GameStop Options Target 300% Rally Despite Share Dip

GameStop Stock NYSE:GME

Despite a sharp decline in GameStop Corp.’s (NYSE:GME) shares on Wednesday, certain options traders remained optimistic about a significant surge in the stock’s price this week.

Among the most actively traded call options were contracts with $100 and $128 strikes, indicating potential near-tripling or quadrupling of the stock price by Friday. Notably, the $128 contract saw no prior open positions, while the volume in the $100 strike exceeded existing positions.

Earlier in the week, options traders predominantly favored contracts with more modest expectations, seeking around 15% gains rather than the dramatic rallies seen on Wednesday. GameStop’s shares experienced a notable decline, dropping by as much as 36% during the day to partially offset gains made earlier in the week.

Susquehanna International Group reported a mix of buying and selling activity driving the trading action on Wednesday, particularly in the far out-of-the-money calls. Most trades were conducted in small lots.

Brent Kochuba, founder of options platform SpotGamma, noted the presence of sophisticated investors in the market, suggesting that volatility traders may now be influencing GameStop’s price movements more significantly than retail investors.

Although the options are deemed expensive due to their implied annualized volatility of around 700%, they are relatively inexpensive on an outright basis. Nevertheless, significant sums are being exchanged, with approximately 11,000 contracts of $128 calls traded, amounting to approximately $375,000 in total premium, despite the limited time until expiration and the substantial price increase required for the options to be profitable.

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