Activision Blizzard vs Take Two Interactive: Round 3

• Posted by Greg Harmon
• on August 4th, 2011

The relationship between Activision Blizzard (ticker: $ATVI) and Take-Two Interactive Software (ticker: TTWO) is creeping back on to my screen. You may recall the initial pairs trade I recommended in January (link below) that proved to be a big winner. Or the second trade in April that got stopped out for a loss (also below). Now it is time for the grudge match. Round 3. Like Mike Tyson biting Evander Holyfield’s ear, this time I plan to fight dirty. Below is the ratio chart for the $TTWO vs. $ATVI. Notice how it has reclaimed the breakout level that led to the

$TTWO vs. $ATVI

January trade at 1.10. As it arrives the Relative Strength Index (RSI) is at levels it has not seen in over 4 years. It also printed a Hammer, potential reversal candle on Wednesday, and is extended below the Simple Moving Averages (SMA).

Trade Idea 1: Buy 100 $TTWO and sell short 110 $ATVI on ratio above 1.12, with 1.08 as a stop and target of at least 1.25.

This trade risks $52 to make $170 at the 1.25 level. If if breaks through the resistance at 1.25 then 1.30 and 1.35 are the next resistance levels before a retest at the 1.50-1.55 area. A reward to risk ratio of at least 3.25:1. Now I said that I plan to fight dirty because there is a second idea.

Trade Idea 2: Sell 100 $TTWO and buy 110 $ATVI on a ratio move below 1.08 with a stop at 1.12 and an initial target of 1.00

Based on the technicals this is unlikely since it is already over sold, but it is possible. If this triggers and then gets below 1.00 look for a move to the 0.85 area with support lower near 0.75. If it stalls at 1.00 the reward to risk ratio is not that attractive at 2:1 but can turn into a massive trade under the 1.00 ratio. Trade it well.

1/11/11 Playing Games with Activision Blizzard or Take Two Interactive

4/18/11 Activision Blizzard vs Take Two Interactive: A Pairs Trade Revisited

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