Video game stock Activision Blizzard, Inc. (NASDAQ:ATVI) has garnered plenty of analyst attention this week. On Monday, Morgan Stanley said it expects the company's game sales to spark strong earnings growth over the next year. The following day, Barclays initiated coverage on ATVI stock with an "equal weight" rating and a price target of $65. This upbeat analyst attention comes amid the entertainment stock's retreat to its 80-day moving average -- a trendline with historically bullish implications.
Activision Blizzard stock was last seen trading just above its 80-day moving average, which is docked at $61.99. If past is prologue, this could mean good news for ATVI stock. Previous meet-ups with this trendline over the past three years resulted in positive five-day returns three-quarters of the time, with an average return of 4.1%, according to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White. Looking at its one-month performance after a signal, the security was higher 71% of the time, with an average return of 3.1%. A rally of this nature would boost ATVI shares back above their 40- and 20-day moving averages.
ATVI stock has certainly surged up the charts this year, gaining roughly 75% in value. The shares touched a record high of $66.58 on the last day of August, but still boast an average 12-month target price of $69.84 -- a premium of 10.6% to current levels.
The equity has fared well amid heavy short interest activity, which points to its technical strength. Short interest on ATVI grew 26.3% over the past two reporting periods to 12.75 million shares -- or two times the stock's average daily trading volume.
For options players looking to bet on a Activision Blizzard stock bounce, now is an opportune time to buy premium on the security. ATVI's Schaeffer's Volatility Index (SVI) of 11% ranks in the low 11th annual percentile, suggesting near-term options traders are pricing in relatively low volatility expectations. Plus, the video game stock has tended to make outsized moves relative to what the options market has priced in, as evidenced by its Schaeffer's Volatility Scorecard (SVS) of 90.