Analysis: With GameStop earnings on tap, options traders bet on muted moves

Vinco Ventures

08/09/2021 06:00

By Saqib Iqbal Ahmed
    NEW YORK, Sept 8 (Reuters) - Options traders are expecting
comparatively subdued moves in GameStop Inc  GME.N  shares
around its earnings report, as the company that helped spark the
so-called meme stock phenomenon prepares to report quarterly
results on Wednesday.
    Traders are pricing a 14% swing for GameStop's shares by
Friday, according to pricing in options expiring at the end of
the week. By comparison, the video game retailer’s shares have
moved about 30% on the day after each of its last two earnings
reports.
    The expectations for smaller stock swings comes as the daily
moves in GameStop’s shares have also grown tighter. The
company’s shares have logged average daily moves of around 3.6%
in either direction over the last month, compared with average
daily moves of 12% for the first half of the year. 
    One reason for the toned-down moves may be that the
company’s shares - which stand at around $200 compared with 
around $16 in early January - may be growing less attractive to
investors looking to get in on cheaper stocks in the hopes of
catching a big rally, said Henry Schwartz, head of product
intelligence at Cboe.
    A recent batch of meme stocks that rallied last month
included names like Support.com  SPRT.O , which went from
trading at around $8 in mid-August to as high as $59.69 in late
August, and Vinco Ventures  BBIG.O , which went from around
$2.50 in late August to as high as $7.89 earlier this month.
   "GameStop has been eclipsed by a lot of other names,"
Schwartz said.
    GameStop is up about 950% for the year and down 8% so far
this quarter. The stock's 1-month average daily options trading
volume is at about 111,000 contracts, down from about 820,000
contracts in early February, according to Trade Alert data.
Similarly, the stock's 1-month average daily volume is at 3.3
million shares, down from about 77 million shares in early
February. 
    The Grapevine, Texas-based company is expected to post a
rise in second-quarter revenue on Wednesday as its brick-and
mortar business is slowly recovering.  urn:newsml:reuters.com:*:nL8N2Q83S8
    With the company pushing for e-commerce growth, investors
will also look for comments regarding its future plans. Hardcore
proponents of the stock on forums such as Reddit's
WallStreetBets have famously pledged to hold its shares until
they go "to the moon."
    Indeed, a look at implied volatility - an options-based
measure of how much traders expect a stock to move - suggests
that some are betting on the shares to snap a four-quarter
streak of post-earnings declines. 
    Implied volatility on Friday-expiration calls that would
come into play if the stock rises 15% stood at 230% on Tuesday 
afternoon, compared with 210% for puts that come into play if
the stock falls 15%, according to Refinitiv data.
    Calls convey the right to buy shares at a fixed price in the
future and are typically bought by bullish investors, while puts
provide the right to sell shares at a set price in the future.
    "The marketplace is willing to pay up for the calls in the
near-term cycle," said Brian Overby, senior options analyst at
Ally Invest.

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GRAPHIC: GameStop earnings reaction    https://tmsnrt.rs/3jQDPwj
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 (Reporting by Saqib Iqbal Ahmed in New York
Editing by Ira Iosebashvili and Matthew Lewis)
 ((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 646 223
6054; Reuters Messaging:
saqib.ahmed.thomsonreuters.com@reuters.net))