The SEC’s Retail Report Leaves Out this One Key Detail that Creates an Opportunity

After a failure to deliver on time, the SEC finally released a report on January’s “meme stock” activity in the market, primarily centered around the explosive move higher in GameStop (GME). The report came out with a statement that the regulator will try and use the event as a way to ensure markets remain fair for the little guy.

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  • But what’s more important is what didn’t make the headline of the report.

    The report noted that the explosive move higher in share price at the start of the year didn’t lead to a meaningful drop in short interest. If true, that suggests that shares remain more shorted than reported, possibly through the use of options trades to report a neutral position when traders remain bearish.

    If true, that may explain why shares dropped from nearly $350 to $40 in a few weeks, only to claw back to the $150-$250 range over the past few months.

    Action to take: Shares remain volatile, but the company has used the opportunity to issue new shares and pay off nearly all the company’s debt. New management has taken stock options with shares in the $220 range, and they’d likely want to see profits. Shares could still be a compelling buy here.

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  • Options may not be the way to go if shares remain heavily shorted, but shares have been trending higher in the past few weeks. The January $220 calls, last going for about $21.50, could deliver mid-to-high double-digit gains if shares move higher—and explode in value if shares squeeze higher again.

     

    Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.