Unusual Options Activity: GameStop (GME)

Shares of video game retail platform GameStop (GME) are down 39 percent over the past year, nearly four times as much as the overall stock market. One trader sees a further decline in the coming weeks.

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  • That’s based on the November 18th $26.25 put options. With 57 days until expiration, 4,550 contracts traded compared to a prior open interest of 149, for a 31-fold rise in volume on the trade. The buyer of the puts paid $4.08 to make the bet.

    The stock recently traded closer to $27.50, so shares would need to fall about $1.25, or less than 5 percent for the option to move in-the-money. The original “meme stock” has a split-adjusted 52-week low of $19.40.

    Revenue is down at the company 4 percent over the past year, and earnings have been haphazard, even with the rollout of a new NFT platform online. Add in high daily volatility, and more downside is likely.

    Action to take: Shares tend to have long periods of a downtrend followed by big pops higher. Interested investors can likely add more shares in the coming weeks at prices in the low $20 range. Look to profit after a big weekly jump higher.

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  • For traders, the short-term trend is down, making the November puts reasonably priced. The option can likely deliver mid-double-digit gains. Given how shares can pop higher, traders should look for a quick profit if they want to make a downside bet here.

     

    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 of the companies mentioned in this article.