GameStop plunged to five-year lows today on poor quarterly results, handing large gains to downside option traders.
On July 31, Investitute’s proprietary programs detected the purchase of 5,200 September $21 puts for $1.11 to $1.24 with shares at $21.61. This was clearly a new position, as open interest in the strike was a mere 67 contracts before the trade occurred.
This morning those puts sold for $2.70, more than doubling in value. The stock fell 13.4 percent in the same time period, a much smaller move on a relative basis, underscoring the kind of leverage that can be achieved with options.
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 dropped 10.93 percent to finish today’s trading at $19.40 after hitting $18.72 in the morning, its lowest price since 2012. The game retailer reported weak sales after the market closed yesterday.