Bearish GameStop options contracts fly off the shelf after stock surge

N Citron

28/01/2021 06:00

By Saqib Iqbal Ahmed and April Joyner
    NEW YORK, Jan 28 (Reuters) - The volume of bearish options
bets on GameStop Corp  GME.N  has surged while bullish bets are
taking a backseat after a run that has catapulted the video game
and electronics retailer's shares more than 700% over the past
four sessions.
    For every GameStop call option traded on Wednesday, there
were about 3.5 puts that changed hands, the highest ratio in
more than a year. Call options rise in value when a stock gains
while puts appreciate when the underlying stock declines.
    GameStop puts have overtaken calls since Friday after six
straight weeks of predominantly bullish flow. Of the top 20 most
heavily traded GameStop options contracts on Wednesday, 18 were
puts.
    "You do have, potentially, speculators who are betting this
bubble is going to deflate at some point," said Randy Frederick,
vice president of trading and derivatives at the Schwab Center
for Financial Research. 
    The rise may also be coming from holders of GameStop shares
seeking to protect their gains against a potential decline,
Frederick said.
    Another possible explanation may be that investors who had
to cover short bets against GameStop's stock are now buying the
options as a cheaper way to bet on an eventual price decline,
said Christopher Murphy, co-head of derivatives strategy at
Susquehanna Financial Group.
    "The less riskier position would be to buy puts, because
there's a limited amount you can lose. That might be why we're
seeing more put volume," Murphy said.
    Options, which offer investors a cheap way to place
leveraged bets on big moves in stocks, have played an important
role in driving GameStop's breathtaking rally. 
    Put contracts to position for GameStop shares sinking below
$40 by mid-March are among those that have seen the largest jump
in open contracts. Puts at the $20, $30 and $60 strike prices
have also drawn significant buying in recent days, data showed.
GameStop shares ended 134.8% higher at $347.51 on Wednesday.
    Short sellers including Citron Capital and Melvin Capital
Management retreated on Wednesday with heavy losses in what has
been dubbed a battle between Wall Street and retail investors,
who have lately targeted stocks with big short positions.
 urn:newsml:reuters.com:*:nL8N2K22EA
    While GameStop options bulls may have eased a bit, options
traders in AMC Entertainment Holdings Inc  AMC.N , BlackBerry
Ltd  BB.N  and Nokia Oyj  NOK.N  - other stocks that have seen
massive rises recently - remained aggressively bullish.
    About 1.5 million GameStop contracts traded on Wednesday, 
the company's second-highest daily volume ever, according to
options analytics firm Trade Alert. 

 (Reporting by Saqib Iqbal Ahmed and April Joyner; Editing by
Ira Iosebashvili and Sonya Hepinstall)
 ((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 646 223
6054; Reuters Messaging:
saqib.ahmed.thomsonreuters.com@reuters.net))