Time to Play With Gamestop (GME)?

A friend of mine shot me an email yesterday to tell me he was getting in on Gamestop Corp. (GME).  I asked why and he surprised me by having an actual answer. (This is my friend who says “You have to have balls to make babies” when discussing his trading model.)  He likes it because he’s a gamer and heard Jim Cramer praise it.  That’s better than he sometimes tells me.

I didn’t have time to research it yesterday and went to bed reading my most recent Barron’s.  They had a feature article on GME and highlighted their domination of their sector.  If the consumer can hold up through Christmas and stick with the theory that games will be big, GME could be a winner.  Next I turned to the chart.  (I already knew they were optionable since my friend bought calls on it.) GME found support on its 20 week moving average and surged higher, in part due to the Barron’s article and the Jim Cramer mention I’m sure.  I went to the daily chart and saw they were above their 10, 20 and 50 day moving averages. 

I put my limit order in to hit on a small pull back and soon after, when GME was trading at 55.63, I sold two January 50 naked puts (GMEMJ) and received $348.50 after commissions.  I could’ve gone a lot closer to the money, but with implied volatilty over 50 on the Jan 50 strike, I reduced my risk and sold lower. GME fell another dollar after I sold my puts, but I think it’ll find support well before I come close to losing on this one.  In fact the 20 day moving average seems to have stopped the fall, for now.