Tuesday, August 9, 2011

Take-Two Interactive (TTWO) - A Vol Sale Amongst The Crash

TTWO is trading $11.31, up 2.2% with IV30™ collapsing 20.8%. The LIVEVOL® Pro Summary is below.


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Take-Two Interactive Software, Inc. is a global publisher and developer of interactive entertainment software. The Company’s business consists of its wholly owned labels Rockstar Games and 2K, which publishes its titles under 2K Games, 2K Sports and 2K Play.

This is an order flow note, and with all the vol moves of late, here's an interesting vol sale. TTWO has traded 19,919 contracts on total daily average option volume of just 3,592. The largest trade was a sale of 5,000 Sep 11 straddles @ 1.85 tied to $11.30 stock. Color provided by Mike Bristow of Vtrader Group and another anonymous source. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates that the calls and puts are mostly opening (compare OI to trade size).

Here's the news of late driving TTWO:

The cutting-edge video game publisher behind the Grand Theft Auto and Red Dead Redemption franchises came through with softer-than-expected fiscal first quarter results last night. Its outlook for the current quarter is abysmally short of where the pros were perched. However, Take-Two is still putting out surprisingly rosy projections for all of fiscal 2012 and promising a blowout fiscal 2013.

Does Take-Two really see the light at the end of the tunnel, or is painting on a faraway smile a ploy to lure Electronic Arts or Activision Blizzard into a buyout?

Revenue fell 11% to $334.4 million, as the poorly received Duke Nukem Forever weighed down its critically acclaimed L.A. Noire release. Margins got slaughtered, with last year's adjusted profit of $0.43 a share being whittled down to a mere $0.02 a share. Analysts were banking on a tweaked profit of $0.10 a share on $352.9 million in revenue.

If you think that's bad, the current quarter is going to be even worse. Take-Two is targeting an adjusted loss of $0.55 to $0.65 a share on $70 million to $85 million in revenue. Wall Street's estimates are calling for a loss of $0.05 a share on $203 million in revenue.
Source: Is Take-Two Making Promises It Can't Keep? by Rick Aristotle Munarriz.

This vol seller came in after earnings, and hit it pretty hard. The Skew Tab snap (below) illustrates the vols by strike by month.

Although it's sort of jagged, the shape is "normal" ish, with the downside bid relative to the upside. We can also see that the Sep 11 line (the straddle sale) is squarely in between the Aug and Dec 11 strikes. Aug 11 vol is the highest of any strike in the front three months.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

We can see that awesome run up in vol in TTWO which I wrote about multiple times over the last month (ish). We can also see the stock drop -- much like the rest of market, it looks like it just wants to go down and never stop (but it will).

Possible Trades to Analyze
If you're getting long vega of late, this may be one place to analyze a trade as long as the vol sale is covered and it's substantially higher than the historical measures.

This is trade analysis, not a recommendation.

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