GameStop options active on earnings, sales of Call of Duty®: Black Ops II

GameStop Corp. (NYSE:GME) – Shares in video-game retailer, GameStop Corp., increased as much as 6% this morning after the company forecast fourth-quarter earnings of $2.07 to $2.27 a share and posted better-than-expected third-quarter earnings ahead of the opening bell on Thursday. Reports the company sold more than 1 million copies of Call of Duty®: Black Ops II worldwide yesterday during a midnight launch of Activision-Blizzard, Inc.’s newest addition to their popular Call of Duty® franchise, also lifted shares in the name today. A down-day for U.S. equities took some of the wind out of GME’s sails by midday, however, with the stock currently up 2% on the session at $23.96 as of 12:35 p.m. in New York. A number of options traders appear to be selling December expiry puts on the stock, a strategy that pays off if the price of the underlying holds onto recent gains through year end. At-the-money Dec. $24 strike puts changed hands roughly 550 times versus previously existing open interest of 327 contracts, and it appears the volume was sold for a premium of $1.33 apiece. Put sellers keep the full amount of premium as long as shares in GameStop Corp. exceed $24.00 at expiration next month. Similarly, many of the 2,300 put options in play at the Dec. $23 strike this morning were sold by traders pocketing an average premium of $0.80 per contract. Heavier volume in excess of 5,000 puts changed hands at both the Dec. $20 and $22 strikes in the early going. Much of the volume traded to the middle of the market at premiums of $0.23 and $0.58 each, respectively.

Wal-Mart Stores, Inc. (NYSE:WMT) – The world’s largest retailer forecast fourth-quarter profit and sales below average analyst estimates during the company’s third-quarter earnings report ahead of the open this morning, pulling stock indexes lower and sending the price of its own shares down nearly 5% to $67.85. Shares in Wal-Mart are off their lowest level of the session, trading down 3.7% on the day at $68.67 as of 12:55 p.m. ET. Activity in short-dated call options on WMT today suggests some strategists doubt shares in the name will rebound this week or next. Traders appear to be selling roughly 1,600 of the Nov. 16 ’12 $70 strike calls for an average premium of $0.06 apiece. Like-minded investors looked ahead to the newly issued weekly options, selling around 900 of the Nov. 23 ’12 $70 strike calls at an average premium of $0.16 each. Call sellers in each case walk away with the full amount of premium received as long as Wal-Mart’s shares fail to rally above $70.00 and the contracts expire worthless at the respective expiration dates.

Lululemon Athletica inc. (NASDAQ:LULU) – Activity in newly issued weekly options on athletic apparel maker, Lululemon Athletica, Inc., this morning reveals some traders are placing near-term bullish bets on the stock. Shares in LULU are down 0.35% at $65.68 as of 1:00 p.m. ET, reversing modest gains of 1.2% realized earlier in the session. Traders looking for shares to potentially rally during the next six trading sessions purchased around 500 calls at the Nov. 23 ’12 $70 strike this morning for an average premium of $0.30 apiece. Upside call buyers may profit at expiration should LULU’s shares jump 7% to exceed the average breakeven price of $70.30. Meanwhile, traders placing a floor under Lululemon shares sold some 250 put options at the Nov. 23 ’12 $62.5 strike to pocket premium of $0.36 per contract. Put sellers keep the premium as long as shares in the maker of yoga pants and running gear exceed $62.50 at expiration next week.

Caitlin Duffy

Equity Options Analyst

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