Shares of GameStop Corp. surged Wednesday as investors prepped for the videogame and consumer-electronics retailer’s quarterly results. The stock has a recent history of large post-earnings gains.
While the stock-options market didn’t pick a side, it was also ready for a bigger-than-average post-earnings move.
The original meme stock
GME,
climbed 2.8% in active midday trading toward its highest close since Dec. 5, 2022. Trading volume was already 5.1 million shares, above the full-day average over the past 30 days of about 2.9 million shares.
GameStop is scheduled to release its fiscal first-quarter report after the closing bell. Analysts surveyed by FactSet expect, on average, per-share losses to narrow to 15 cents from 52 cents a year ago, and sales to slip 2.5% to $1.34 billion.
It’s no wonder investors acted boldly ahead of the report. The stock rocketed 35.3% on March 22, the biggest one-day gain in two years, after GameStop reported a surprise fourth-quarter profit and the first quarterly profit in three years.
And while the company reported wider-than-expected losses in three of the previous four quarters, the stock still rallied the day after results were reported.
The stock’s average gain after the past five quarterly reports has been 13.6%.
Meanwhile, the options market was ready for an even bigger stock reaction.
An option strategy known as “straddle” is priced for the stock to move $4.19 in either direction on Thursday, according to data provided by Matt Amberson, principal at Option Research & Technology Services. At current prices, that translates to a 16.5% move.
Straddles are pure volatility plays that involve the simultaneous purchase of bullish options, or calls, and bearish options, or puts, with the same at-the-money strike prices (targets at current prices) and the same expiration dates. Like a point spread in sports betting, the buyer of a straddle makes money if the stock closes outside of that implied range of the straddle.
Option prices are a function of the stock’s implied volatility and time to expiry. For GameStop straddles, expiry is Friday and the 30-day implied volatility used in the calculation is 98.2%. That compares with the Cboe Volatility Index
VIX,
which tracks the 30-day implied volatility for the S&P 500
SPX,
at 13.93 in midday trading Wednesday.
Based on the current price of $25.38, GameStop’s stock would have to close Thursday above $29.57 or below $21.19 for straddle buyers to make money.
The day after the company’s past 20 quarterly reports, the stock has moved more than 16.6% in either direction five times, according to FactSet data.
