Today, we’re looking to open a new trade on Activision Blizzard (NASDAQ:ATVI).
As the S&P 500 approaches its all-time high of 3,393.52, we anticipate there is going to be some profit-taking on Wall Street. Traders have been watching stocks climb higher since late March, and they are ready to cash in on those gains.
However, once the profit-taking is over, we expect to see traders jump back into new long positions at favorable prices.
In fact, we’re already starting to see this with some strong performing stocks that have recently released their earnings numbers, like Activision — maker of video games like Call of Duty, World of Warcraft and Candy Crush.
ATVI released its Q2 numbers on August 4th, after market close, and the numbers were fantastic.
The company beat revenue estimates by $380 million and Non-GAAP earnings estimates by $0.28 per share, coming in at $2.08 billion and $0.97 per share, respectively. ATVI also saw an increase of 21 million users from Q1.
Interestingly, since the announcement, ATVI has been selling off as investors have been eager to take some profits off the table.
But who can blame them? The stock has risen from a low of $50.51 on March 17th to a recent high of $87.73. Why not lock in a few profits?
However, we don’t think the selling is going to last. After all, the coronavirus is still here, people are still bored and looking for things to do as they socially distance themselves and video games are a great way to kill time at home.
They are so popular, in fact, that the NPD Group says video game spending reached a Q2 record of $11.6 billion this year.
With those bullish fundamentals lining up in its favor, ATVI appears to be bouncing back, confirming that the up-trending support level that has been interacting with the stock since late June is very much still intact.
Daily Chart of Activision Blizzard (ATVI) — Chart Source: TradingView
To take advantage of this support bounce, we recommend investors look at selling a put write that would bring in about $2.00 of option premium.
And we recommend choosing a strike price that would give you a little wiggle room if the stock happens to pull back slightly below support during the coming month.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.