By Angela Moon
NEW YORK, March 17 (Reuters) - Options activity on GameStop Corp suggests an upward move in the stock after earnings are reported before Thursday's opening bell.
Wall Street expects the world's largest video game retailer to post earnings of $1.28 a share for its fourth quarter and $3.45 billion in revenue, according to Thomson Reuters I/B/E/S.
In late afternoon trade, put volume was greater than call volume, but more of the calls were being bought on the offer, implying aggressiveness among buyers, while puts were being sold on the bid, which means sellers were more aggressive in unloading those positions.
'When puts are sold, those are folks who are making bullish bets because if the stock doesn't drop, the puts are worthless,' said Jon Najarian, a founder of Web information site optionMonster.com.
Options expiry for single shares is on Friday, so those puts have a short shelf life after GameStop reports earnings.
The put-to-call ratio for the underlying stock was 2:1, or 12,900 puts and 6,600 calls, compared to a ratio of 0.6:1 in February.
GameStop shares were flat for most of the day but rose in the last hour of trade to end up 2.3 percent to $19.86.
The most active options were March $18 and April $18 puts, sold at 25 to 30 cents for March contracts and 45 to 55 cents for April contracts, Najarian said.
Overall trade volume was low compared to last week's daily average of 31,000 contracts. The stock jumped 5.9 percent last Thursday, its biggest one-day gain since August 2009, and options activity surged to a record on takeover chatter.
'People have made their bets and are waiting for the earnings event to play out,' said Jud Pyle, chief investment strategist at Options News Network in Chicago. He added that investors were hoping for official comments from the company on the takeover talk during the earnings conference call.
The front-month March options implied volatility on GameStop was at 105 percent, and April options were at 48 percent, compared to an average of 44 percent from two previous weeks. It is common for volatility to spike near quarterly expiration, which falls on Friday.
Implied volatility, a key component of an options price, measures the expected magnitude of share price movement.
The sizable amount of short bets in GameStop shares also has the potential to exacerbate a move to the upside. Short interest makes up about 18.8 percent of shares outstanding, according to data specialists Data Explorers in New York. This is roughly in line with the amount of short interest over the past three months.
Short investors seek to profit from a share's decline by borrowing a stock, selling it and buying it back at a lower price, pocketing the difference. However, if the price rises instead, shorts may abandon their positions and buy at a higher price, adding to the upward momentum.
(Additional Reporting by Leah Schnurr, Editing by Kenneth Barry) Keywords: GAMESTOP RESULTS/OPTIONS (angela.moon@thomsonreuters.com;+1 646 223 5685; Reuters Messaging:angela.moon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, March 17 (Reuters) - Options activity on GameStop Corp suggests an upward move in the stock after earnings are reported before Thursday's opening bell.
Wall Street expects the world's largest video game retailer to post earnings of $1.28 a share for its fourth quarter and $3.45 billion in revenue, according to Thomson Reuters I/B/E/S.
In late afternoon trade, put volume was greater than call volume, but more of the calls were being bought on the offer, implying aggressiveness among buyers, while puts were being sold on the bid, which means sellers were more aggressive in unloading those positions.
'When puts are sold, those are folks who are making bullish bets because if the stock doesn't drop, the puts are worthless,' said Jon Najarian, a founder of Web information site optionMonster.com.
Options expiry for single shares is on Friday, so those puts have a short shelf life after GameStop reports earnings.
The put-to-call ratio for the underlying stock was 2:1, or 12,900 puts and 6,600 calls, compared to a ratio of 0.6:1 in February.
GameStop shares were flat for most of the day but rose in the last hour of trade to end up 2.3 percent to $19.86.
The most active options were March $18 and April $18 puts, sold at 25 to 30 cents for March contracts and 45 to 55 cents for April contracts, Najarian said.
Overall trade volume was low compared to last week's daily average of 31,000 contracts. The stock jumped 5.9 percent last Thursday, its biggest one-day gain since August 2009, and options activity surged to a record on takeover chatter.
'People have made their bets and are waiting for the earnings event to play out,' said Jud Pyle, chief investment strategist at Options News Network in Chicago. He added that investors were hoping for official comments from the company on the takeover talk during the earnings conference call.
The front-month March options implied volatility on GameStop was at 105 percent, and April options were at 48 percent, compared to an average of 44 percent from two previous weeks. It is common for volatility to spike near quarterly expiration, which falls on Friday.
Implied volatility, a key component of an options price, measures the expected magnitude of share price movement.
The sizable amount of short bets in GameStop shares also has the potential to exacerbate a move to the upside. Short interest makes up about 18.8 percent of shares outstanding, according to data specialists Data Explorers in New York. This is roughly in line with the amount of short interest over the past three months.
Short investors seek to profit from a share's decline by borrowing a stock, selling it and buying it back at a lower price, pocketing the difference. However, if the price rises instead, shorts may abandon their positions and buy at a higher price, adding to the upward momentum.
(Additional Reporting by Leah Schnurr, Editing by Kenneth Barry) Keywords: GAMESTOP RESULTS/OPTIONS (angela.moon@thomsonreuters.com;+1 646 223 5685; Reuters Messaging:angela.moon.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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