Traders following shares of GameStop Corp. (NYSE:GME) have every reason to stay glued to the action right now. GME Weekly Jun14 5.5 calls were cooking on Monday, with 1610 contracts in play versus an open interest of just 390, pushing implied volatility up around 7 points to ~70%.
This outsized interest came after the company announced a “modified Dutch auction” tender offer to repurchase up to 12 million shares. We would also note that the company is appearing at the Entertainment Electronics Expo 2019 (E3) conference.
GME’s next earnings report is expected in early September.
Implied volatility is a powerful measure for options traders, pointing to the overall expectation of future market movement for an asset as determined by the nature of bets crossing the board on the options exchanges.
High implied volatility points to options market expectations of high trading volatility in the future. This stands in contrast to standard volatility, which simply tracks how much an asset has been changing in price in the recent past.
In addition, surging implied volatility often accompanies the process of bets as an asset approaches a key event on the economic or financial calendar, such as earnings or a PDUFA data for a biotech.
Finally, a jump in implied volatility, such as we are seeing in shares of GME, is directionally agnostic, which is a fancy way of saying, the market thinks this stock will move a lot, but it’s not sure whether that movement will be up or down.
Gauging the TrendsG
So, where does the weight of evidence fall for GME? Right now, eleven Wall Street analysts cover the stock, with 2 giving it a “Strong Buy” recommendation, 2 calling it a “Buy”, 7 recommending a “Hold” strategy, and 1 analyst rating the stock at “Underperform”.
GME has a significant war chest ($543.2M) of cash on the books, which stands against about $1.3B in total current liabilities. The company is pulling in trailing 12-month revenues of $8.3B. However, GME is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -20%.
Overall, the company is a long-term success that is currently dealing with some hurdles, and sentiment on the Street reflects that with the bulk of analysts unwilling to move above a Hold designation. That may mean the implied volatility we are seeing on the options betting side represents an important opportunity.
At the very least, GME is a stock to have front and center on your radar, with action in the options market set to produce some interesting opportunities in the stock.
Trading options takes skill and discipline and those with a plan outperform the market time and time again.
Most professional options traders use a trading journal. A trading journal is an analytical journal which analyzes the real trading data and the trading performance – such as entries, exits, drawdowns, strategies, setups, quality of trades, trade management, discipline, risk, and all other aspects of a trader’s performance. (SleekOptions)
Stay tuned for more options news and reports.
Disclosure: we hold no position in $GME, either long or short.