Option Bulls Active Amid GameStop Corp. (GME) Uptrend

GameStop Corp. could benefit from a short-squeeze situation


Published on Oct 24, 2014 at 2:19 PM
Updated on Apr 20, 2015 at 5:09 PM

GameStop Corp. (NYSE:GME) has added 1.6% this afternoon to trade at $41.92. In fact, the shares have rallied sharply since hitting a month-to-date low of $35.82 on Oct. 15, tacking on 17%. Option traders are responding to this technical strength by rolling the dice on additional upside in the stock.

Taking a quick step back, GME calls are crossing at six times the level typically seen at this point in the day. Also, the equity's 30-day at-the-money implied volatility has popped 6.5% to 46.4%, suggesting short-term strikes are being targeted. Along those lines, the security's most active option is the front-month November 43.50 call, where nearly 5,500 contracts are on the tape.

Approximately 70% of these calls have traded at the ask price, and volume outstrips open interest, making it safe to assume bullish bets are being bought to open. This theory is also underscored by Trade-Alert and data from the International Securities Exchange (ISE). In short, these option bulls anticipate GME will topple $43.50 by the close on Friday, Nov. 21, when the options expire.

It's worth noting that 31% of GameStop Corp.'s (NYSE:GME) float is sold short. At the stock's typical daily trading volume, these bearish bets would take more than three weeks to cover. In other words, if GME can sustain its upward momentum, there's plenty of sideline cash available to boost the shares even higher. A potential catalyst could be the company's upcoming turn in the earnings confessional, scheduled between Wednesday, Nov. 19, and Monday, Nov. 24.

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