Game on! Traders bet on massive GameStop move

Traders, grab a controller.

GameStop is set to report earnings after Thursday's bell, and the market is predicting a massive move for the stock. Based on options prices, traders are expecting GameStop shares to move about 11 percent on Friday alone, according to CNBC contributor Mike Khouw.

That's much more than the stock's average post-earnings move of 5.3 percent over the past eight quarters—meaning traders seem to expect that some stock-rocking news is ahead.

So which way will the shares go?

Well on Wednesday, as GameStop options traded twice their daily volume, the most popular bet seemed to be that the stock was set to drop.

Read MoreDespite heavy shorts, GameStop still a buy: Pros

The most active options strike was the November 40-strike put, which were purchased for about a dollar each. This implies an expectation that GameStop will fall below $39 by Friday, which would be a 12 percent decline from Thursday's opening price.

However, for Mike Khouw, making a quick pre-earnings bet isn't necessarily the smart play here. After all, given the magnitude of the move expected, it seems a bit unlikely to him that the options buyers will be rewarded for the price they are paying.

"I think that if you're going to play this thing, a better way to do it is to go out further in time," he said Wednesday on CNBC's "Fast Money." "I'd probably be a better seller of these nearer-dated option."

Follow the show on Twitter: @OptionsAction.

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Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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