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3 O'Clock High: A Work in Progress


"C'Monnnnnnnn, ATVI. Baby needs shoes, the Girl needs crayons and daddy needs a skull-cap!"


Jumbo Minyanville Mailbag!

Minyan A-Bark Woofs:


Thanks for the 411, it's good to watch and learn regardless of success/failure. If you would not mind, at some point when you've comfortably distanced yourself from these game stocks, please show your math. I mean which options you bought/sold, when, how. why.




I was told there would be no math. You've disappointed me. Bad dog.

Ok, fella.... come here... [*scratching your ear warmly and offering a bit of kibble]

It's a good question, actually, and you already touched on why I can't answer it: I'm still long the calls and, thus, don't have any distance whatsoever from the position. My golf partner, Prof. Phil, alluded to one of the problems of sharing detailed positions in public in a Monday Buzz. In my case, it's not that I think others will judge me savvy enough to steal my ideas; I'm more concerned about them squashing my thinly-traded paper for the sheer joy of seeing me squirm.

While I share the idea that it's "fun to watch and learn", I'm selfishly focused on the "Outcome" part, which matters to me a fair amount.

That said, the Real Time aspect of this is what makes it "fun", hopefully, for the Minyans even while it sets up a Karl Wallenda in San Juan risk profile for me (sure, some folks would like to see me get to the other side... but it's the idea that these will go out at zero (read: I fall) that makes it interesting).

So I can give some hints while simultaneously doing a final fly-by on what to expect from Activision (ATVI):

  • The original column where I mention this trade is HERE. That same column works as a decent Jeff's Notes primer on the Greater Theme at work in my melon.
  • My thinking on playing ATVI (as opposed to being involved in Electronic Arts (ERTS)) was that ERTS was likely to warn for the near-term quarters. That made ERTS themselves a bit of a crap-shoot (see: "Is The Market Ready to Buy Bad News?").
  • The ERTS issue also gave me some pause as I got into ATVI. I knew I wanted some options exposure but I had reason to be concerned that ERTS would be crushing ATVI today.
  • So I took a slightly-larger-than-half position in ATVI on Monday.
  • I went for longer term paper because, as I mentioned, I thought the trade might take a while. I went out of the money because that's where I found the calls that felt cheapest.

Which brings us to today. ERTS, as I predicted, took numbers down for the near term. The reason it doesn't feel Uppity even to a native Minnesotan for me to mention my sweet prediction is that, warning-be-damned, Electronic Arts started trading higher the second they warned.

On the call the company offered that they've "seen significant consumer weakness" since the start of October. They blamed the console cycle and, in the comic relief portion, "high gas prices and the hurricanes". (If retailers can't be justified in blaming the weather, and they can't, then software cos should be legally forbidden from mentioning it.)

But management stayed generally upbeat on both ERTS' own prospects as well as those of the industry. As a result of the ERTS ramp, not only did ATVI not sell-off, it's gone off to the races with the stock up over a buck at one point today.

So... we've still got Activision set to report. I've got nice gains in my necessarily vague long-ATVI calls position but I didn't have the chance to get as long as I wanted to, due to my being "right about everything except the reaction of the stocks" (read: "wrong").

I can't go back in time to buy more ATVI calls (not to mention load up on ERTS calls when the stock was down $2 yesterday). All I can do is deal with what I have now.

That being the case, and after some assertive "suggesting" from Minyan Wendy, I opted to take off 25% of the calls I'd purchased this week today, before ATVI releases.

Without being too specific, that sale takes greater than 1/2 of my original capital out of the trade. So I'm either being way too greedy for not taking all of more than a double or I'm being a sissy for not letting it ride.

Either way, I'm not being a "Pig" which gives me some personal karmic offset to what now could very well be a sell-the-news reaction to even a solid report from ATVI.

The Street is looking for a loss of 6.5 cents on revenues of 204M for the quarter being reported tonight.

For the current quarter, the Street is at EPS of 53-cents on revenues of 800M.

As is now the standard on this trade, I'll keep y'all posted on how the rest turns out, if only in a general way.

Position in ATVI

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