Options Trading News

November 11, 2011  Fri 11:25 AM CT

Someone apparently thinks that Take-Two Interactive needs to take a break.

The stock fell sharply between May and August after a drop in new video game titles caused revenue to fall. It then started climbing as investor sentiment turned bullish toward the industry and reported strong earnings earlier this week. (See our new researchLAB service for more)

TTWO is up 2.15 percent to $14.72 in morning trading today and has pulled back to its 200-moving average. Given that its 50-day and 100-day moving averages are still below its 200-day, some chart watchers may think that it must now consolidate the recent gains before moving higher.

That seems to be the reasoning behind a large option strategy today: 7,000 contracts each were sold in the January 14 puts for $0.85 and the January 15 calls for $1.05. The transaction resulted in a credit of $1.90, which the investor will get to keep if TTWO remains between $14 and $15 through expiration.

The gains will erode on either side of that range, turning to losses below $12.10 and above $16.90. The trade is known as a short straddle, a common market-neutral strategy that benefits from the passage of time rather than a directional move. (See our Education section)

Overall option volume in TTWO is 12 times greater than average so far today.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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