Short-term negative news equals opporutnity.

A shocking quarterly report showed company sales slowed for the first time in nearly three years and shares declined a punishing 36%.

Shares now appear cheap enough to take a stab at the company. After negative short-term market responses is a great time to sell puts for income. Today we have that opportunity with Activision Blizzard (ATVI).

The $36 billion market value company owns some real industry hits such as Guitar Hero, Call of Duty, World of Warcraft, and Candy Crush.

In 2018, Activision generated $7.5 billion in sales with a great 23% profit margin. The balance sheet is solid with enough cash to pay off all of its debt. And generates over $1 billion in free cash flow to reward shareholders.

Activision's stock now trades with an EV/EBITDA of 11.5 vs. 13.3 for the S&P 500.

The share price looks like it has bottomed.

With Activision's next earnings announcement on May 2 it is best to used an insured put strategy just in case more negative surprises occurs.

Trade details:

Sell the May 17, $45 puts for $1.75 and buying the May 17, $40 puts for $0.55. The net credit of $1.20 is a 2.7% upfront payment for 26.3% annualized return.

One of three things will occur.

First, if shares are trading below $40 on expiration day: both of your puts will be exercised realizing the full loss potential ($5 - $1.20 credit = $3.80 loss... $3.80/$45 = 8.4% loss)

Second, if shares trade between $40 and $45 on expiration day: you will own 100 shares of stock at $45 for every put sold and the $40 put will have expired worthless. You cost basis will be $43.80 and provide you the opportunity to start collecting dividends or generate more income by selling covered calls.

Third, if shares trade above $45 on expiration day: you keep the net credit for a 26.3% annualized return.

The great part about this strategy is during the option time period you have a built in stop loss and can never loss more than 8.4% on this trade.

Try an insured income strategy today.

Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.