In the middle of January Gamestop warned of a terrible winter season (apparently no one plays video games when they are shut inside their house during snowstorms) and the stock dropped 20%:
Shares of GameStop Corp. (NYSE:GME) plunged roughly 20% yesterday on lowered earnings outlook as demand for Microsoft Corp.'s (NASD:MSFT) Xbox 360 and Sony Corp.'s (NYSE:SNE) PlayStation 3 software was soft during the holiday period. This resulted in a 22.5% drop in the videogame retailer’s new software category sales.
This Grapevine, Texas based company now projects fourth-quarter earnings between $1.85 and $1.95 and fiscal-year 2013 earnings in the band of $2.96 to $3.06 per share.
GameStop reports earnings before the bell tomorrow. What will the streets reaction be? Judging from GME's chart I think we will see a sharp move lower. The over 30% short interest also backs this view.... But if you ask any of the host of analysts out there, they think the stock is undervalued and should rally from here. Who will be right and who will be wrong?
My money is in the $36 weekly puts. These are an incredibly risky investment. Should GME rally 20% instead of drop 15%, I stand to lose 100% of my investment. But if $GME makes the post earnings move that I think it will, there will be some nice profits for the buyers of PUTs.
I bought the CALLs for $FIVE earnings, those worked out 300% to the upside, I am willing to risk some of those profits on a chart, stock, company, that I think it breaking down.
$36 weekly puts $.58 I am in at $.71 from this morning. $.10-$.15 won't matter if $GME drops 15% , it will be a 200-400% profit. If GME rallies or remains flat I will lose 100% of my investment.
