GameStop (GME) put volume spikes on selling

By Jud Pyle, CFA,

Shutterstock photo

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 limited downside.

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.

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

This article appears in: Investing Options
Referenced Stocks: GME

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