If you haven’t heard, a recent merger will create one of the largest video game publishers on the planet. This week, Take-Two Interactive (TTWO) announced plans to purchase mobile gaming giant Zynga (ZNGA) for a staggering $12.7 billion. This begs the question: Is Take-Two Interactive a buy?
It’s weird to now associate the maker of Grand Theft Auto with the maker of Words with Friends and Farmville, but here we are. Take-Two’s CEO believes that the deal will lead to about $100 million in savings (aka synergies) and generate net bookings in the $500 million range.
That $500 million in bookings would consist of new subscriptions, new games, and in-game purchases. However, Wall Street hated this news. Shares of Take-Two plunged by more than 12% on Tuesday, and pushed the stock into oversold territory. That offered an interesting opportunity. Did you miss it? Let’s recap…
Take-Two Interactive Stock: A Buy or Sell?
After news of the deal, TTWO stock fell off a cliff. As you can see in the chart below, the stock cratered into oversold territory. As you can see, the Relative Strength Index (RSI) of the stock plunged under 30. Remember, anything under 30 on the timeline is considered oversold.
This created a chance to speculate on some bottom feeding in the market. Sure enough, investors piled back into the stock today and scooped up shares. Always pay attention to the RSI.
But do watch the Money Flow Index (MFI) and Average True Range (ATR) as well. When all three of these present oversold conditions, there is a good chance to speculate on the stock or associated options.
An Options Play for TTWO
In the case of TTWO, a short-term options trade with a tight stop of 20% will allow you to speculate on a rebound while limiting your short-term downside. In a situation where you might lose 20% but win 100%, you only don’t even need to have a 50% win rate to generate a successful portfolio of trades.
Always focus on your exit strategy, but feel free to speculate on rebounds when too many people throw in the towel. In the case of TTWO, many investors bailed on the stock once-and-for-all after a dismal 2021. Their ultimate loss can become your gain with a very simple strategy.
After a few days of negative momentum, we saw capital flood back into the market. The fear driven by the Fed last week has produced flow into value stocks in the energy, insurance, financial, and basic materials spaces.
With that said, there remains a lot of capital sloshing around. We want to keep our trailing stops in place, and we want to ensure that we have cash ready to deploy. We’ll talk more about the right position sizing and the right percentage of cash to have on hand very soon.