GameStop Options Red-Hot Ahead of Earnings

GameStop stock has a history of negative earnings reactions

May 24, 2017 at 2:34 PM
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GameStop Corp. (NYSE:GME) is scheduled to report first-quarter earnings after tomorrow's close. GME stock has a history of negative post-earnings reactions, closing lower in the session subsequent to reporting in six of the last eight quarters. In late March, for instance, GME stock took a 13.6% post-earnings plunge to trade near the four-year low it hit in early November the day after reporting preliminary numbers. This time around, the options market is pricing in a 13.9% swing for Friday's trading, regardless of direction.

Short-Term GME Options Traders Like Calls

Despite the stock's mostly bearish post-earnings history, short-term GME options traders are more call-skewed now than they've been at any other point during the past year. This is based on the security's Schaeffer's put/call open interest ratio (SOIR) of 1.02, which is ranked below all other comparable readings taken in the past year.

The June 26 and July 24 calls are GME stock's two largest open interest positions, with nearly 13,700 contracts collectively in residence. Trade-Alert confirms a bulk of the activity at these out-of-the-money strikes was a result of new positions being purchased, meaning options traders are anticipating a move north of the strikes through the respective expiration dates. However, almost 21% of GME's float is sold short, so it's possible these bearish bettors have been hedging against any upside risk.

GME Put Options Have Been Popular, Too

In fact, there's been plenty of bearish options activity happening, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 15,330 puts have been bought to open in the past two weeks, compared to 5,842 calls. The resultant call/put volume ratio of 2.62 ranks in the slightly elevated 66th annual percentile.

Drilling down, GME's weekly 5/26 22-strike and June 26 puts have seen notable buy-to-open activity over this 10-session time frame. While the June 26 puts appear tied to stock, the buyers of the lower-strike puts expect GME stock to retreat to levels not seen since early April by this Friday's close, when the weekly series expires.

GME Stock Staring at Stiff Technical Resistance

Today, GME options volume is accelerated, with 9,117 calls and 3,604 puts on the tape -- 1.8 times what's typically seen at this point in the trading session. Most active is Gamestop's July 25 call, though it looks like options traders may be selling to open new positions here. If this is the case, the goal is for $25 to serve as a ceiling for GME stock over the next two months. This level currently coincides with the security's 200-day moving average, a trendline that has contained recent rallies and helped usher GME to a 21.5% year-over-year loss, last seen at $22.53.

GME stock daily price chart may 24

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