Shares of video game retailer GameStop (GME) are down nearly 45 percent in the past year, nearly triple the amount the S&P 500 has declined. One trader sees a further decline in the coming months.
That’s based on the March $21 puts. With 90 days until expiration, 7,230 contracts traded compared to a prior open interest of 103, for a 70-fold rise in volume on the trade. The buyer of the puts paid $4.58 to get in.
Shares recently traded right around $21, making this an at-the-money options play. The stock has a 52-week low of $19.40.
The video game retailer failed to make a profit in the last year, and revenue growth dipped by about 9 percent. However, there are some signs of life, as the company launched an NFT marketplace and became cash flow positive, adding more cash to its balance sheet.
Action to take: Investors interested in the original “meme stock” may consider adding shares in the low $20 range. However, the core business continues to move slowly, and could continue to be impacted by a slowing economy in 2023, leading to a better long-term entry point.
For traders, the puts are playing to the current downtrend in shares. While the option premium is a little high, traders can potentially make high double-digit returns on the puts on a further decline in the stock between now and March.
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.