GameStop stock's massive rally driven by fresh wave of speculative bets

By Joseph Adinolfi

Traders are piling into long-shot GameStop Inc. call options that would pay off if the stock price nearly doubles before, or shortly after, the company's Dec. 6 earnings report, FactSet data show.

Among standardized call options expiring on Dec. 8, two days after the company's upcoming earnings report, investors have piled into options with strike prices at $20, $22, and $22.50, along with other contracts even further out. For a $22.50 call to be considered "in the money," the stock would need to climb at least 40%. Shares finished Tuesday at $13.49, according to FactSet data.

Calls with a $20 strike have seen the heaviest trading of any GameStop (GME) call option expiring on Dec. 8, with more than 20,000 contracts changing hands on Tuesday, according to FactSet data. Each option contract gives the holder the right to buy or sell 100 shares of stock at an agreed-upon price, on or before an agreed-upon date.

All told, 140,000 GameStop call options changed hands on Tuesday, compared with a 20-day average of 30,000, according to Danny Kirsch, head of options at Piper Sandler.

Calls expiring one week later on Dec. 15 have also seen heavy volume, with the $20 strike calls also the most active, FactSet data show.

Episodes like this are a faint echo of the speculative mania that sent shares of GameStop surging from $3 a share to nearly $500 a share at one point during January 2021, Kirsch said.

Rather than signaling a renewed meme-stock mania, heavy call-buying in speculative names like GameStop appeared to be part of a broader dash for more speculative names on Tuesday, said Kirsch and Brent Kochuba, founder of Spotgamma, a provider of options data and analytics.

"The quality stuff led the rally, now the speculators are coming trying to figure out what vector they can attack next," Kochuba said.

Kirsch noted that comments from Fed Gov. Chris Waller likely helped push GameStop higher along with other speculative names and assets after the senior Fed official raised the possibility of rate cuts during the first half of 2024.

GameStop shares rose 13.3% on Tuesday, its biggest intraday jump since Jan. 27, when GameStop shares rose 14.04%. Shares continued to climb in afterhours trading, and were up nearly 12% premarket, according to FactSet data.

Coinbase Global Inc. (COIN), another stock popular with speculators, also saw a big advance on Tuesday, while bitcoin traded north of $38,000 a coin on Tuesday, according to FactSet data. Prior to this past week, bitcoin had not topped $38,000 since May 2022.

Heavy short interest in GameStop shares also made the stock vulnerable to a big squeeze higher, Kirsch said. Nearly one-quarter of GameStop shares are presently held short, Kirsch added.

"It got squeezed higher today, but it's still getting killed this year," Kirsch said.

Shares of the videogame retailer are still down in 2023. They have fallen nearly 27% since the start of the year through Tuesday's close, he said.

-Joseph Adinolfi

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11-29-23 0746ET

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