Equities

GameStop Bets Eye 300% Rally Amid 36% Dip

Options traders wager on a 300% GameStop rally, defying a 36% share dip with high-stakes bets on rapid recovery.

By Alex P. Chase

5/15, 12:35 EDT
AMC Entertainment Holdings, Inc.
Lucid Group, Inc.
Rivian Automotive, Inc.
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Key Takeaway

  • Options traders are betting on a GameStop rally of up to 300% by Friday, despite a recent 36% share dip.
  • The most-traded call options aim for $100 and $128 strikes, with a sudden spike in speculative interest for the latter.
  • Despite not reaching 2021's meme stock frenzy levels, GameStop's shares have seen significant volatility and interest.

Options Traders' Bold Bets

Despite a significant drop in GameStop Corp.'s shares, with a slump of as much as 36% on Wednesday, some options traders are making audacious bets on the stock's rapid recovery. Notably, the most-traded call options include contracts with $100 and $128 strikes, suggesting an anticipated near tripling or quadrupling of the stock's value by Friday. This optimism contrasts sharply with the more modest expectations earlier in the week, where traders sought gains closer to 15%. The $128 strike call options, notably, had no open positions before Wednesday, indicating a sudden surge in speculative interest.

Volatility and Strategy

The trading of these far out-of-the-money calls, according to Susquehanna International Group, was characterized by a mix of buying and selling, predominantly in small lots. Despite the high implied volatility of these options, around 700%, they were relatively inexpensive on an outright basis. However, the total premium paid for the 11,000 contracts of $128 calls amounted to approximately $375,000. Brent Kochuba, founder of SpotGamma, highlighted the involvement of "smart money" in these trades, suggesting that volatility traders, rather than retail investors, might now be dominating the scene.

Meme Stock Rally Redux

GameStop's shares experienced a dramatic surge, reminiscent of the 2021 meme stock frenzy, fueled in part by the social media activity of Keith Gill, also known as 'Roaring Kitty.' This resurgence saw GameStop's stock nearly triple since Friday's close, alongside significant activity in other meme stocks like AMC Entertainment Holdings Inc., Rivian Automotive Inc., and Lucid Group Inc. Despite the surge, the volume of call options and the dynamics of bullish options buying have not reached the peaks of 2021, indicating a different market environment. As of Tuesday, GameStop's stock had surpassed levels with the largest open options positions, suggesting that the risk of a repeat of the 2021-style surge might be mitigated.

Street Views

  • Brent Kochuba, SpotGamma (Neutral on GameStop):

    "I’m sure there is a lot of smart money playing this name. Retail can try all they want, but I think the volatility traders have come in and are in control of this thing now."