Unusual Options Activity: GameStop (GME)

Video Gaming

Retail game store GameStop (GME) dropped following the announcement that the company CEO was departing. One trader sees shares rebounding from that drop in the coming days.

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  • That’s based on the June 30 $22 calls. With 17 days until expiration, 10,388 contracts traded compared to a prior open interest of 250, for a 42-fold rise in volume on the trade. The buyer of the calls paid $1.29 to make the bullish bet.

    Shares last traded around $21.50, so shares would need to rise less than 3 percent to move in-the-money. The strike price is still well under the company’s 52-week high of $47.99.

    GameStop lost money in its most recent quarter, although the company’s performance has improved over the past year. Shares of the original “meme stock” remain volatile, but the prolonged gaming cycle could allow the company to improve its profitability.

    Action to take: Shares are likely oversold following their post-earnings-report drop, and can likely rebound in the short-term. Investors and traders can likely see some upside from here.

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  • For traders, GameStop is likely to trend higher in the coming weeks. That could lead to mid-to-high double-digit returns on the June 30 calls. On a longer basis, shares are well off their all-time highs, and are unlikely to retest those highs anytime soon.

     

    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.