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Gaming stocks are all the rage these days. Fires lit beneath industry leaders from Activision Blizzard (NASDAQ: ATVI ) and Electronic Arts (NASDAQ: EA) to Take-Two Interactive Software (NASDAQ: TTWO ) have been blazing for years and don't look like they'll quit anytime soon. Yesterday's high volume surge in ATVI stock has momentum traders perking up, and that means its high time for a technical take.
A birds' eye view of Activision's weekly chart reveals just how relentless the winning has been for shareholders. Following its early 2013 breakout, ATVI climbed over 550%. For those keeping track that's a pace of 100% gains per year. Blistering, to say the least. The weekly uptrend is textbook with a series of dips being bought and breakouts being chased. The latest rally places it on the cusp of yet another launch to record highs.
Drilling down to the daily time frame reveals a beautiful cup-and-handle formation. The cup bottomed out at the 200-day moving average keeping the integrity of the uptrend intact. The subsequent recovery has been textbook with the 20-day moving average playing support all the way up.
Tack on a month of sideways chop for a handle, and we've officially got a prime breakout candidate on our hands.
Wednesday's rip was confirmed by a groundswell in participation, suggesting now is the time to climb aboard.
Game ATVI Stock With Call Spreads
With earnings approaching on Aug. 2, implied volatility is understandably on the rise. The IV rank sits at 64%. Traders looking to swing for the fence might want to buy a call spread instead of a straight call. By selling an option against the one you purchase, the overall volatility risk is mitigated.
If you think the good times continue to roll for ATVI, then buy the Nov $80/$85 bull call spread for $2. By using four-month contracts, we're providing ample time for the stock to rise above $85 allowing us to capture the max gain of $3.
As of this writing, Tyler Craig didn't hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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