The earnings circus finally made its way to video game stocks, and the reception was mixed. Two of the big three stumbled while the third shrugged. Take-Two Interactive (NASDAQ:TTWO) was the hardest hit of the group and now finds itself in a downtrend. Today we’ll survey the aftermath for TTWO stock and identify a trade if you’re still a bull.
Before diving into TTWO, it’s worth noting that Electronic Arts (NASDAQ:EA) and Activision (NASDAQ:ATVI) are the other two big players in the space. Both boast healthier-looking trends, with ATVI stock being the best in show right now. That’s my preferred ticker.
TTWO Stock Charts
The last decade has seen explosive growth in the video gaming industry, and TTWO has taken full advantage of the rising tide. At the start of 2018, however, massive volatility seized the stock, and it’s been a crazy ride ever since. Though the long-term fundamental story remains intact, sharp corrections have tested the conviction and patience of shareholders.
That said, TTWO has fared better than ATVI and EA following the late-2018 bear market. It almost fully recovered by summer 2019 while Activision and Electronic Arts were still well off their highs.
Right now the weekly chart has fallen to the middle of its range and lacks momentum. The strength of the broader market makes it challenging to get aggressively bearish, but with last week’s support break in TTWO, bullish trades aren’t easy to swallow either. The bottom line is that the big picture is messy.
The Feb. 6 earnings whack knocked Take-Two below its 200-day, 50-day, and 20-day moving averages. It also cracked a significant floor ($117) that had been propping up the stock for six months. After nasty beat-downs like this, it usually takes weeks to return to uptrend status.
The range between $135 and $117 that TTWO stock was stuck in now sits atop the stock as a significant resistance zone. Rallies back into that area are suspect. There are likely many underwater longs itching to get back to break-even after last week’s gap. Consider them all potential sellers into strength.
A Cheap Bullish Bet
If you’re taking the long view on TTWO and think the recent weakness is a buying opportunity, then I suggest using bull call spreads. Implied volatility is low, making these a cheap upside bet. To provide ample time for the stock to find its footing, let’s use June options.
Buy the June $115/$125 bull call spread for around $3.85. The risk is limited to your initial $3.85 cost and will be lost if TTWO sits below $115 at expiration. The reward is $6.15 and will be captured if the stock is above $125 at expiration.
As of this writing, Tyler Craig held bullish options positions in ATVI. For a free trial to the best trading community on the planet and Tyler’s current home, click here!