Trade of the Day: GameStop Corp. (GME)

Today's trade provides some insurance against a sharp decline

By Ken Trester, Editor, Power Options Weekly

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I believe we are now seeing what could be considered a buying panic. The fear of missing out among investors keeps pushing the major indices to new all-time highs, while at the same time, a number of things are pointing to the fact that a severe correction could be coming.

The CBOE Volatility Index (INDEXCBOE:VIX) is starting to rise, and along with that rising rates are my biggest concern right now. I think every investor should be prepared for a big decline if they rise from here.

Among other concerning factors, real estate prices are now higher than they were in 2006 leading up to the financial crisis, while rent prices are also skyrocketing. In general, our credit situation is really out of line.

Furthermore, the market capitalization of the S&P 500 as compared to sales is at the highest level since 2000, meaning that market caps are increasing faster than sales by an extreme margin. Looking at that ratio tells me that something is very wrong. A lot of businesses have loaded up on inventory that they are unlikely to be able to sell, and that’s a sign of a potential recession or bear market.

In other words, I believe we are very close to the peak of the current bull market, although I do not know when it is going to break. If I had to guess, I would say that the market will top out sometime in March.

Against this backdrop, today I am recommending a bearish position in GameStop Corp. (NYSE:GME):

Buy to open the GME Mar 16 Puts (GME180316P00016000) at $0.65 or lower.

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