Options Bears Blast GameStop Amid Tiger Management Buzz

GME puts are seeing a rare surge in popularity

May 16, 2018 at 2:23 PM
facebook twitter linkedin


Shares of GameStop Corp. (NYSE:GME) have traded on both sides of breakeven today, as traders digest reports that hedge fund Tiger Management has urged the video game retailer to conduct a strategic review of its turnaround efforts following management disruptions -- including the sudden departure of its short-lived CEO last week. GME stock was most recently seen up 0.3% at $13.54, but options traders are betting on a quick retreat.

At last check, roughly 16,000 puts are on the tape -- four times what's typically seen at this point in the day, and nearly triple the number of calls traded. Almost 82% of the day's put volume has centered at the June 14 strike, and it looks like new positions are being purchased for a volume-weighted average price of $1.38.

If this is the case, breakeven for the put buyers at the close on Friday, June 15 -- when the options expire -- is $12.62 (strike less premium paid), a period that encompasses the company's first-quarter earnings report, according to Trade-Alert. GME has closed lower in the session after earnings six times over the past eight quarters, averaging a loss of 9.28%.

Nevertheless, the broader trend in GME's options pits in recent weeks has been toward long calls. The stock's 10-day call/put volume ratio of 2.09 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 90th annual percentile, suggesting calls have been bought to open over puts at a quicker-than-usual clip.

However, the stock is heavily shorted, with 41.13 million shares dedicated to short interest accounting for a whopping 41.6% of the GME's float. As such, it's possible those purchasing out-of-the-money call strikes could be short sellers protecting their bearish bets against any upside risk.

Looking at the charts, GME stock has been in a long-term downtrend, with the shares off 45% year-over-year. More recently, GameStop gapped to a 12-year low back in March after earnings, and has since been stuck churning below its pre-gap levels near $14, with the stock's 50-day moving average emerging as a familiar ceiling today.

gme stock price chart may 16


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners