Call Options Or Put Options On King Digital Entertainment (KING)?
King Digital Entertainment (KING) develops games for digital platforms, especially mobile devices. The company’s Candy Crush Saga is one of the most popular games in history, in terms of number of users.
KING shares are currently trading at $22.64. The stock is now trading 4% higher than the previous 52-week high of $21.67 and is 48% above the 52-week low of $15.26.
Is this an opportunity to buy call options on KING because analysts are making positive comments on the company? Or should you buy put options on KING because the stock is overbought?
The bulls make a convincing argument…
Analysts from JP Morgan and Wedbush Securities gave positive comments about the company and it sent the stock soaring. One analyst mentioned the company’s strong cash flow and the other one talked about strong bookings from KING’s flagship game.
KING has been able to diversify their revenue stream somewhat so the business isn’t entirely dependent on Candy Crush Saga. In fact, revenues from Candy Crush are down to 67% of total sales, which is a good thing considering it was nearly 80% at one point.
Moreover, the company’s new games this year are really starting to gain traction. In total, KING has an impressive 481 million average monthly unique users.
But the bears have a compelling case as well…
KING is one of those recent tech/social media IPOs which tends to be traded by emotions rather than facts. The stock’s already up 32% this week.
Parabolic moves in stocks rarely end well. This could be as much a short squeeze as actual buying interest. Don’t forget, KING has the most disappointing IPO of 2014 to date.
What’s more, KING is still generating revenues from games that are all very similar to each other. Should users tire of the genre, it could be a quick, mass exit… anyone remember Zynga (ZNGA)?
So is it time to be bullish on KING because the analysts are on board, or should you take a bearish position because the stock has already made its run?
If you think the bulls are right, take a look at buying the KING July $22 calls for around $1.30.
If you think the bears are right, take a look at buying the KING July $22 puts for around $1.25.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
