It’s Friday, which usually means I write about three stocks with unusual options activity. However, given its awful Q1 2024 results, I couldn't resist GameStop (GME).
Before I get into the carnage of the video game retailer’s first quarter report, I should point out that GME had an options volume of 1.53 million on Thursday, 2.8x the 30-day average.
As for its unusual options activity yesterday, there were too many to count. All I can say is that there are at least three worth pursuing if you are bearish on GameStop’s chances.
My headline clearly explains my feelings about the company and its so-called turnaround. Down 20% in the premarket as I write this, GME stock isn’t worth $15, let alone $35, where it could finish the week.
Have an excellent weekend!
Roaring Kitty and Ryan Cohen are Made for Each Other
There are value stocks, and then there’s GameStop. It's essential to know the difference. Unfortunately, not all investors can do that. Roaring Kitty, whose real name is Keith Gill, and CEO and GameStop’s largest investor, Ryan Cohen, are two such people.
I’m not suggesting that the two investors won’t make out like bandits in this latest episode of The Twilight Zone. However, actual value investments are companies whose businesses have suffered near-term adversity that has weighed heavily on their share prices.
GameStop, even at $15, could hardly be called a value investment, despite the $1.08 billion in cash on the balance sheet at the quarter’s end (May 4), and the $934 million in gross proceeds from its ATM equity offering that was completed on May 24.
Ryan Cohen’s turnaround plan insults CEOs like GE Aerospace’s (GE) Larry Culp, who has worked diligently over the past five-and-a-half years since GE hired the former Danaher (DHR) boss in October 2018.
The funny thing about GameStop is that its business has declined for many years. Ryan Cohen has done nothing to change that trajectory except dump some staff and make timely ATMs to rob investors of their hard-earned capital.
Evidence of Cohen’s incompetence: First-quarter revenues fell 29% year-over-year to $882 million, below the analyst estimate. GameStop hasn’t generated lower quarterly revenue since 2005. Its shares traded around $4 at the time.
I suppose you could find a kernel of strength in its quarterly report. Its operating loss was 13% lower at $50.6 million. However, even there, its operating cash flow was $7.1 million higher at -$109.8 million.
Keith Gill is said to be doing his first YouTube livestream in three years at noon today. By the time you get my commentary, Roaring Kitty will have done his thing, naturally sending its share price higher on more investor speculation.
As for Cohen, the company filed a prospectus supplement today with the SEC to do an additional ATM of 75 million shares. If sold at the current price of $43.80, it would raise an extra $3.3 billion.
With that, Cohen, the wannabe portfolio manager, will have close to $5 billion in cash to invest on behalf of the company’s shareholders.
Suppose you want a portfolio manager who runs a successful business. In that case, you might want to put your cash intended for GME into Berkshire Hathaway (BRK.B), Loews (L), or some other holding company with a track record of rewarding shareholders.
Enough of the rant. Now, on to the three unusual active options from yesterday.
October 18 $22 Put
The first of three puts to buy has a DTE of 133. Yesterday, it had a Vol/OI ratio of 2.07. Despite GME’s high options volume Thursday, none of the 50 or so unusually active options had a Vol/OI ratio in double digits.
The put’s closing ask price was $4.85. Barchart.com data shadows two trades of 30 of the $22 put have gone through with ask prices of $6.50 and $7.00. The trades themselves were at $5.30 and $5.25.
So, based on the $7.00 ask, if you buy a put with the current share price of $38, you’re $2,300 out of the money [($22 x 100) - (38 x 100) - ($7 x 100)]. Of course, you’ve got nearly five months for it to fall to $22, with a maximum loss of $700. It last traded below $22 in May.
Jan. 17/2025 $125 Put
This unusually active put option had the longest DTE at 225 days. With an ask price of $90.55 and a closing price of $46.55, it was $1,210 out of the money, and a maximum loss of $9,055.
It sounds and looks ominous.
So far, early in Friday trading, there have been no trades on the put. Based on a similar ask, you’re now $246 out of the money, an 80% improvement from yesterday. However, you're playing a waiting game without anyone willing to take the other half of the trade.
I probably wouldn’t have the stomach for such an outlay, especially given that Roaring Kitty’s performance will probably energize the meme-stock crowd. However, in the days ahead, it might be one to watch if you have a strong constitution.
July 5 $10 Put
The last of yesterday’s puts worth considering is also one of three unusually active GME options in today’s mid-morning action.
The put had a Vol/OI ratio of 1.55 yesterday and a closing ask price of $0.12. Based on the closing share price of $46.55, the put was $3,667 out of the money with 28 days to expiration. However, with a maximum loss of $12, why not take a flyer?
Fast-forward to today. The $10 put has a Vol/OI ratio of 10.16, with 6,270 contracts traded. The last trade was at 10:26 EST, with a trade size of 74 and a trade price of $0.16. Based on a current price of $36.07, it’s out of the money by $2,619.
As I write this, there are five unusually active options, with three puts and two calls.
Notably, in addition to the July 5 $10 strike, one of the other puts is a Jan. 17/2025 $10 strike. It has a Vol/OI ratio of 1.34. The last trade was at $0.70. Based on a $36.07 share price, it’s out of the money by $2,677.
With 224 days to expiration and a $70 cost, buying these $10 puts might be the wiser move.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
