Someone is cautiously building a position in GameStop.
Our Depth Charge tracking system detected the purchase of about
5,100 April 18 puts for $0.25 and $0.26 against open interest of
just 1,655 contracts. While such activity is normally bearish, in
this case it appears to have been the work of an investor who was
accumulating the shares and using the puts as a downside
protection. (See our Education section)
The videogame retailer bucked the downward trend in yesterday's
market, climbing 3.58 percent to $20.53. GME has been lagging the
broader market for the last two years, but traders apparently
believe that it may be ready to rally.
One reason for the optimism is that short interest represents a
hefty 24 percent of the float and the shares trade for just 7 times
forward earnings. GME also has a price-to-book value of barely 1
time, while most retailers are valued at 2 to 4 times book value.
Price action on the stock suggests that it's bottoming out as well:
GME held support around $19.50 since the beginning of February
(dark orange line on chart at right) while the broader markets fell
and has been making successively higher lows for the last 13
The next scheduled event that could affect the shares is the
release of fourth-quarter results before the bell on March 24.
The put buying pushed total option volume in the name to triple the
daily average, according to the Depth Charge.
(Chart courtesy of tradeMONSTER)
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