Tuesday, July 20, 2010

ATVI Watch

Video game maker Activision Blizzard Inc. (ATVI) is trading within a range but with bullish indicators as it approaches earnings on Aug. 5 after the close. What's intriguing is the relative volatility: Near-term and long-term almost identical, and both well below 3%.
ATVI $11.41

Options on low volatility stocks are generally cheaper than on higher volatility plays. And when volatility rises -- as in an earnings surprise -- then the options become more valuable. A trader who bought options in the low volatility periods profits by selling in the higher volatility periods.

The 14-day volatility is 2.9%, compared to the 200-day volatility of 2.7%. The stock has been cruising sideways since early May. The average directional index is under 17, which is way low.

I'm not saying that a surprise must happen when earnings are announced. But, if they did, and if volatility spiked, it would be a decent chance to make some profit.

More compelling, for the past year ATVI's earnings announcements have been followed by sharp gaps and upward spikes.

So I like this stock for a surprise tactic.

The indicators have been mainly bullish since early July, and the stock is trading above the 20-day simple moving average and bumping up against the 200-day moving average.

The stock has been in a very congested decline -- a descending triangle on the monthly chart, perhaps? -- since hitting a swing high of $13.14 in June 2009. The all-time high came in June 2008, and afterward the recession knocked ATVI, like everyone else, for a loop.

No guarantees -- are there every? -- but ATVI is an intriguing possibility for a straddle or some other surprise play.

Reversal Levels
  • $11.95, +4.7% (3-month high)
  • $11.61, +1.8% (swing high)
  • $11.44, +0.3% (200-day ma)
  • $11.41 <== You are here.
  • $11.08, -2.9% (near-term low)
  • $11.02, -3.4% (20-day ma)
  • $10.32, -9.6% (swing low)

The Great Reflation: How Investors Can Profit From the New World of Money
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Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
  • psar - Parabolic Stop and Reverse
  • adx - Average Directional Index
  • pps - Person's Proprietary Signal
  • ma20 - 20-day moving average
  • macd - Moving Average Convergence-Divergence
  • sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
  • trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
  • adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
  • psar, pps, macd: green for bull mode, red for bear
  • sto: green for overbought, red for oversold, yellow for the neutral zone.

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