GameStop faces complex bearish play

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One trader wants to devour GameStop using a three-part bearish strategy.

optionMONSTER's Depth Charge monitoring program detected the purchase of 2,000 April 17 puts on the video-game retailer for $0.67. He or she then sold 2,000 April 26 calls for $1.10 and bought an equal number of April 28 calls for $0.71. Volume exceeded open interest in all three strikes.

The trade resulted in a net cost of $0.28 and is similar to shorting the stock, earning its maximum profits if GME drops below $17. It also stands to lose money if the shares push above $26, though the red ink will be capped at $2 thanks to the long calls at the 28 strike.

The main difference between the position and simply shorting the stock is that it will track movements in the shares less closely as time passes and expire worthless if they remain between $17 and $26. (See our Education section)

GME is down 0.79 percent to $22.54 and has fallen 10 percent in the last month. It has faced major negativity by investors who think that it will lose customers as game sales shift to the Internet. Management trimmed its sales guidance following its earnings report on Nov. 17 but maintained profit expectations.

Overall option volume in GameStop is more than twice the average amount so far today, according to the Depth Charge.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: GME

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