Pro: For GameStop, the conversation switches to fundamentals

Written by: Jayson Derrick
February 25, 2021
  • GameStop's stock rally was spurred by a cryptic Tweet from new board member Ryan Cohen.
  • Shares surged as high as $200 per share on Wednesday but sold off on Thursday.
  • Option traders are acting like "amateurs" by buying and selling $200 call options that expire on Friday.

Video game retailer GameStop Corp. (NYSE: GME) is making headlines again after the stock peaked near $200 per share during Wednesday’s after-hours trading session. But this time around, there is no “technical argument” about the short position to justify upside potential, The Verge’s Nilay Patel said on CNBC’s “Squawk Alley.”

Level one surge had logic to it

GameStop’s explosion from a low of $2.57 in 2020 to around $500 in 2021 had some logic to it, Patel said. Specifically, investors and traders looked at the heavy short position against GameStop’s stock and used it to their advantage. But after the stock’s peak, it quickly traded back to the low-double-digits. Yet here we are again with shares soaring on Wednesday to $200 but pulling back on Thursday to the $150 per share level.

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This time around there is no similar catalyst hiding behind the scenes and investors need to be asking if GameStop can “reinvent” itself for the next generation of consumers.

“That is a fundamental argument — either you believe it or you don’t,” he said. “I don’t think it’s bad for retail investors to make a play against those arguments.”

See also: Lost in the conversation: How viable is GameStop’s business?

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Change is coming… because of ice cream?

Chewy co-founder Ryan Cohen bought a 13% stake in GameStop in 2020 and was named to its board of directors in 2021. Many attribute GameStop’s Wednesday rally to a Tweet Cohen posted that consists of a McDonald’s soft-serve ice cream cone and a frog emoji.

Perhaps Cohen was merely taking part in the food craze where people feel the need to share a snapshot of anything and everything they eat. Others feel there is much more to the picture, including a hidden message.

Redditors were up to the task to find out if an ice cream picture is in fact just an ice cream picture.

One user noted that Chewy’s first board meeting when Cohen was CEO included a trip to McDonald’s for soft-serve ice cream. Does this mean that Cohen was unofficially named as GameStop’s new CEO and this is his way of announcing it to the public?

Options trading activity

Options guru and CNBC “Halftime Report” trader Jon Najarian noted the trading activity in GameStop’s stock was “volatility on steroids.” Specifically, only 55,000 contracts on the call side were traded on Tuesday and popped up to 270,000 calls.

On Thursday, investors and traders were buying and selling GameStop call options that expire Friday with a $200 strike price that traded as high as $46 a piece in the morning and as low as around $12 by the afternoon.

“There’s a lot of fluff, and I’m not trying to denigrate them, but a lot of amateur trading chasing those up so high with just one trading day to go,” he said.