Gaming stocks are in the midst of a secular bull market for the ages. Since 2013, industry leaders like Activision Blizzard (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) have seen their stock prices rise astronomical amounts. As is always the case with such relentless uptrends, the gains have been driven by rapid earnings growth. Today, we’ll spotlight an attractive opportunity in ATVI stock and provide an easy way to capitalize.
The weekly time frame illustrates just how impressive Activision’s ascent has been. The last upswing notched a higher-pivot high that carried the stock to a record $81.64. Since then, the stock has suffered a four-week slide to its rising 50-week moving average.
If you believe a trend in motion remains in motion, you should be eyeing this dip with interest. Previous pullbacks have delivered profitable bullish opportunities. I see no reason why investors can’t bet on this one being the same.
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One of the factors contributing to the weakness is last week’s earnings release. Despite beating expectations, ATVI stock fell on the day amid heavy trading and it hasn’t been able to mount a comeback since. But with the 200-day moving average now being tested, I suspect a rebound is nigh. This is a price zone where buyers have stepped up to halt previous declines. Furthermore, the Stochastic indicator is now flashing deeply oversold readings. Such signals have proven profitable low-risk entries in the past.
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ATVI Stock Bull Put Spreads
To provide a wider margin of error in case ATVI falls further before rebounding, let’s use the bull put spread strategy. Sell the Sep $65/$60 bull put for 52 cents. Consider it a bet that the stock sits above $65 at expiration. If it does, you will capture the max gain of $52 (52 cents x 100). The max risk is $4.48 and will be lost if Activision shares fall below $60.
If the stock craters, you can limit the damage by exiting on a break of $64. That’s the next major horizontal support level.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
