Millions in Put Options Make a Bullish Case for Activision
So much of what we do as traders wouldn’t be possible without options.
At their simplest, they are relatively safe instruments to trade.
You can amplify the gains on the movement of the underlying stock. And you would only lose the amount you paid for each option contract should the trade turn against you.
It’s also only a fraction of the power of options.
If used well, there is so much more potential here.
And one of the things I love MOST about them is their versatility and flexibility.
And if you know how to see what options markets are really saying, you can know well before most retail investors which direction to play.
Activision Blizzard Inc. (ATVI) is a perfect example of this.
Microsoft is currently in the process of acquiring ATVI. This event has been fraught with uncertainties, conflicts, challenges. The future of the company and the success of the M&A is not clear at this point.
Unless you look at the options contracts and what Big Money thinks.
Have a look at this:
This is a screen grab of a series of put spreads that someone (most likely big money) has bought in Activision.
If someone buys put options, that would normally mean they’re bearish on the company’s future or its stock price.
But not so fast.
Looks can be deceiving for two major reasons. First of all, low seven figures aren’t actually all that much money where big institutional investors are concerned. In their minds, they aren’t taking a huge risk putting up one or two million like this.
What you don’t see here, but what I do see thanks to my decades of experience in options trading and the tools I use to analyze the market, is that this massive put buying on ATVI is only a hedge. In the background, this buyer likely holds a massive portfolio of Activision stock, and they are bullish on this position.
At the current and recent price of around $84, the trader here would gain around $9 million if the stock went all the way up to $95. Meanwhile, if it went all the way down to $75, the stock would lose some value, but all of those put options would pay off.
$2 million vs $8 million in a bet where it’s reasonably likely to pay off (that is, more than 25% likely to pay off). That’s a good bet.
Giving up a marginal amount of profit in exchange for cutting out the majority of risk potential is a smart bet. And seeing how the smart money trades, we can get better insights into where they see a stock moving.
I’m not playing Activision, but this shows that the big money is long on them in spite of the puts. I prefer to play opportunities that are not being controlled by smart money hedging. And I trade the opportunities live with my Profit Revolutions at least three days a week. Join us to see what we do and how we do it.
See you then,
March 30 2023
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