Activision (ATVI) 11/6/09 PriceWatch Alert Could Hit 21.28% Return

Posted: Friday, November 06, 2009 8:31 AM EDT

Activision (NasdaqNM: ATVI) closed yesterday at $10.87. 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 10.64 and resistance in the 11.14 range. Technical indicators for the stock are Bearish 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 10 covered call (AQV EB) for a net debit in the $8.97 area. That is also the break even stock price for this trade. This covered call has a 197 day duration, provides 17.48% downside protection and an 11.48% assigned return rate for a 21.28% 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 5 Call (VEN AA) and selling the May '10 10 call (AQV EB) for a $4.30 debit. The trade has a 197 day life and would provide 14.44% downside protection and a 16.28% assigned return rate for a 30.00% annualized return rate (for comparison purposes only). Activision does not pay dividends at this time. [FBB-Seven Summits Research]

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