Glu Mobile Inc (NASDAQ: GLUU) is a free-to-play mobile game company for smartphones and tablets. The stock fell 15% overnight on the earnings announcement and continued to fall over the next four days before stabilizing on Wednesday. As the bulls began to push back yesterday, the option market saw a flurry of bullish activity aiming for the stock to restore its early August high.
One of the key metrics for gaming companies is bookings. Glu reported 79% growth in bookings year-over-year (yoy) tp $182 million with a 40% increase in revenue. In the earnings press release, CEO Nick Earl discussed the impressive quarter:
“The second quarter financial results were the best in Glu’s history…We saw record quarterly bookings in all three of our Growth Games and the continued resurgence of Kim Kardashian: Hollywood and Diner DASH Adventures. Additionally, our latest launch, Disney Sorcerer’s Arena, showed strength in its first full quarter.”
Despite the numbers, the company fell significantly. However, the options market appears to be looking for a recover in the coming months.
On Wednesday, the call option activity was over 75% higher than average. A combination trade was placed at the same time and filled in one print. The trade ended up rolling 6,500 in-the-money calls for the 21 AUG 20 expiration at the $7 strike out to the 18 DEC 20 expiration. The roll to December involved entering a ratio spread by selling 12,500 contracts of the $10 strike and selling 10,000 of the $8 strike price.
Action to Take: The indication provided by the option trade is that the price will reach $10 by the December expiration.
Speculators may want to consider the same trade without the ratio of calls bought and sold. The 18 DEC 20 8/10 long call vertical can be bought for $0.60 or less.