GameStop Plunged 30% Today, Is The Short Squeeze Over?

GameStop fell from $316 to $212. What's ahead?

Squeeze Likely Over

My guess is the squeeze is over. Hedge funds have covered their shorts. And we have a three surge stage that frequently marks tops in short squeezes.

GameStop Hourly Chart

The remaining shorts are small players who rode it out, hedge funds who recently got short timing the play much better, or the market makers who are now the ones net short in size.

If my thesis is correct, GameStop will go back where it came from. The market makers will pull bids as they did today.

Option Buying

Put speculation is now on the rise. Until now it was call speculation. The call sellers hedged by buying shares driving up the price.

That dynamic has changed. PUT sellers short stock as PUTs get into the money.

Options bets fuel both rises and declines, especially in illiquid stocks.

How to Play?

I am not touching this. For starters, I could be wrong about the squeeze being over. I doubt it but I could be.

One could try options, but the premiums are nuts. 

GameStop Option Prices

GameStop Options

Those are near-term, near money Option Prices From the CBOE.

Each option represents 100 shares but prices are per share. Thus prices are 1/100th of the money to buy or sell an option.

For a strike 215 PUT option that expires on February 12, in 9 trading days, you will pony up $7,485 dollars or $78.85 per share.

To make any money, shares will have to decline enough for you to recover your price paid, and it has to happen by February 12. 

The break-even price is $215.00-$78.85 = $136.15 and it's at $225 now.

Who Wins?

You may win if you are correct about getting a big enough plunge in the next 9 days.

But the market maker who sells you the PUTs will make money no matter what happens. 

He will hedge by shorting if the price declines and just watch you lose all your money if the price rises.

Maximum Pain

Don't count out price manipulation in which the price on February 12 falls at the exact price that makes the most options (PUTs and CALLs) expire worthlessly. That is known as "Maximum Pain".

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Comments

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Anthony Varrell 4 weeks ago Member's comment

i don't think the Gamestop story is over.

Dragan 4 weeks ago Member's comment

No, it's just the beginning. We ae also recruiting reinforcements to further maximize our impact and take down the hedge funds.