How cautious bull is playing GameStop


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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)

GME 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 months.

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)

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

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This article appears in: Investing , Options

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