Unusual Option Activity: Activision Blizzard (ATVI)

Video game developer Activision Blizzard (ATVI) is up about 10 percent over the past year, with shares recovering from the drop on news that their potential buyout from Microsoft (MSFT) wouldn’t meet with regulatory scrutiny. One trader sees a further rally ahead.

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  • That’s based on the November $100 calls. With 133 days until expiration, 7,013 contracts traded compared to a prior open interest of 214, for a 33-fold rise in volume. The buyer of the calls paid $0.50.

    Shares recently traded for about $84, so they would need to rise $16, or about 19 percent, for the option to move in-the-money. That strike price is well over the stock’s 52-week high of $87.01.

    ATVI has been somewhat rangebound over the past year as investors waited to hear from regulators. While shares initially sold off on the news Microsoft would be prevented from buying, the offer is a sign that the company is undervalued. Or that another player could come in and buy shares.

    Action to take: Activision is an industry leader in video game development, with a number of valuable intellectual properties.

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  • Shares trade for about 20 times forward earnings, and the company has been massively profitable. Investors may like shares at current prices, although the stock doesn’t pay a dividend.

    For traders, the November $100 calls are aggressive. But if there’s a new buyout offer from another company, shares could jump higher on the news.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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