Unusual Options Activity: Take-Two Interactive (TTWO)

Shares of video game publisher Take-Two Interactive (TTWO) dropped sharply on Monday as the company announced the merger offer for a rival. One trader sees shares recovering in the next two months.

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  • That’s based on the March $150 calls. With 63 days until expiration, 13,207 contracts traded against an open interest of 442, for a 30-fold jump in volume. The buyer of the calls paid $9.85 to make the trade.

    With shares right around $149, this is an at-the-money trade, which should head higher dollar-for-dollar with a move in shares, less any decline in time premium or volatility in the option.

    The strike price is also more than 25 percent off the company’s 52-week high near $215.

    With flat revenues and a drop in earnings over the past year, the company’s merger offer makes sense to potentially get the business moving upwards again.

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  • Action to take: The company has nearly $2 billion in net cash going into its acquisition, some of which will be used to make the buy without totally diluting existing shareholders.

    That makes shares potentially capable of moving higher here, and they already started moving higher on Tuesday. Investors won’t get a dividend while waiting, however.

    Traders might like the options. If the deal doesn’t go through for regulatory reasons, shares may pop higher. Or they’ll more likely have a steady move higher over the next few weeks allowing for a mid-to-high double-digit return on the March $150 options.

     

    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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