Striking gold in options trading: what's behind GME's frenzy?
$GameStop(GME.US$, is defying gravity again, surging by 110% on Monday without a clear catalyst—a move that briefly froze trading.
GME's resurgence will spark déjà vu for those versed in the 2021 retail vs. short-seller drama.
This latest price surge?
It's all thanks to a cryptic post from Keith Gill, GameStop's storied protagonist who once inspired an army of Redditors to take on Wall Street's giants.
With a staggering 9 million clicks, this post sent the market a buzz, proving social media's clout can move markets.
Let's take a stroll down memory lane to the GME saga of 2021 and pinpoint what we should keep an eye on in this latest episode.
2021 GME event quick recap:
GameStop, a brick-and-mortar video game retailer, faced challenges in the digital gaming era.
Losses mounted, and pessimism grew, leading investors to heavily short the stock, betting on its decline.
In 2021, a group of retail investors rallied on social media with a bullish stance on GME.
They orchestrated a mass purchase of the stock, aiming to outmaneuver the short-selling hedge funds and driving up the price.
Spurred by this grassroots campaign, GME's stock price rocketed skyward at the year's start, seizing the global spotlight.
By January's end, shares peaked at $347—a staggering 1700% jump from the previous year, marking an extraordinary moment in financial history.
GME showdown: options as the main battleground
In the riveting 2021 GME short squeeze, the options market was the primary arena where three pivotal forces clashed.
They coordinated through social media, spotted GameStop's high short interest: Many hedge funds were betting the stock would fall.
They theorized that by mass buying stocks and call options, they could force the price up and corner short-sellers, a classic short squeeze.
As GameStop's share price soared, these pressured players found themselves in a tough spot.
Those with call options were now positioned to buy shares at below-market prices, which only served to amplify the stock's climb.
The short-sellers, facing significant losses, were compelled to buy shares to cover their shorts, which in turn fueled the rally.
As the neutral arbiters, they provide the market with liquidity by trading options but don't chase profits based on market direction.
When retail enthusiasts snapped up call options, market makers often sold them these options and then employed Delta hedging to balance their books—buying enough stock to neutralize their exposure.
This additional buying, though unintended, further stoked the price ascent.
The strategic use of options provided the leverage that allowed these players to exert significant influence on GameStop's stock with relatively little capital, turning the options arena into the pivotal battleground of the GME short squeeze.
What is an option?
Options are contracts that give the holder the right to buy or sell an asset (such as stocks, ETFs, indices, foreign exchange, commodities, etc.) at a fixed price on a specific date or any time before that date.
For instance, imagine a stock priced at $10. With $100, retail investors can buy only 10 shares if they opt for a direct purchase.
But the options game changes the math significantly. Options are often cheaper, say $1 a piece. In the U.S. stock market, one call option contract typically controls 100 shares of the underlying stock.
With that same $100, investors could buy 100 call option contracts, which equates to having control over 10,000 shares. That's the magic of leverage: a modest investment can yield substantial influence.
In 2024, as GME shares surge once again, what should we look out for?：
There are several key indicators that investors and observers can monitor on moomoo:
Access: Detailed Quotes page of the stock> Options> Analysis>Trade Stats
The activity level in the options market can be measured by options trading volume and open interest, and recently GME's option trading volume has shown explosive growth of over 500% compared to the 30-day average.
The open interest (outstanding options) for GME also surged. It's now more than 150% higher compared to the 30-day average.
Currently, the majority of actively held call options for GameStop (GME) have strike prices at $30, $34, and $39.50 and are in-the-money. On the other hand, there are only 265 in-the-money put options
Access: Detailed Quotes page of the stock> Options> Analysis>Volatility Analysis. Long-press on the chart to reveal a crosshair with data points on any trading day.
Volatility is a crucial component of option pricing, reflecting the market's expectation of future price fluctuations.
Volatility is key in determining option prices as it indicates how much the market expects a stock to move.
GME implied volatility (IV) has soared past 280%, signaling that traders predict intense price swings.
With such high IV levels, options are more expensive to buy and maintain, making them unsuitable for long-term holding strategies.
Considering the current market situation of GME, 0DTE options offer significant trading opportunities.
0DTE options, or zero-days-to-expiration options, are options contracts that expire within the trading day.
They can be subject to dramatic price fluctuations due to the rapid decay of time value and the impact of stock price movements.
Holding a call option can be similar to having a lottery ticket that suddenly wins if the stock price soars before the option expires.
An option originally out-of-the-money, with a strike price higher than the stock price, can become in-the-money, with a strike price now below the stock price.
This shift can greatly increase the value of the option.
Retail investors with call options benefit from such rises, as their once low-value options can gain value rapidly.
However, this volatility can be risky for sellers who have engaged in naked call selling, as they face potentially large losses.
On moomoo, investors can observe the options chain for GME and other popular stocks in real time, analyze the options trading volume and open interest for different strike prices and expiration dates, and thereby devise corresponding options trading strategies.
Step: Detailed Quotes page of the stock> Chart> Analysis>Short Sell Analysis. Long-press on the chart to reveal a crosshair with data points on a trading day.
It's worth noting that short-sellers still exist amidst the sharp rise in stock prices.
Data shows that on May 13, short-selling volume reached 26.8 million shares, accounting for 14% of the day's total trading volume.
This activity suggests that some investors continue to bet against the stock, expecting its price to fall.
This GME saga is a real-world lesson in market forces, investor behavior, and options trading.
Our 2021 throwback isn't just a historical recap; it's a crash course for those new to the options game to grasp the intricacies of the markets and what drives traders.
Today's session on GME wraps up here, but the conversation continues in the comments. Join us in the discussion for more insights!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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照梦午夜 : Think about why you should have been immersed in it for a long time, and now you are starting to press down. Due to the debt problem, it is estimated that it will not go down to 3 yuan, and it is also estimated that interest group companies do not want to bury themselves in the soil anymore.