Video game retailer GameStop (GME) has struggled over the past year, with shares down by over a third. One trader sees further weakness in the months ahead.
That’s based on the November $18 puts. With 73 days until expiration, 10,504 contracts traded compared to a prior open interest of 174, for a 60-fold rise in volume on the trade. The buyer of the puts paid $2.60 to make the bearish bet.
Shares recently traded for about $18.50, so the stock would only need to drop about 3 percent for the option to move in-the-money. Shares recently dropped to the $16.50 range before bouncing higher, so a re-test of that recent low looks possible in the coming weeks.
The retailer has struggled with profitability over the past year, and revenues are down about 10 percent, even as sales have generally held up.
On the plus side, the company is cash rich and has low debt.
Action to take: Investors interested in shares may be able to buy shares at a slightly lower price in the months ahead, likely the $15-16 range, before getting a bounce higher.
For traders, the November puts play well to the weakness in shares this year. Traders could likely see mid-double-digit returns on any drop in GameStop in the next few months.
Disclosure: The author of this article has a position in the company mentioned here, and does not intend to further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.