Short-term GME puts are cheaper than usual relative to calls
After spending most of the second-quarter bottoming around the $12.50 level, shares of GameStop Corp. (NYSE:GME) have slowly but steadily battled back from their year-to-date lows. The stock has gained 24% from its May 18 closing low of $12.46, and GME has actually outperformed the S&P 500 Index (SPX) by more than 15 percentage points over the past 40 sessions. However, history suggests that the recent push higher by GME stock might actually be an ideal entry point for a bearish trade.
GME Tends to Fail 200-Day Tests
Specifically, GME has now rallied up to trade within one standard deviation of its 200-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been four occasions over the past three years where GameStop stock has risen to challenge its 200-day trendline after spending a prolonged period of time beneath it -- and the results following prior signals are less than stellar.
In fact, five days after a signal, the stock is down 4.2% on average, with only 25% positive returns. And looking out one month after a GME test of 200-day resistance, the 25% positive rate remains the same -- but the average return widens to a drop of 8.9%. From GME's current perch at $15.47, that would put the shares at $14.09 by this time next month.
This latest GME sell signal coincides with the stock's as-yet unsuccessful attempts to surmount the $15.50 neighborhood. This chart region briefly provided a floor for the shares in February and early March, but has more recently emerged as a troublesome technical hurdle that has kept all of GME's rally attempts in check since mid-June.
From a broader perspective, the stock has been facing pressure at its 200-day moving average for just over two years. Over that time frame, GME has lost about half its value.
Post-Earnings Bias Could Be to the Downside Again
Looking ahead, GME is tentatively expected to report earnings in late August. As such, the equity's 30-day at-the-money implied volatility (IV) is somewhat elevated, at 50.2%. This reading registers in the 74th percentile of its annual range. On the other hand, the stock's 30-day IV skew of 6.2% stands in just the 36th annual percentile, which means short-term GME put options are pricing in a lower-than-usual volatility premium relative to their call counterparts.
That's an interesting development ahead of earnings. Over the past eight quarters, GME has averaged a single-day price swing of 8.5% immediately following its earnings announcement, regardless of direction. Five of those post-earnings moves have been negative, with the average drop totaling 10.4%; meanwhile, the three positive moves delivered an average gain of 5.3%.