The video game sector has been red-hot in the past couple of years. Throughout this rally, Activision Blizzard (NASDAQ:ATVI) has provided key leadership. The company is slated to report earnings this Thursday and, with tech stocks down due to knee-jerk selling in the past week, ATVI stock presents a considerable opportunity for bullish traders.
By the numbers, Activision is expected to post a profit of 35 cents per share on revenue of $1.4 billion. That said, Activision has seen favorable revisions to earnings estimates in the past month. Furthermore, EarningsWhispers.com puts the whisper number at 41 cents per share.
What to Watch in ATVI Stock
But the recent quarter won’t be the biggest focus for ATVI stock investors.
In fact, guidance will likely be the biggest driver for Activision investors.
In case you missed it, Activision recently signed a multiyear deal with Walt Disney’s (NYSE:DIS) ESPN to carry the Overwatch League playoff series.
The Overwatch League is part of the growing esports market that is expected to hit $138 billion this year.
You can see why ESPN was keen to carry it, especially with hundreds of thousands tuning in to watch the finale.
But Overwatch is just one of Activision’s video game franchises with esports potential. The company also makes series like Call of Duty, Destiny, World of Warcraft, Starcraft, Heroes of the Storm and Diablo — all of which have the potential for their own esports leagues. Additionally, both World of Warcraft and Destiny have expansions hitting stores this quarter, making guidance even more important for ATVI investors.
From a technical perspective, ATVI stock is trading at bargain levels right now. The tech-panic selloff has Activision trading near long-term support at $73. The stock is currently in the process of rebounding from this support, and should have no trouble in reclaiming its 50-day trendline following earnings.
But, how high could ATVI jump over the short term? August implied volatility is pricing in a roughly 7.5% move in ATVI stock. This places the upper bound at $79.50, with the lower bound arriving at about $68.50.
2 Trades for Activision Stock
Call Spread: With a growing esports market and a pair of key expansions set for release this quarter, guidance could come in well above expectations — especially with the holiday shopping season just around the corner. ATVI stock is poised to run higher from near oversold levels following earnings.
Traders looking to bet bullish on the shares might want to consider an Aug $75/$77.50 bull call spread.
At last check, this spread was offered at 74 cents, or $74 per pair of contracts. Breakeven lies at $75.74, while a maximum profit of $1.76, or $176 per pair of contracts — a potential return of 130% — is possible if ATVI stock closes at or above $77.50 when August options expire.
Put Sell: If you’re looking for a more conservative play on Activision stock, then an Aug $68 put sell might be a way to capitalize on technical support. At last check, this put was bid at 72 cents, or $72 per contract.
As always, you keep the premium received as long as ATVI stock closes above $68 when August options expire. The downside is that should Activision stock trade below $68 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $68 per share.
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Source: Investor Place