GameStop (GME) Bear Positions for Post-Earnings Pullback

GME – GameStop Corp. – The remainder of the trading week is unlikely to be all fun-and-games for shareholders in GameStop Corp., according to bearish trading in its put options this morning. Protective or perhaps outright bearish positioning in GME options arrives just in time for the world’s largest video game retailer’s third-quarter earnings report due out ahead of the opening bell on Thursday. It looks like the buyer of a debit put spread in the front month is prepared for shares in GME to head lower following the release. Shares in the world’s largest video game retailer are currently down 3.0% to stand at $23.90 as of 11:50 AM in New York. The investor responsible for most of the volume in GameStop Corp. options in the first half of the trading session on Tuesday purchased a 1,000-lot Nov. $23/$24 put spread for a net premium of $0.30 per contract. The trader makes money if shares in GME settle below the effective breakeven price of $23.70 at expiration this week. Maximum potential profits of $0.70 per contract are available to the put player in the event that shares in the video game retailer drop 3.75% from the current price of $23.90 to settle below $23.00 at expiration.

FTR – Frontier Communications Corp. – Options traders appear to be bulking up on bearish positions in Frontier Communications for the second consecutive day this week, with shares in the Stamford, Connecticut-based company sliding 2.3% lower to $5.43 by 11:15 AM ET on Tuesday. The stock also fell 2.3% on Monday to close at $5.57. Investors positioning for the stock to continue to drop within the next few months are accumulating sizable positions in the closest-to-the-money strike put available in the February contract. It looks like one investor snapped up more than 4,500 puts at the Feb. 2012 $5.0 strike for a premium of $0.35 each in the first 30 minutes of the trading session. The put buyer may profit at expiration next year if shares in Frontier fall 14.4% to breach the effective breakeven point on the downside at $4.65. Bearish trading in the same Feb. 2012 $5.0 strike put occurred in the final 10 minutes of trading on Monday, as well. It appears one investor purchased a block of 5,000 of the put options for a premium of $0.30 apiece yesterday. Both positions, which may or may not have been initiated by the same investor, could yield profits at expiration in the event that Frontier’s shares decline to their lowest levels in nearly a decade.

SUN – Sunoco, Inc. – The petroleum refiner popped up on our scanners this morning after a large number of put options changed hands in the November contract. At first glance the heavier-than-usual put activity may look like a bearish signal, with shares in Sunoco trading 0.95% lower at $36.44 today. However, the bulk of the puts appear to have been sold in a near-term vote of confidence that shares are likely to resist above $36.00 through expiration at the end of the week. Investors exchanged more than 6,900 put options at the Nov. $36 strike against previously existing open interest of 953 contracts. Most of the puts traded in a single block of 5,000 contracts, which were sold by one investor for a premium of $0.33 each. The put seller walks away with the full $0.33 premium in hand, or maximum possible profits of $165,000, as long as shares settle above $36.00 at expiration. Bearish movement in the stock ahead of expiration day could find the trader saddled with 500,000 shares of the underlying at an effective price of $35.67 each, regardless of how much or how little the stock may pull back below the specified strike price.

HNZ – H.J. Heinz Co. – Hefty prints in Heinz LEAPs pushed the maker of ketchup and other food products onto our ‘hot by options volume’ market scanner this morning. The burst of call buying in the Jan. 2014 expiry appears to be a long-term bullish bet that the price of Heinz shares may trade at a more than 35.0% premium to its May 31, 2011, all-time high of $55.00, by expiration day in 2014. Shares in the Pittsburgh, Pennsylvania-based condiment company are down 0.60% to stand at $53.29 in early-afternoon trade. One or more options trader exchanged more than 14,100 calls at the Jan. 2014 $75 strike a little more than one hour into the trading session. Zero established positions at the strike indicate the transactions are all opening ones. The largest single block, 12,950 calls, appears to have been purchased by one investor for a premium of $0.55 a-pop. The call buyer stands prepared to profit at expiration in more than two years in the event that the ketchup maker’s shares surge 41.8% over the current price of $53.29 to surpass the effective breakeven point at $75.55. The pop in call activity on the stock helped lift HNZ’s overall reading of options implied volatility more than 5.1% to 18.0% today. Heinz is scheduled to report second-quarter earnings ahead of the opening bell on Friday.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.