Thursday, February 25, 2010

GME, another name from the watchlist coming down to my level

GME, or gamestop is in the business of video games. Although I do not play video games I can see that the industry is just getting started in my opinion. As games get more advanced and more interactive I think you will see profits grow. GME is one such company to benefit. I see the video game revolution continuing for sometime.

When this stock first came on my radar the stock was trading at $20.42 and has since sold off after several downgrades and an earnings miss. Call me a bottom feeder if you will, but I like the name and am willing to make the bet. I had written down that I was interested in the stock around $17 a share which is close to its 3 year low at 16.91. See chart below:

This is an investment idea. I am looking to buy the ITM 15 calls out in Jan '12. They are currently trading at about $5 an call.

Target: $28-30

Break even by expiry: $20

Stop: Below $15

Risk/Reward: 1:7 ish

 Here are the price slices from the option pricing model:

Buy 5 Jan '12 15 calls @ limit $5


  1. After adding this position, I am now sitting in about 30% cash. Which I kind of need to remain available in for the short puts I have sold naked.

    I do not plan on adding any new capital until 6 month experiment is over in April. So I will have to be diligent when looking at new positions going forward.

  2. I am also moving up my stop from 15 to 16.91. I really pulled this number out of the air. 16.91 actually corresponds to a level on the chart, was the 2008 low.