Activision (ATVI) 10/23/09 PriceWatch Alert Targets 12.90% Downside Protection

Posted: Friday, October 23, 2009 8:05 AM EDT

Activision (NasdaqNM: ATVI) closed yesterday at $12.40. So far the stock has hit a 52-week low of $8.14 and 52-week high of $13.14. Activision stock has been showing support around 12.12 and resistance in the 12.62 range. Technical indicators for the stock are Bullish and S&P gives ATVI a neutral 3 STAR (out of 5) hold rating. ATVI appears on the Investors Observer Volume Leaders list. For a hedged play on this stock, look at a May '10 12 covered call (AQV EL) for a net debit in the $10.80 area. That is also the break even stock price for this trade. This covered call has a 211 day duration, provides 12.90% downside protection and an 11.11% assigned return rate for a 19.22% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the ATVI Jan '11 7.50 Call (VEN AU) and selling the May '10 12 call (AQV EL) for a $3.90 debit. The trade has a 211 day life and would provide 8.06% downside protection and a 15.38% assigned return rate for a 27.00% annualized return rate (for comparison purposes only). Activision does not pay dividends at this time. [FBB-Seven Summits Research]

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