Company is on track for a comeback.

The companies major problem occurred when it lost one of its biggest franchises. Then they forecast lower sales and profits over the coming months. Investors did not wait and quickly sold off shares aggressively.

You should always be on the look out for a great business that suffers temporary setbacks. These moments can set you up for stellar future returns. Setbacks are part of doing business and should be expected. Today's investor is so short term focused that they act like every one is the end of the world. You can take advantage of these situations by waiting for shares to stabilize at lower prices and then profit as investors regain confidence and drive the share price higher. Or my preferred method is to sell options and collect income while the stock price goes no where.

Activision Blizzard (ATVI) is a great setup right now. The $41 billion market value, Activision is the world's largest video-game company publishing Guitar Hero, Call of Duty, World of Warcraft and Candy Crush. The business operates in three segments: Activision (console games), Blizzard (PC games), and King (PC and mobile games) with about 327 million monthly users world wide.

Activision recently generated $7.1 billion in sales with a huge 24% profit margin (or $1.7 billion in profits). The company holds enough cash to pay off all its debt and still have $1.6 billion left over. They also generate between $1 billion and $2 billion in free cash flow each year which can be used to reward shareholders, pay down debt, or invest in the business. Bottom line the companies finances are stellar.

Investors are more concerned about what happened in November. In November when the company announced Fortnite (from rival Epic Games) has been tough business competition contributing to a sales decline of nearly 7% for the third quarter.

Gamers are also disappointed with plans for a mobile version of Diablo. And Activision ended its partnership with Bungie (the developer of popular-gaming franchise Destiny) which may have been the straw that killed the camels back. These events preceded a share price decline of 52% to February 2019 lows.

Investors are clearly overreacting to the news. A company like Activision will be around for years to come and produce more hit content for all to enjoy. It is always best to avoid catching a falling knife so smart investors have waited for the news to settle and the weak hands to sell.

In the chart below, shares have traded near the recent lows all year in a tight range. With the stock price breaking to the upside we now have a safe entry point to ride the recovery.

Trade details:

Sell to open, the October 18, $52.50 puts on Activision Blizzard for $1.70 using a limit order and earn an instant 3.2% payout on your purchase obligation.

At expiration if shares are above $52.50: put sellers will keep the $1.70 for a 27.5% annualized return.

At expiration if shares are below $52.50: put sellers will buy shares at a 5.1% discount to yesterday's closing price.

Use stop loss at $44 which is about 13.4% below your cost basis. This gives the shares plenty of room to flutucate while not taking too much risk. Shares will be at new short-term lows and will likely head lower from there. Exit the trade for a small loss.

Selling puts is a great way to profit as shares climb we even win if shares go sideways from here.

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.