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Options traders bet on a washout when GameStop reports earnings

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Options traders bet GameStop could be in for an earnings disaster

A new twist in the tale of the Reddit rebellion could happen as soon as Tuesday afternoon when GameStop, is scheduled to report earnings.

The stock, which has been on a stomach-churning roller-coaster ride throughout 2021, is still up nearly 1,000% this year, but options traders are betting that those gains are not long for this world.

That wouldn't necessarily be a shock, either. Over the last eight quarters, GameStop has dropped an average of 13.7% after an earnings report. This time, though, the stakes are much higher.

"The options market is implying a move of about 30% higher or lower, that's a $4 billion market cap swing. The most active put options were the [March 26] weekly 100-strike puts. Over 5,000 of those were trading for about $2.30," Optimize Advisors CIO Michael Khouw said Monday on CNBC's "Fast Money."

"It's only about a 5% chance, but it does look like some options traders are betting there's a chance that the bottom could fall out. That would represent about a 50% decline after they report."

Essentially, buyers of these puts are betting that a stock that closed Monday's session around $194.50 could fall beneath $97.70 by Friday's close, and are likely targeting a move even lower for increased profitability of these options contracts.

GameStop was about 5% lower in Tuesday's session.

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