Shares of GameStop Corp. surged Wednesday as investors prepped for the videogame and consumer-electronics retailer’s quarterly results. The stock has a recent history of large post-earnings gains.
While the stock-options market didn’t pick a side, it was also ready for a bigger-than-average post-earnings move. It’s no wonder investors acted boldly ahead of the report. The stock rocketed 35.3% on March 22, the biggest one-day gain in two years, after GameStop reported a surprise fourth-quarter profit and the first quarterly profit in three years.
Straddles are pure volatility plays that involve the simultaneous purchase of bullish options, or calls, and bearish options, or puts, with the same at-the-money strike prices and the same expiration dates. Like a point spread in sports betting, the buyer of a straddle makes money if the stock closes outside of that implied range of the straddle.