With its second-quarter earnings report due on Aug. 4, Activision Blizzard (NASDAQ:ATVI) will undoubtedly attract some attention this week. Yet, since there are so many other earnings announcements taking place (a “blizzard” of them, one could say), some traders might ignore Activision Blizzard stock altogether. That would be a mistake.
There’s an opportunity to capitalize on the movement (or lack thereof, as we will see) in Activision Blizzard’s stock. In fact, there could be a way to profit regardless of whether the share price goes up or down.
Let’s take a look at what you might expect from its big announcement on Tuesday.
A Closer Look at Activision Blizzard Stock
I wouldn’t go so far as to call Activision Blizzard “Covid-proof.” Yet, its recovery from the economic fallout of the novel coronavirus has certainly been swift and powerful.
Don’t we all wish that we had purchased Activision Blizzard shares for less than a dollar back in the 1990’s? Those days are long gone, so don’t count on seeing those prices again. By 2016, the shares were trading above $30 and early this year, Activision Blizzard stock was priced over $60.
Comparatively speaking, the coronavirus crisis didn’t take much of a toll on Activision Blizzard. In March, the share price bottomed out at around $52. Moreover, the stock took off like a rocket ship after it hit bottom.
You might call it “beast mode” as Activision Blizzard’s stock relentlessly powered its way to $82 and change by the end of July. With a trailing 12-month price-to-earnings ratio of 40.89x, value investors might contend that the stock is getting to be a bit overvalued now.
It also doesn’t help that the forward annual dividend yield for Activision Blizzard is a measly 0.50%. Clearly, this is much more of a momentum type of stock than a sheer value play.
Never Enough Games
For gamers, new releases are like a breath of fresh air. The desire for fresh gaming content is almost insatiable. Thus, a video-game company like Activision Blizzard relies on new games as a major revenue source.
What’s kept Activision Blizzard at the top of the gaming-company heap is the company’s willingness to keep the games coming. CEO Bobby Kotick emphasized this during the company’s most recent conference call: “As of now, we’re on track to deliver compelling new content, including the World of Warcraft: Shadowlands expansion and the next premium Call of Duty release, both of which are planned for the second half of the year.”
At $60 apiece for retail console and PC game consumers, new releases of Call of Duty aren’t cheap. Yet, inveterate gamers are willing to cough up the cash, year after year, for Activision Blizzard’s top-of-the-line offerings.
Recent high-volume releases include the ultra-popular Overwatch 2 and Diablo 4. Assuredly, expectations surrounding the upcoming earnings data will factor in Activision Blizzard’s consistent ability to deliver the games that players crave.
How to Trade the Earnings Event
Activision Blizzard stock has the potential to make a sizable move after the earnings data is released. Through options trading, it’s possible to book a profit irrespective of whether the share price goes up or down.
This can be accomplished by purchasing a straddle, which means buying an at-the-money call option and also buying an at-the-money put option. The expiration dates can be set for Aug. 7 in order to best capture the (hopefully) sharp stock-price move.
Thus, for example, if the Activision Blizzard share price happens to be around $83, then you can buy a call option and a put option, both with the strike price of $83 and expiring on Aug. 7.
How You Can Win This Trade
There are two scenarios in which the trade can be profitable. The call option might gain value if there’s a share-price move to the upside. Alternatively, the put option might increase in value if the stock tanks after the earnings announcement.
Just be sure to sell both of those options prior to their expiration. Otherwise, you might end up having a long or short position in 100 shares of Activision Blizzard stock.
But if you do happen to end up with 100 shares of the stock, that’s not the worst possible outcome since it’s a rock-solid company that’s respected by gamers and traders alike.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.