Bearish Options Betting Heats Up After GameStop Corp. (GME) Earnings

GameStop Corp. (NYSE:GME) options are trading at five times their typical rate, with puts in the lead

Kirra Fedyszyn
May 27, 2016 at 11:59 AM
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Video game retailer GameStop Corp. (NYSE:GME) is off 6.3% at $28.11, after the company offered up a mixed first-quarter earnings report. This move on the charts comes as no great surprise, considering the stock has dropped in the session following its earnings report for the previous three quarters in a row. While the shares struggle to keep their razor-thin hold on positive year-to-date territory, traders are taking to the options pits, where GME options are changing hands at five times their typical intraday pace.

Specifically, the stock has seen 16,000 options trade so far today -- in the 98th annual percentile -- with puts outpacing calls. The most active option so far is the weekly 5/27 28-strike put, where it looks like traders may be buying to open last-minute bets, hoping for extended losses by tonight's close, before the weekly option expires. Meanwhile, other bearish speculators are purchasing new positions at GME's July 24 put, anticipating a drop below this level over the next seven weeks.

Today's appetite for long puts represents a change of pace for GME. Over the last 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a call/put volume ratio of 2.78 -- higher than 98% of all readings taken in the past year.

Not all of these call buyers are necessarily bulls, though. Short interest on GME accounts for a whopping 35.6% of the equity's available float -- worth more than three weeks of trading, at GME's typical daily pace. Put simply, it's possible some recent call buyers are actually short sellers looking to hedge their bearish positions against upside risk.

From a technical standpoint, today's struggle -- exacerbated by a price-target cut to $42 at Baird -- is basically par for the course. GameStop Corp. (NYSE:GME) has given up 31% of its value over the past 12 months, hitting a two-year low of $24.33 in late January. More recently, the shares found support at their 80-day moving average in March and April, but it appears that trendline has now reverted to resistance, rejecting GME in the lead-up to earnings.

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