Schaeffer's Top Stock Picks for '25

GameStop Corp. (GME) Options Bears Brace for a Negative Earnings Reaction

GameStop Corp. (NYSE:GME) is scheduled to report second-quarter earnings after tonight's close

Aug 25, 2016 at 2:31 PM
facebook X logo linkedin


Options traders are pouncing on GameStop Corp. (NYSE:GME), ahead of the retailer's turn in the earnings confessional after tonight's close. At last check, options were changing hands at four times the average intraday pace, with roughly 14,300 calls and 8,700 puts on the tape. Given the stock's dismal post-earnings history, it appears a number of options traders are bracing for another decline in tomorrow's trading.

Specifically, although calls have the edge over puts, GME's weekly 8/26 29.50-strike put has seen the most action. Plus, it seems safe to assume new positions are being purchased here, meaning put buyers expect the stock to breach the $29.50 level by the time the weekly options expire at tomorrow's close. GME hasn't finished a week south of this strike since mid-July.

Widening the sentiment scope reveals it's been call buyers who have had the upper hand in GME's options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio is docked at a top-heavy 2.09. Additionally, this ratio ranks in the 59th annual percentile, meaning calls have been bought to open over puts at a slightly faster-than-usual clip.

Echoing this is GME's Schaeffer's put/call open interest ratio (SOIR) of 1.96. Not only does this show that calls nearly double puts among options expiring in three months or less, but it ranks higher than 79% of all comparable readings taken in the past year. In other words, short-term speculators are more call-heavy than usual toward GME stock.

This skepticism isn't confined to the options arena, either. Short interest surged 11.7% in the two most recent reporting periods, and now accounts for a brow-raising 30.2% of the stock's available float. Plus, it would take almost 14 sessions to cover these bearish bets, at the stock's average daily pace of trading.

Looking at the charts, it's not hard to see why sentiment is tilted toward the bearish side, too. Year-over-year, the shares have lost more than 29%, and were last seen trading at $32.04. Plus, the stock's recent rally off its late-June lows -- thanks in part to the mid-July Pokemon Go hype -- have run out of steam near GME's 50-week moving average, a trendline not conquered on a weekly closing basis since early November.

If past is precedent, the stock could be in for some additional headwinds after GameStop Corp. (NYSE:GME) unveils its second-quarter results tonight. Over the past four quarters, specifically, GME has averaged a single-session post-earnings loss of 5.4%. Meanwhile, for tomorrow's trading, the options market is pricing in a 13% swing for the security, regardless of direction.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.
 
 

Which of These SUB-$5 Stocks Could 26x From Here? (AD)

He called a rare 11x on Tesla…

Then he called a 26x on Workhorse…

Then an even rarer 35x on Nio Inc…

Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

They’re trading for less than $5 right now.

But thanks to Elon & Trump’s new alliance…

They could be off to the races in Trump’s first 100 days.

And right now for a limited time…

You can get the names & tickers for just $1 here. (AD)

10 Stock Picks FREE
 
 

Featured Articles from Trusted Partners:

🚀 One Stock Pick Could Change Everything in 2025
What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

🆕 New Options Need New Trading Strategies
Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

👀 Revealed: 3 Defensive Stocks for Your Portfolio
Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

 

 
 

FREE Report Download

 

Follow us on X, Follow us on Twitter