Bears score as $GME stumbles

Poor guidance translated to substantial gains for downside option positions in GameStop today.

Back on Aug. 22, Investitute’s proprietary programs flagged the purchase of 4,414 January $18 puts for $2.96 as part of a bearish roll with shares at $17.03. Open interest in the strike was only 1,309 contracts before the trade occurred, showing that this was a new position.

Those puts traded up to $5.30 this morning, almost twice their purchase price. The stock dropped 22.25% in the same time period, a large move but nowhere near that of its options on a relative basis.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

GME fell 6.63% to $13.66 today. The game retailer lowered its outlook in reporting quarterly results after the market closed yesterday.