GameStop has fallen back to levels from the spring, and traders are harboring doubts before results come out.
optionMONSTER's Depth Charge monitoring system detected the purchase of about 1,500 August 20 puts for $0.33 and the sale of an equal number of August 19 puts for $0.13, resulting in a cost of $0.20. Volume was below open interest in the higher strike, so there are two possible interpretations for the trade.
One is that an existing short position was rolled to the lower strike, giving the investor an additional $1 of leeway to the downside if GME drops. The second and more likely possibility is that a new bearish put spread was opened, with the potential to earn 400 percent if the video-game retailer falls to $19 or lower.
Either way, the activity reflects downside expectations.
GME rose 2.1 percent to $21.39 yesterday. It had staged a big rally from $20 to $28 between March and May but then gave back most of those gains.
Critics have cast doubt over the brick-and-mortar company's future in the age of the Internet. Some of those worries were confirmed on May 19, when GME issued guidance that was significantly below estimates. The next release comes out tomorrow morning.
Separately yesterday, more than 3,800 August 21 calls were sold for $0.74, which also reflects a belief that upside is limited.
Overall option volume was 8 times greater than average in the session.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
