GameStop Earnings Reaction Rewards Options Bears

Put buyers have targeted the April 19 strike

by Karee Venema

Published on Mar 29, 2018 at 9:59 AM
Updated on Mar 29, 2018 at 10:09 AM

Shares of GameStop Corp. (NYSE:GME) are plunging, after the video game retailer said it expects total sales to fall 2%-6% this year, and 2018 same-store sales to arrive in the flat-to-5% lower range. This, along with a round of bearish brokerage notes, is overshadowing GME's fourth-quarter earnings and revenue beats, and has the stock trading down 12% at $12.46, and fresh off a 12-year low of $12.20.

Among the analysts chiming in after GameStop's earnings was Ascendiant, which lowered its price target to $17 from $20 -- citing disappointing sales from the company's used business, a "major profit driver." Telsey Advisory also cut its price target to $17, while Wedbush moved its target down to $19. Benchmark came in with the most bearish outlook, slashing its GME target price to $12 from $15, territory not seen since April 2005.

Heading into today's trading, most analysts were already skeptical of GME, with 71% maintaining a "hold" or worse rating. This shouldn't be too surprising given the stock's longer-term technical troubles, with GameStop shares off more than 43% year-over-year. What's more, the stock is set to close out the first quarter down 26% -- which would mark its worst quarterly loss since December 2015.

Put buyers are certainly sitting pretty. Specifically, GME's April 19 put is home to peak open interest of 18,409 contracts, and data points to mostly buy-to-open activity here. For instance, a number of puts were apparently bought to open on Jan. 16, with Trade-Alert noting a closing price of $2.78. The volume-weighted average price (VWAP) on these puts was last seen at $6.32, meaning those who bought to puts back in January have tripled their money.

Today, eleventh-hour options traders are betting on even bigger losses through tonight's close. Puts outpace calls by a 3-to-1 margin in early trading, and buy-to-open activity has been detected at the weekly 3/29 12.50-strike put.

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