Oil and Video Games

Two quick, unrelated thoughts:

Normal people would be asleep at this hour, but I was finishing up an assignment, when I got an email news alert about an oil pipeline explosion in the USA. Crude future bounced up $3 immediately after declining significantly over the past two days, and regular trading on the NYMEX tomorrow, once all details are out, could have an even more severe result.

Right now I still own some Marathon Oil shares, but no longer have any options positions in Conoco. I was actually thinking about buying both calls and puts as a play on volatility, but the money hadn't transferred into the account as of yesterday, and I'm sure oil companies are going to move a couple percent in either direction tomorrow based on this news.

If things ARE flat, I was going to buy Conoco 80 calls and 75 puts (stock is around 77). With inventory news and a big OPEC meeting coming up, I think it's going to be a volitile couple weeks for oil. (Plus, it's forecasted that the eastern US is going to get its first taste of winter, which may boost the price of heating oil and natural gas).

By the way, not to toot my own horn, but even without a significant drop in the price of oil, the major oil companies have pulled back around the levels seen during the previous price correction. Conoco fell from almost 90 to 75; Chevron and Exxon have not declined quite as significantly, but they have corrected. If oil goes down to $75/barrel... I don't know what's going to happen to the stock price. (Expensive oil isn't great for the big oil companies, but sometimes they trade as if it is).

Second thought:

Right now I own Electronic Arts stock in one portfolio and some Activision options in my smaller, riskier portfolio. I actually purchased the ATVI options before their earnings release, after which the stock dropped from around $23 to as low as 19. However, they revised their numbers upward (after guiding low in the conference call - go figure) due to strong sales of Guitar Hero 3. I own the December $25 calls, so the stock still has to move about 10% to be ATM, but with two hot games (Guitar Hero 3 and Medal of Honor: Modern Warfare) I think it's going to be a fantastic holiday season for Activision.

EA is the 800-pound gorilla of video games, but they don't have a clear-cut winner this holiday season. They did release Rock Band, a competitor to Guitar Hero, but its success cannot be predicted. However, I think that this Christmas season is going to be better than expected, so I plan to ride the (predicted) wave of good news and higher share prices through the holiday season.

So in conclusion:

• Watch the price of oil and oil stocks
• Activation will be GREAT this holiday season
• EA, Take-Two might tag along for the ride
• if Rock Band is a hit, EA could have a very nice pop, while ATVI would suffer.

That's all for now, but I'll update again this week.

August video game sales crush expectations - EA mini-analysis

Instead of summarizing, I'll just link you to the full article at Marketwatch.

I don't mean to toot my own horn, but I bought Electronic Arts (ERTS) on September 4th around $53.50/share in anticipation of news like this. For me, it's easy to do some analysis of EA in my everyday life; every single room that's on my floor (that has a video game console) has some EA football game. Both of its football franchises, Madden and NCAA, are wildly popular. EA's NCAA game is often regarded as the best one, and Madden is now the ONLY professional football game that is released (due to purchase of the exclusive rights to make it, by EA).

Well, Madden was the most popular game in August (by far), placing in the top ten twice because of sales on both Xbox 360 and PS3. I don't know how that will effect EA's earnings, but it's certainly a positive sign.

Even better, in my opinion, is what they have in their pipeline - a game called Rock Band, scheduled for release for this holiday season. It's made to compete with the ever-popular Guitar Hero franchise (which also held two spots in August's top 10). It's made by the same studio that made Guitar Hero 1 and 2, so it has the same popular, user-friendly, familiar interface. However, Rock Band has 3 input devices - a realistic guitar, drum pad, and microphone. Based on the limited information so far, it seems as though you can do all three yourself (at different times), play with other players on the same console, or even possibly be in an online band, connected to players through the magic of the internet.

I think Rock Band will be huge for EA - that's my main reason for being long in it right now. Only time will tell if it will be a success, and if it's a bust, it's not going to be good for EA's stock. For now, especially after this news release, I'm feeling good.