Electronic Arts Inc. (NASDAQ:EA) has rallied over 48% year-to-date to trade at $116.85, and hit a record high of $122.79 on Aug. 31. The company is scheduled to report fiscal second-quarter earnings after the close on Tuesday, and the stock has been solid after earnings in recent quarters. EA has moved higher in the session after earnings in five of the past six quarters, including a 12.7% surge in May. Ahead of tomorrow's event, it seems options traders are betting on another positive earnings reaction.
Specifically, the video game concern has a 10-day call/put volume ratio of 3.96 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does mean almost four calls have been bought to open for every put in the past two weeks, but this ratio ranks higher than 94% of all others from the past year, so there's been a much stronger-than-usual preference for long calls over puts.
This call-skew is even more evident among near-term options traders. For instance, EA has a Schaeffer's put/call open interest ratio (SOIR) of 0.66, which ranks just 5 percentage points from a 12-month low.
Digging deeper, it appears a large bull call spread crossed back on Oct. 18. By the numbers, it looks like 5,800 November 115 were bought to open that day, while 8,700 November 125 were sold to open. If this is the case, the speculator is hoping for Electronic Arts stock to rise up to $125 by the close on Friday, Nov. 17, when front-month options expire.
Analysts are certainly bullish, as well. For example, 15 of 18 covering brokerage firms have "buy" or better ratings on the equity, and its average 12-month price target stands all the way up at $127.40.
However, it should be noted that EA shares have historically struggled during November. Specifically, the stock has lost an average of 3.2% during the month over the past 10 years, ending lower seven out of 10 times.