Thursday, February 11, 2016

ATVI Analysis

Update 2/16/2016: The ATVI position reached half of its potential profit and I exited. Shares declined by 2.9% over five days, or a -212% annual rate. The options position produced a 100% uield on debit for a +7,300% annual rate.

The video game company Activision Blizzard Inc. (ATVI), headquartered in Santa Monica, California, publishes earnings on Feb. 11 after the closing bell.
[ATVI in Wikipedia]


I shall use the MAR series of options, which trades for the last time 36 days hence, on March 18.


Implied volatility stands at 66%, which is 2.3 times the VIX, a measure of volatility of the S&P 500 index. ATVI’s volatility stands at the peak of its most recent range. The price used for analysis was $30.00.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

ATVI has been in a downtrend since Dec. 29, 2015. It hitter a lower low on Feb. 9 and then bounced bak a bit over the next two days but remains in a downtrend, although the price remains well above the major downtrend low recorded in January 2009.

All of the past four earnings announcements have resulted in higher prices in the next trading session.

Brokers in aggregate come down with a 81% enthusiasm index, with 86% of 14 analysts issuing strong buy recommendations.

Given the discrepancy between the tale of the chart and that of the brokers, I'll opt for a direction neutral strategy.

Iron condor, short the $34 calls and long the $35 calls,
short the $24 puts and long the $23 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

The premium is $0.36, which is 36% of the width of the position’s wings.

The risk/reward ratio is 1.7:1.

The zone of profit in the proposed trade covers a $5 move either way. The biggest immediate move after each of the past four earnings announcements was $3.04, and the average was $1.45. After eliminating the maximum and minimum post-earnings movements, the core tendency is $1.23.

Decision for My Account

I have enter a position on ATVI as described above. The share price at entry was $29.90.

-- Tim Bovee, Portland, Oregon, Feb. 11, 2016


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


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Tim Bovee, Private Trader tracks the analysis and 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 decisions for his or her own account, and take responsibility for the consequences.

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