Shares of Activision Blizzard are trading about 3 percent higher on Tuesday. Despite the rebound, Activision is still down nearly 12 percent since the beginning of 2019, and the stock has now lost more than half its value since its Oct. 3 all-time high.
However, one trader says that, after getting put through the ringer, the stock finally has to recover when the company reports earnings after the bell on Tuesday.
Dan Nathan of RiskReversal.com explains that the stock saw bullish options activity on Monday.
"One of the largest trades of the day, when Activision was trading about $40.5, was a buyer of 2,000 February, this Friday expiration, 43-calls, paying $1.17 for those," he told CNBC's "Fast Money."
As Nathan points out, this trade means the buyer sees the stock rallying about 10 percent by Friday, with the trade breaking even at $44.17.
But with Activision, there is no shortage of context to absorb.
"This [stock] has obviously gotten murdered, and the news flow has just been horrible. If I'm long this stock, or thinking about getting long in this stock, it's actually a pretty interesting set-up," he said.
"For the last month and a half, they've just been leaking out some of the most horrid information, and when you think about it, this stock has been cut in half from its all-time highs just a few months ago."
The departure of CFO Spencer Neumann on Jan. 2, followed by the loss of one of the company's largest franchises, Destiny, to developer Bungie just a week later, hit the stock hard. Disappointing earnings results from EA and Take-Two last week dragged the stock down even further.
"When [Activision] broke that support, this gap is going to be the thing that, ultimately, traders are going to track against," says Nathan.
Despite the stock's freefall since its October highs, a strong earnings report could be a sign that a new floor is in for Activision.
In that case, Nathan says, "$40 looks like it could be a pretty good support level. So here's the thing, in front of earnings, options premiums are really expensive here, so it's really hard to make directional bets just buying calls in this thing, but that's the way I'd be leaning."
