Retail game outlet GameStop (GME) has been on a wild ride recently, with shares soaring following a massive earning beat, before a selloff amid a plan to acquire bitcoin. One trader sees further weakness ahead.
That’s based on the May $20 puts. With 46 days until expiration, 15,602 contracts traded compared to a prior open interest of 406, for a 38-fold rise in volume on the trade. The buyer of the puts paid $1.80 to make the bearish bet.
GameStop shares traded for about $22, so shares would need to drop by $2, or just over 9%, for the option to move in-the-money. That’s still about double GameStop’s 52-week low of $9.95.
GameStop’s earnings have soared over the past year, as the company has been debt free and earning considerable interest on about $4.5 billion in cash on the books. The company’s plans to raise up to $1.5 billion to buy bitcoin led to a sharp selloff.
Action to take: Investors looking for bitcoin can buy it via an ETF or with a bitcoin-related investment directly. GameStop shares remain a speculation, even with their cash-rich balance sheet today. Interested investors should only build a small and speculative position.
For traders, the May $20 puts could see mid-double-digit returns or better if shares break lower. However, GameStop shares are notorious for massive jumps higher on little fundamental news, so traders should look to take a quick profit.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
