Game on for GameStop Stock

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GameStop (NYSE:GME). It’s been the market’s most volatile and controversial battleground stock in 2021. And for a third straight week, the bulls have come out on top. But for investors wanting a more tactical approach with staying power in GME stock, a collar strategy is still the best way to attack and successfully evade always lurking and significant enemy forces.

Retailers walk past a GameStop (GME) store in New York City, New York.
Source: Northfoto / Shutterstock.com

Let me explain.

They’re back. Well, almost. AMC (NYSE:AMC). Koss (NASDAQ:KOSS). Blackberry (NYSE:BB). Blink Charging (NASDAQ:BLNK). To be sure, this past week’s action wasn’t the same over-the-top price action as January’s when the market’s most heavily shorted stocks briefly became fodder for late-night television hosts courtesy of a David versus Goliath spectacle.

But many of those controversial companies shares were reawakened over the last five trading sessions. And once again, the bullish price action was led by brick-and-mortar video game chain GME stock.

For GameStop’s part, shares jumped by a commanding 92% on the week. And following consecutive weekly gains of 35% and 151%, the trifecta of green in GME marked its highest weekly close since the week of Jan. 25. That’s the week when “Gamestonk!!” became a short-squeeze meme courtesy of Tesla’s (NASDAQ:TSLA) Elon Musk, whose tweet helped rally shares 400% in a single week.

But today, GME may be a great deal more than just a meme or thematic trade controlled by a band of merry retail traders from Robinhood and Reddit’s Wallstreetbets. More and more, GME is being legitimized, in control of its own destiny and a stock which looks increasingly promising for investors looking past the current circus-like environment.

What gives in GME Stock?

In recent weeks, CNBC’s Mad Money host James Cramer voiced whether GameStop could pivot its business using the company’s 5,000 stores as international go-to gaming venues with customers winning bitcoin? Whether GME looks to engage and cash in on those massive market trends remains to be seen.

There is, however, new reason to see a resuscitation and perhaps a new and improved GameStop 2.0 on the horizon. Word of Chewy (NYSE:CHWY) co-founder Ryan Cohen and newly-tapped head of GameStop’s board of directors Strategic Planning and Capital Allocation Committee, has been tasked with building the company’s technology and transition from its brick-and-mortar retail focus into the “Amazon (NASDAQ:AMZN) of gaming.”

Not entirely surprising given Cohen’s success with Chewy and comparison to Amazon, investors took the update to heart with the news acting as the key driver in shares last week. Of course, price action assisted by GME stock’s still heavy and critical resident bear population of more than 40% can’t be overlooked either, right?

GameStop Weekly Price Chart

GameStop (GME) three weeks of bullish momentum


Source: Charts by TradingView

So, what’s GME’s next move and closer to today’s GameStop store front? It’s not the price chart. Opportunistically, it’s likely the company accessing the capital markets with a secondary. It makes sense and more so now given the stock’s strong performance over the past three weeks and its announced intentions to pivot into the 21st century.

The question that might be asked is whether a secondary’s growing likelihood is worth waiting on? If investors expect short-term dilution to offer an opportunity to pick up GME stock at a temporary discount, monitoring shares from the sidelines appears to make sense. It’s not that simple, though. And given GameStop’s ultra-steep price volatility, that’s far from a viable plan of attack.

More strategically and as I’ve discussed previously in GME at InvestorPlace, a stock-based collar strategy resonates as a smart approach to investing in this high-octane stock. The downside of this type of spread is investors will be making a profit compromise. If the stock’s volatility continues to be systematically bullish, profits are initially capped.

Bottom-line though, this position can be used as a dynamically-adjusted hedge allowing profits to grow alongside more determined price trends. Moreover, and definitely pertinent to GME stock, a collar can be used to accumulate shares on weakness with unmatched authority. And for investors that wish to participate in GME longer term and past today’s popular headlines, memes and heavy short interest, that’s bound to come in handy.

On the date of publication, Chris Tyler does not hold,  directly or indirectly, positions in any securities mentioned in this article.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100%  the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2021/03/game-on-for-gamestop-gme-stock/.

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