GameStop Earnings: Can They Post a Big Surprise?
By:Mike Butler
GameStop (GME) has had a wild year, as you might expect from the meme-stock craze a few years ago. Once "just" a company that sold games, GameStop is now involved in documentaries and blockbuster movies based on the crazy movement the stock has seen over the years.
GameStop stock opened 2023 at $17.25 and rallied to a high of $27.65 on June 13.
The move was attributed by observers to the earnings report on March 21, when GameStop beat EPS expectations by 220%—a gain of $0.16 per share, compared to an expected loss of $0.13 per share. This sent the stock straight up the next day, resulting in a rally of almost 60% the next trading session. The stock reached an annual low of $11.82 just a few trading sessions ago, and it vaulted from that level to the current price of $17.30 in short order.
The stock price's expected move this week based on current implied volatility is quite high with the earnings announcement looming at +-$3.49. With the stock sitting around $17, this is almost a 20% stock price expected move just this week.
Looking further to the Jan. 19, 2024, options cycle, which has an expected move of just +-$5.19, we can see that a lot of weight is being put on this week's expected move.
Honestly, who doesn't want to see GameStop have a huge move to the upside?
It's likely that those rooting for GameStop exclude just the institutional traders that short it and contributed to the initial "short squeeze" to the upside we saw a few years ago. All kidding aside, there is a large "skew" in options premium to the upside when we look at the weekly cycle.
With the stock trading around $17, we can look at the value of the $2 out-of-the-money (OTM) options to see if there is a difference in price in equidistant options. Here, we can see that the call is trading for twice the amount of the put, both options $2 away from the current stock price. This tells us the market expects to see a high-velocity move to the upside.
This does not mean the stock is going to move to the upside, but it does tell us that the velocity is perceived to be to the upside compared to the downside, which shouldn't be too surprising considering the move we saw in March earlier this year after a big surprise.
If GameStop can post another big earnings beat when the expectation is a loss, we could see an upside frenzy like we saw earlier this year.
Just five trading sessions ago, GameStop was trading at $12. The stock is now trading at $17. The hype train is full steam ahead, and this leads me to believe that if earnings are less than ideal, we could see this whole move reverse.
It's important to remember that if a lot of traders or investors are long GameStop stock and there is a large liquidation event on a bad earnings report, this can add to the downside pressure in the stock's price just like the upside pressure we saw on the "short squeeze" a few years ago.
Tune in to Options Trading Concepts Live at 11 a.m. CDT on Wednesday, Dec. 6, ahead of the earnings announcement for some options trade ideas.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.