Take-Two Stock Could Have Gas in the Tank

It could be just the beginning of TTWO's rebound

While most stocks are swimming in red ink today, shares of video game maker Take-Two Interactive Software, Inc. (NASDAQ:TTWO) are bucking the trend, last seen 0.9% higher at $121.72, following the highly anticipated release of its "Red Dead Redemption 2" game. What's more, it could be just the beginning of TTWO's recovery, with the stock flashing a historical buy signal ahead of earnings.

Since notching an all-time high of $139.90 to start the month, Take-Two shares have pulled back with the broader equities market. However, the stock is now within one standard deviation of its 160-day moving average, after a lengthy stretch above the trendline. In the past three years, there have been seven of these pullbacks, after which TTWO went on to average a one-month gain of 7.83%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, the shares were higher one month later 83% of the time.

As alluded to earlier, Take-Two Interactive is also slated to report earnings soon -- specifically, on Wednesday, Nov. 7. The shares have moved higher the day after seven of the last eight earnings releases, and enjoyed a one-day rally of 9% after earnings in August -- much to the dismay of options bears.

And just like last time, bears have been prevalent on TTWO in recent weeks. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), TTWO's 10-day put/call volume ratio of 0.94 is in the elevated 84th percentile of its annual range. While this ratio indicates that bought calls still outnumbered puts on an absolute basis, the elevated percentile tells us that traders have initiated bearish bets over bullish at a faster-than-usual clip during the past two weeks.

In the same vein, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.79 is in the 92nd percentile of its 12-month range. This tells us that while call open interest outnumbers put open interest among short-term options, near-term traders are still much more put-heavy than usual at the moment. Should TTWO once again rebound off its 160-day moving average, or should the company report strong earnings once again in a couple of weeks, an exodus of option bears could propel the security higher.