Duel Between Day Traders and Big Funds Spills Into GameStop Options

A closer look at the GameStop Corp. options market shows another David-versus-Goliath battle, once again pitting large institutional firms against retail traders.

Activity in bullish call options on the video game retailer’s stock looks concentrated in small short-term momentum bets, while bearish put options seem to be more long-term and likely the work of bigger players, suggested Susquehanna International Group’s Chris Murphy in a note Thursday. The derivatives strategist highlighted a drop in open interest in calls, but a rise in the equivalent figure for puts as the stock pushed higher.

“More of the call volume in GME was closing positions, and likely a bulk of it was opened and closed in the same day (momentum chasing, potentially retail),” Murphy wrote. “Much more of the put positions are being put on to hold for more than one day (taking a position, potentially institutional).”

Duel Between Day Traders and Big Funds Spills Into GameStop Options

Open interest in bullish calls in the stock fell from 420,000 contracts Tuesday to 345,000 Wednesday, according to data compiled by Bloomberg. The same measure for bearish puts rose to 1.59 million from 1.13 million.

GameStop has been at the center of a retail-investor-fueled frenzy in recent days, with day traders using Reddit and other online forums to encourage others to buy the stock and squeeze out hedge funds holding short positions. Shares have surged as much as 643% this week, in a move that has taken out some high-profile short sellers, heaped risk on brokers, generated controversy in the broader market and led to plans for hearings in Congress.

While some options activity has been cited as potentially fueling moves in stock prices, Murphy didn’t see that as much of a concern in GameStop trading.

“Option volume appears to be chasing the momentum, not causing it,” he said. “When positions are opened and closed in the same day, the impact on the stock will likely be muted.”

©2021 Bloomberg L.P.

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