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Game Over?

The winning GameStop lottery tickets are being cashed in

5/15/24 2:42PM

Traders are taking profits in the boldest wagers that were made ahead of this week’s surge in GameStop.

In particular, we’re talking about the call options that would be in-the-money if GameStop broke above $30 by the end of this week. Shares of GameStop were as high as $64.83 in early trading on Tuesday, and as low as $21 as of 2:00pm ET on Wednesday.

We can infer these lotto tickets are being cashed by looking at how the trades in the $30-strike calls have been executed today.

For background: Trades can take place on the bid, the ask, or the mid.

The bid is the highest price a buyer will pay.
The ask, which is higher than the bid, is the lowest price a seller is willing to accept.
The mid – well, I trust you to figure that one out.

From April 25 – when we started to see activity in these options pick up – through Tuesday, volumes were fairly evenly split between those that took place on the bid, ask, or mid, with those on the ask side outnumbering the bid.

That’s not the story today: through 2:00pm ET, nearly five times as many trades in these $30-strike options are taking place on the bid versus the ask.

All else equal, if a trade is taking place on the bid, it suggests a motivated seller, one willing to accept the lowest price on offer.

“Take the money and run,” said Michael Purves, CEO of Tallbacken Capital Advisors, on the price action in these options. “It would make a ton of sense for these long call options to be closed on the bid side.”

Open interest in the $30-strike call options that expire at the end of this week fell from 44,713 to 37,898 on Tuesday. That number looks like it’s due to fall further in light of the profile of these trades.

Closing out these (largely successful) wagers is one factor putting downward pressure on shares of GameStop today, which are down about 20% as of 2:00pm.

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