Game On for Electronic Arts Inc. Stock?

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EA stock - Game On for Electronic Arts Inc. Stock?

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The bearish dark side has been effectively battling the bullish forces of good in Electronic Arts Inc. (NASDAQ:EA) of late. But EA stock looks more like a game reset than a game-over situation. It’s also an opportunity for a well-priced, moderately bullish long call butterfly. Let me explain.

It hasn’t been fun being an investor in EA stock the past couple months. Shares are off about 9%. But the relative weakness does follow a year in which shares are still up more than 40% after hitting all-time-highs.

As well, while far from perfect EA bulls probably have more good times ahead to look forward to. There is, of course, the secular trend in gaming to consider when looking at the big picture for EA stock and its future growth potential.

Closer to the action, Electronic Arts recently trimmed its holiday sales outlook. But before you say “bah, humbug”, analysts by and large came out and raised price targets while reiterating positive ratings on shares. The takeaway appears to be an appreciation for another quarter of solid results and a belief that management is sandbagging on guidance.

And now the much-anticipated launch of Star Wars Battlefront 2 is finally here. There’s apparently been some pre-release backlash that’s weighed on EA shares. But much of that had to do with a micropayment feature that would allow players to unlock key items by paying and without progressing through gameplay and much to the chagrin of their gaming peers.

Well, good news there too. Late Thursday, EA caved to the cacophony of the opposition and nixed the payment idea. Game on, right? Maybe.

EA Stock Weekly Chart


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Source: Charts by TradingView

Over the past six months, a healthy second-stage base-on-base pattern broke out only to stall and meander back into the prior trading pattern’s price range. That certainly has to be disappointing and probably has some investors questioning the integrity of EA’s uptrend.

But despite the weakness, I’d estimate the bulls have the directional edge in EA.

Our view on EA stock is backed by the current bullish time-based correction and low base count of two which is the result of shares resetting back in 2016. An oversold stochastics is also promising for bulls.

Having said that, I will finish by stating conditions on and off the chart are far from a slam dunk. As much, it would be foolish to totally dismiss the bearish dark side as those traders have managed to combat bulls of late and it could always be the start of something more menacing.

EA Stock Bullish Range Butterfly

In late August, I proffered a modestly bullish, but range-bound September long call butterfly centered at $120. The limited-risk strategy ballooned from $1.60 to $4.40 over the life of the spread for a return of $2.80 or 175%. Nice!

Checking Electronic Arts options Thursday evening and shares at $111.58, once again I like the idea of buying a bullishly-positioned, but range-bound butterfly. At this time, the January $115/$120/$125 call combination for 75 cents is favored.

As stressed last time, this type spread isn’t suitable for traders that are overly-bullish on EA stock. The fact is above $125 at expiration and the butterfly will collapse to $0.00.

But, if like me you’re agreeable with that type risk, there is a profit range from $115.75 to $119.25 and a max payout of $4.25 at $120, which looks worth trying for a repeat performance.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/game-on-for-ea-stock/.

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