Analysts, Options Traders Respond to GameStop's Earnings

Wedbush cut its price target all the way down to $45

Deputy Editor
Dec 9, 2021 at 10:18 AM
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The shares of GameStop Corporation (NYSE:GME) are falling today, last seen down 5% at $164.50, after the video game retailer's disappointing third-quarter financial report. The company posted wider-than-expected losses of $1.39 per share, despite its revenue beat. In addition, GameStop disclosed an August subpoena from the U.S. Securities and Exchange Commission (SEC), which demanded documents related to the "meme" stock trading frenzy it saw earlier this year.

The brokerage bunch was quick to chime in on the results. Both Jefferies and Wedbush cut their price targets to $180 and $45, respectively. This bearish sentiment was already prevalent coming into today, with all five analysts in coverage carrying a tepid "hold" or worse rating.

Meanwhile, short interest is down 11.7% in the last two reporting periods, yet the 6.78 million shares sold short make up 10.8% of the stock's available float, or nearly three days' worth of pent-up buying power.

The event has options traders coming out of the woodwork. So far, 26,000 calls and 23,000 puts have crossed the tape -- three times what is typically seen at this point. The weekly 12/10 150-strike put is the most popular, followed by the 100-strike put from the same series.

A broader look shows calls have been popular over the last 10 weeks. This is per the security's 50-day call/put volume ratio of 2.93 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 86% of readings from the past year, meaning long calls have been getting picked up at a much faster-than-usual pace.

Now may be an ideal time to weigh in on GameStop stock's next move with options, as the equity sports attractively priced premiums. GME's Schaeffer's Volatility Index (SVI) of 122% sits higher than just 11% of readings from the last 12 months. This means options players are pricing in low volatility expectations for the equity right now.

Plus, the equity's score on Schaeffer's Volatility Scorecard (SVS) stands at 86 out of 100, meaning GME has often realized higher volatility than the options pits have priced in, making it a perfect premium-buying candidate.

On the charts, GME has recently come under pressure from the formerly supportive 200-day moving average. Pacing for its fourth-daily drop in five sessions, GameStop stock still sports an 775.8% year-to-date lead, likely due to the attention it received from retail traders in the first quarter.

 

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