Less than one week after
GameStop Corp. (NYSE: GME )
announced worse-than-expected earnings figures, an options investor
appears to have taken a moderately bullish position on the company
by selling puts. The stock sold off more than 17% since its last
earnings, but options action on the tape calls for near-term
Shares of GME dropped six cents to $18.36 during morning trading
without any notable news on the wires today. On Aug. 19, the
company announced earnings of 26 cents per share and missed
estimates by one cent. GME also issued downside guidance for its
third quarter, which put even more pressure on the stock. The stock
is trading just 7% higher than its 52-week low of $17.12.
The September 17-strike puts were active during the morning
session with more than 15,600 of these out-of-the-money contracts
on the tape. Current open interest in this line is 926 contracts.
These puts crossed the tape for an average price of 30 cents per
contract (the largest block totaling 14,783 contracts crossed for
30 cents per contract). This price was at the bid when the volume
crossed the tape, suggesting investors opened short put positions
to bet on limited downside during the next few weeks.
If the stock is trading above the strike price (17), the
investor gets to keep the entire premium collected, or 30 cents per
contract. It's interesting the investor is willing to cap maximum
gains at the credit collected to bet on minimal volatility during
the near term. Maximum loss occurs if GME shares are trading below
the breakeven level of $16.70 at expiration. If the stock is
trading between the strike price and the breakeven level, the
investor gives back some of the premium collected.