GME – GameStop Corp. – Less than twenty-four hours ago we reported bullish options trading activity on the retailer of video games, but today pessimists dominated the field and initiated bearish bets on the stock. GameStop’s shares are trading 0.80% lower on the day to stand at $18.32. One investor appears to be responsible for the bulk of the bearish trading on GME today. But, at the near-term March $19 strike smaller players flexed their paws to purchase 1,800 puts for an average premium of $1.17 apiece. The March contract action suggests the big options player on the stock today is not the only bear bracing for potential share price erosion. It looks like one investor established a large-volume bearish risk reversal in the April contract and initiated outright call selling in the July contract. The trader sold approximately 10,910 calls at the April $19 strike for an average premium of $0.80 apiece in order to finance the purchase of the about the same number of puts at the April $17 strike for $0.50 each. The investor pockets a net credit of $0.30 per contract on the reversal play. Next, the trader added to the credit by selling 21,820 call options at the July $21 strike for $0.75 each. It is unclear whether the investor is currently holding an equivalent number of underlying shares of GME stock. However, let’s first assume there is no underlying stock position. In this scenario, the trader is positioned to add to profits ahead of April expiration if GME’s shares trade below $17.00 apiece, and will retain the full $0.75 premium on the sale of the call options as long as shares trade below $21.00 through July expiration. On the other hand, the trader could be long the stock. In this case, the risk reversal yields a net credit and downside protection through expiration day next month, whereas the short calls provide $0.75 in premium per contract as well as an effective exit strategy – by mimicking a covered call – should GME’s shares breakthrough $21.00 by expiration day in July. Options implied volatility on the stock is up 12% to 48.39%.
HD – Home Depot, Inc. – Shares of the home improvement products retailer reached a new 52-week high of $32.04 during yesterday’s session, and are trading roughly 0.25% higher for the current day at $31.80. Put activity in the April contract on the stock today appears to be the work of an investor securing downside protection in case HD’s share price erodes ahead of expiration next month. The trader purchased a debit put spread by picking up 5,000 puts at the April $30 strike for a premium of $0.29 apiece, marked against the sale of the same number of puts at the lower April $29 strike for $0.14 each. The net cost of the spread amounts to $0.15 per contract. Downside protection kicks in if Home Depot’s shares decline 5.95% from the current price to breach the breakeven point on the puts at $29.85.
XLP – Consumer Staples Select Sector SPDR – Shares of the consumer staples exchange-traded fund, which invests in companies from industries such as food and drug retailing, beverage, food products and tobacco, are up 0.15% to $27.53 today. Put activity on the fund indicates investors are expecting shares to trade above $26.00 through June expiration. Bullish individuals sold 19,500 puts at the June $26 strike to pocket an average premium of $0.35 per contract. Put-sellers keep the full premium received on the transaction as long as shares of the underlying stock trade above $26.00 through expiration day in June. Investors short the puts are apparently happy to have shares of the underlying fund put to them for $25.65 each should the put contracts land in-the-money at expiration.
ALL - Allstate Corp. – In mid-February an investor amassed a 39,000 lot options stake in insurer, Allstate as the shares were trading at around $29.00 per share. The premium paid to get long of March expiration calls at the $31.00 strike was between 40-60 cents. Activity today gets a little murky, but we reckon that the investor sold this position out for a handsome gain at 92.5 cents and simultaneously attempted to call a top to further gains for the share price. Time and sales data indicates that 13,000 April expiration calls were sold at the $32 strike for 65 cents and while 26,000 July calls at the higher $33.00 strike were sold at $1.05. It is possible that since the three legs were transacted close together that the time and sales data is miscuing our interpretation. Logically the investor could be simply rolling up the strikes over time and maintaining a long position.
