Signal Says Take Profits on Take-Two

Long puts may be an attractive way to trade TTWO, too

Take-Two Interactive Software, Inc. (NASDAQ:TTWO) stock rallied hard in March, closing out the month with an 8.2% gain, thanks in part to some Sony (SNE) buyout buzz. However, the video game stock is now trading near a trendline that's had bearish implications in the past, suggesting it could be time to take profits on TTWO.

Diving deeper, the equity is within one standard deviation of its 80-day moving average after a lengthy stretch below it -- defined for this study as trading south of the trendline 60% of the time over the last two months, and in eight of the last 10 sessions. According to Schaeffer's Senior Quantitative Analyst Rocky White, this signal has flashed three other times in the past three years, resulting in an average one-month loss of 4.36% for TTWO stock.

The equity's longer-term trend has been lower. After topping out at a record high of $139.91 on Oct. 1, Take-Two Interactive Software stock plunged to an 18-month low of $84.41 in late February. And while the security has came off that low during its recent rally, up 0.6% today at $98.22, it's now trading near key technical levels -- including that 80-day moving average, the round $100 mark, and a 23.6% Fibonacci retracement of that late-2018/early 2019 decline.

Analysts, meanwhile, remain bullish toward TTWO stock -- which leaves the door open for bear notes, which could pressure the shares lower. While 16 of 18 brokerages maintain a "buy" or better rating on the equity, the average 12-month price target of $122.20 is a 24.4% premium to current trading levels.

Those wanting to maintain exposure to Take-Two Interactive Software could consider buying put options to bet on more downside. The stock's Schaeffer's Volatility Index (SVI) of 37% ranks in the 16th percentile of its annual range, indicating short-term options are relatively cheap at the moment, from a volatility perspective.