To receive further updates on this Activision Blizzard, Inc. (NASDAQ:ATVI) trade as well as an alert when it’s time to take profits, sign up for a risk-free trial of Power Options Weekly today.

This morning I’m recommending a bearish trade on Activision Blizzard, Inc. (NASDAQ:ATVI), the video game developer and publisher.

Last Friday, I mentioned that the recent rally looks like a potential “bull trap.” I want to recommend another bearish put option as protection in case the market makes a turn to the downside.

ATVI has shown some weakness recently, so the put I’m recommending still has a chance to pay off even if the market doesn’t pull back.

A Bad Outlook for 2019

Though ATVI outperformed on earnings, it released weak guidance for 2019. The stock did rise slightly after reporting earnings, but it has since come back down.

The company faces challenges from other large publishers investing in “free-to-play” games, and last month, ATVI transferred the rights to Destiny, one of its popular intellectual properties, back to the game’s creator Bungie.

ATVI also announced it would cut 8% of its workforce in 2019 as part of a restructuring effort. That could pay off in the future, reducing the money ATVI invests in projects that aren’t paying off, but I think  ATVI will struggle in the near term.

ATVI Has Lost a Lot of Value Since 2018

If we look at a daily chart for ATVI, we see that the company has lost more than 50% of its value since hitting its 52-week high in October 2018. The stock gapped lower after its third quarter earnings report, and despite a strong performance in the fourth quarter, it didn’t gap upward on its most recent report.

Daily Chart of Activision Blizzard, Inc. — Chart Source: TradingView

ATVI has been following its 50-day moving average lower, and I think its MA will continue to act as resistance. I am more interested in the $40 level, because ATVI’s 52-week was at $39.85.

If, in the wake of weak guidance and impending layoffs, ATVI heads lower, it may be to retest this level as support. Therefore, $40 is a good strike price for the bearish put option I am recommending.

Buy to open the Activision Blizzard, Inc. (ATVI) April 18th $40 Puts (ATVI190418P00040000) at $1.60 or lower.

Note: The Good Friday holiday falls on April 19th, 2019. Because U.S. markets will be closed that day, April monthly options will expire the day before, on April 18th, 2019.

Follow our Facebook page to receive each Trade of the Day direct to your News Feed — and join the conversation.

InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.