Electronic Arts seen trapped in range

By David Russell,

Shutterstock photo

One investor apparently thinks that Electronic Arts will do a whole lot of nothing for the next two months.

optionMONSTER's tracking systems detected the sale of about 10,000 contracts each in the November 13 puts and the November 14. The puts traded for $0.80 and the calls fetched $0.55, resulted in a combined credit of $1.35.

Known as a short strangle , the trade reflects a belief that the video-game maker will remain between $13 and $14 through expiration. If it does, the trader will keep the credit while the options expire worthless. Profits will erode outside that range, but the position won't lose money unless the stock goes below $11.65 or above $15.35.

EA rose 0.49 percent to $13.31 yesterday but has lost more than one-third of its value in the last 12 months. The stock has been languishing for years and is back around levels last seen in the 1990s as the industry faces increased online competition.

While the news has improved since the summer, some investors may expect bearish momentum to continue in the near term. Selling a strangle would be a logical way to bet on such a belief. (See our Education section for other market-neutral trades.)

Overall option volume was 12 times greater than average in the session.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: EA

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