GME Analysis

GameStop Corp. (GME)

Update 5/26/2017: GME continued its downtrend after earnings were published, retracing a bit of the decline as the day wore on. I exited a week before options expiration at 24.9% of maximum potential profit.

Shares declined by 5.3% over one day, or a -1,946% annual rate. The options position produced a 33.1% yield on debit for a +12,088% annual rate.

GME publishes earnings on Thursday after the closing bell.

I shall use the series of weekly options that trade for the last time eight days hence, on June 2.

Implied volatility stands at 55%, which is 5.5 times the VIX, a measure of the volatility of the S&P 500 index.

GME’s IV stands at the peak of both its annual range and its most recent broad movement.

The price used for analysis was $23.45.

Premium: $2.05 Expire OTM  
GME-iron fly Strike Odds Delta
Long 27.50 91.4% 11
Break-even 25.55
Short 23.50 53.5% 52
Short 23.50 46.5% 48
Break-even 22.05
Long 20.00 85.3% 12

The premium is 55% of the width of the position’s wings.

The risk/reward ratio is 1:1.

Decision for My Account

I have entered an order on GME as described above. I had to narrow the wings by 50 cents each in order to find sufficient open interest to support a trade. The stock at the time of entry was priced at $23.44.

By Tim Bovee, Portland, Oregon, May 25, 2017

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