Options Trading News

March 18, 2010  Thu 12:33 PM CT


Activision Blizzard is running to a new four-month high, and one large trader is betting on a continued rally.

optionMONSTER's Heat Seeker tracking system detected the purchase of 25,587 January 15 calls for $0.50 and the sale of a matching number of January 10 puts for $0.62, resulting in a credit of $0.12. The trade pushed overall option volume in the name to almost nine times greater than average.

ATVI ChartATVI rose 3.14 percent to $12.16 in afternoon trading and is up 11 percent in the last month. The videogame maker gapped higher after reporting better-than-expected results on Feb. 11 and announcing that it would start paying dividends.

The shares have climbed steadily since, gliding through potential resistance levels at $11 and $12 while pausing for only three days at its 200-day moving average.

The gains have been accompanied by bullish news in the game sector from such companies as NetEase and ZongKhong. UBS raised its estimates on ATVI yesterday, and call buyers targeted rival Electronic Arts.

Today's options trade is designed to generate huge gains from a continued move higher. It will make money if ATVI climbs above $15 by expiration and lose money below $10. Because the trader received a credit rather than paying a debit, any profits earned would represent an infinite total return.

The strategy, known as a bullish risk reversal, mimics a long position in the stock.

(Chart courtesy of tradeMONSTER)

Share this article with your friends


Premium Services

Archived Webinar

Education & Strategy

The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

View more education articles »