The Key Options Trades That Ignited GameStop (Round 2)

Can I assert that this single trade of the equivalent of 75,000 shares was enough to move a stock with a daily volume that averages over 13 million shares? Not with 100% certainty, but big moves usually need a catalyst and I believe this was a catalyst for increased buying in the stock and options. Within 20 minutes the stock was nearly $10 higher.

GME shares then slipped slightly, fading back to the $60 level. Then the second key options trade hit the tape: at 15:27, with the stock at $60.80, 427 of the 60 calls, also expiring tomorrow, traded at $7.75.Note that the stock was just over $7 higher than in the previously noted trade, but these calls struck $10 higher, traded for almost a dollar more. That meant implied volatility was increasing sharply. GME stock began to zoom shortly thereafter, beginning a meteoric rise that culminated at $91.71 at the market’s close about ½ hour later.

The rise continued into the aftermarket, with the stock eventually touching $200, before trading in the $140-160 range for most of that session. I believe that this was directly related to the speed of the move and the limit up/limit down halts that punctuated it. Options volumes were enormous, with volumes in most near-term strikes at 4-5x the previous open interest. Whoever sold those calls simply did not have enough time to cover their risks in the regular session, and may have felt it prudent to do so after the close. Also, of course, GME was on everyone’s radar, so that brought out another crop of speculators.

As of now, GME seems to have found a trading range in the $120-$140 area, though that could, of course, be wildly inaccurate when you read this. We also see heavy volume in the stock and options, with implied volatilities in the current week’s options reverting to the 1000 level that we saw around the height of the last rally. Options market makers, burnt before, do not appear to have an appetite for further destruction.

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