Option Trade 
Activision Blizzard, Inc. (NASDAQ:ATVI) Calls
Monday, June 26, 2017

** OPTION TRADE: Buy the ATVI AUG 18 2017 60.000 CALL at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Activision Blizzard, Inc. (NASDAQ:ATVI), a publisher of online, personal computer, console, handheld, mobile and tablet games, is up 67.4% year-to-date outpacing the S&P 500 market's growth of 19.5%, with this impressive price action underscored by the stock's rising 30-day moving average.

Friday saw the shares at $60.44 -- within striking distance of Thursday's annual high of $61.10 -- after Benchmark boosted its price target on the shares to $71 from $60, citing a positive risk/reward backdrop.

There's certainly room for more upbeat analyst attention to be forthcoming, considering three brokerage firms still maintain a "hold" or "strong sell" recommendation toward Activision Blizzard. Plus, the average 12-month price target of $61.93 represents a slim 2.6% premium to the stock's current perch.

This now provides a relatively affordable time for this options play; and bigger moves than what the options market has priced in can be expected.

 According to Nielsen, 64% of the U.S. population 13 years of age and older are gamers, and Activision Blizzard's games are arguably some of the most fun and enjoyable to play. Its latest hit, Overwatch, has reached 30 million registered players across the world in the first year since its release.


Activision Blizzard has a market capitalization of $45.51 billion, a price-to-earnings ratio of 44.30 and a beta of 1.03. The company’s 50-day moving average is $57.28 and its 200-day moving average is $47.26. Activision Blizzard has a one year low of $35.12 and a one year high of $61.10.

Influencing Factors to Consider

Activision Blizzard's has a very positive enviable position with its popularity in the video game publishing arena, which is primarily driven by its well-known franchises, that includes the likes of Call of Duty, Starcraft, and Warcraft. It currently has eight well-known franchises worth $1 billion.

It is worth mentioning the super success of its latest franchise, Overwatch, which has over 30 million players now following its release on May 24, 2016. The company is also set to debut Destiny 2 and Call of Duty: WWII later this year over the holiday season; these will be the two big revenue drivers for the company going ahead.

Apart from launching a movie studio and consumer products division, the company is also strengthening presence in the lucrative e-sports market.

Furthermore, the company will continue to benefit from its acquisition of Ireland-based King Digital Entertainment last year. King Digital's iconic title Candy Crush is one of the most well-known mobile games. The buyout has boosted Activision Blizzard's presence in the lucrative mobile gaming arena.

According to the latest report from Newzoo, video games will generate $108.9 billion in revenues in 2017, up 7.8% year over year. Mobile games revenues will grow 19% to $46.1 billion representing 42% of the total revenue. By 2020, more than 50% of the revenues will come from mobile games.

Additionally, Activision Blizzard reported better-than-expected first-quarter 2017 results on May 4. Adjusted earnings of 27 cents and revenues (including deferrals) of $1.196 billion easily beat the respective Consensus Estimate of 16 cents and $1.103 billion.

With respect to the earnings surprise, the stock has surpassed the Consensus Estimate in the trailing four quarters with an average surprise of 28.56%.

Activision Blizzard is estimated to report the next earnings on 08/03/2017. According to Zacks Investment Research, based on 6 analysts' forecasts, the consensus EPS forecast for the quarter is $0.25. The reported EPS for the same quarter last year was $0.4.

In recent years, more of the video game industry's revenue has come from digitally distributed content, such as buying in-game "loot boxes" that provide new outfits and other extras for in-game characters. These loot boxes cost from $1.99 to $39.99, depending on how many boxes you want to buy. The growth of revenue from in-game content, like loot boxes, is a key reason why Activision's non-GAAP operating margin has increased from 30% five years ago to 35% in 2016 because the cost to provide this content is nothing compared to the cost of creating the game itself.

In 2016, sales of in-game content made up 54.5% of the company's $6.6 billion in total revenue. In-game revenue jumped 126% in 2016.

Analysts and Hedge Funds Opinions

CIBC reaffirmed their outperform rating on shares of Activision Blizzard, Inc  in a research report released on Thursday. The firm currently has a $70.00 target price on the stock, up from their prior target price of $60.00.

Activision Blizzard had its price objective raised by Morgan Stanley from $57.00 to $67.00 in a research report released on Wednesday, June 7th. The brokerage currently has an overweight rating on the stock.

Activision Blizzard had its price objective hoisted by Argus from $53.00 to $65.00 in a research note published on Monday, May 22nd. The brokerage currently has a buy rating on the stock.

Also, several other equities analysts have recently commented on the company…..

Cowen and Company lifted their price target on Activision Blizzard from $51.00 to $59.00 and gave the stock an outperform rating in a research note on Monday, May 15th.

Wedbush set a $63.00 target price on Activision Blizzard and gave the company a buy rating in a report on Saturday, May 6th.

Oppenheimer Holdings, Inc. lifted their target price on Activision Blizzard from $60.00 to $70.00 and gave the company an outperform rating in a report on Thursday.

Benchmark Co. lifted their target price on Activision Blizzard from $60.00 to $71.00 and gave the company a buy rating in a report on Wednesday.

Credit Suisse Group lifted their target price on Activision Blizzard from $61.00 to $62.00 and gave the company an outperform rating in a report on Monday, May 15th.

One investment analyst has rated the stock with a sell rating, four have given a hold rating, seventeen have given a buy rating and one has issued a strong buy rating to the company’s stock. The stock has a consensus rating of Buy and an average target price of $57.59.

Several institutional investors have recently made changes to their positions in the stock…..

Russell Investments Group Ltd. purchased a new stake in Activision Blizzard during the fourth quarter worth approximately $7,857,000.

Dimensional Fund Advisors LP boosted its position in shares of Activision Blizzard by 0.9% in the fourth quarter. Dimensional Fund Advisors LP now owns 2,632,869 shares of the company’s stock valued at $95,079,000 after buying an additional 24,172 shares during the period.

Keybank National Association OH boosted its position in shares of Activision Blizzard by 2.1% in the fourth quarter. Keybank National Association OH now owns 21,991 shares of the company’s stock valued at $794,000 after buying an additional 461 shares during the period.

Brown Advisory Inc. bought a new position in shares of Activision Blizzard during the fourth quarter valued at about $210,000.

 Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the ATVI AUG 18 2017 60.000 CALL at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.



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