GameStop Options Can Be An Amazing Place To Park Cash

seekingalpha2021-04-19

SummaryGameStop options represent an amazing place to park cash given the recent volatility in the company's options.Investors can earn a more than 6% yield annualized on their cash for the next 21 ...

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Comments

李育儒
2021-04-19
李育儒
Virtually no chance of bankruptcy so why buy put with strike price of $2?Another way is to park 30% or more in GMElong and wait for 3 years. Probably gains are seen within 3 months though.
Ahoon
2021-04-19
Ahoon
Nice
PaulMardling
2021-04-19
PaulMardling
I actually laughed a this…. I’m buying shares when I can, holding and waiting. Definitely not buying options.
Myname
2021-04-19
Myname
Hmmm
Ezec
2021-04-19
Ezec
Interesting
Jon89
2021-04-19
Jon89
Seriously?
- Jon89:
  Why
- Jon89:
  Why
- KaelynGoMoon:
  Yes
- Gabwooo:
  No

Leave a comment

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The company has seen massive volatility extending to its options, which means across the options chain they have high prices. As we'll see throughout this article, this, combined by the decisions that can be made by the company since the collapse, means that GameStop offers some unique opportunities to park cash.GameStop DebtOne of GameStop's largest risks before its share price rocketed was the company's debt load.Source: GameStop Long-Term Debt - YChartsGameStop's long-term issue has been its significant long-term debt. It was more than $800 million going into 2019 before decreasing to just over $360 million in early-2021. That's a significant amount of debt for a company with a market cap of roughly $250 million based on its 52-week low. That was the debt that led to the original shorting and threatened to crush the company.However, the company has been able to address this debt with the new recovery in its share price. The company has recently announced a voluntary $216.4 million 10% senior notes. That's enough to cut the company's debt by 70% and save the company $10s of millions worth of annual interest expenditures.GameStop Equity OfferingGameStop is earning the money to fund this with an equity offering. This isn't surprising, it's an announcement the company made on the back of its elevated share price. The company has filed to sell no more than 3.5 million shares for aggregate proceeds not more than $1 billion. The company currently has 70 million shares so this is ~5% dilution maximum.Source: GameStop Outstanding Shares - YChartsGameStop repurchased ~30% of its outstanding shares in late-2019. The growth in the company's share price since then is a great return for the company. At current share prices that dilution for the company will be sufficient for it to raise almost $550 million. That's a significant capital raise for minimum cost.GameStop will be able to use that capital raise to paydown its entire debt and still have ~$200 million leftover. For reference, that means, after the company's capital raise, it'll have ~$3 / share leftover in cash. That's a significant and respectable cash position.GameStop Business RestructureAt the same time, GameStop has been able to restructure and improve its business. The company has performed well, partially due to increased pressure from COVID-19, to see sales increase by 11% YoY.Source: GameStop Stabilize, Optimize, Transform - GameStop Investor PresentationGameStop has stabilized since 2019 by closing 800 stores worldwide and they anticipate closing over 1000 by YE 2020. The company's Nordic country wind down was expected to provide a $15 million EBITDA contribution and the company reduced $440 million in SG&A expenses, roughly 67% of which is expected to be permanent.The company's improved liquidity and asset sales are expected to help its business along with long-term debt reductions and share repurchases. Given the company's share repurchases that average price is incredibly intelligent. The takeaway here is that GameStop has great growth potential and its done a great job of reorienting its business.GameStop Option Trade and CashOf course the title of GameStop being a great place to park cash must have turned some heads. Here's the trade we recommend.GameStop Jan. 20, 2023 cash secured PUT options, expiring in 21 months, are currently trading from $0.21-0.22/share. These options come with a $2 strike price and, at $0.22/share, have an 11% premium for 21 months. From an annualized perspective, that comes out to an annualized premium of 6.3%.That's an incredible return on cash. However, as visible from the discussion above, the company will have more than $2/share in cash. That means the chance of bankruptcy, when adding the restructuring and future income potential, in our view, is nearly 0. Given the additional premium, that makes it a respectable place to park cash.GameStop RiskIt's worth highlighting that there's significant risk worth paying attention to. In our view, the company has a near 0 chance of going bankrupt, supported by its new cash position after its equity raise. Given the only 5% equity raise, the company has significant room with equity raises supported if its share price remains strong.We see the volatility in the company's share price as causing current option prices and we see current option prices as a great deal. If something were to happen during this time, causing the company to go bankrupt, you would lose your entire investment. This is a risk worth paying close attention to.ConclusionGameStop has focused on an impressive reorganization of its business. The company has closed numerous stores and improved its overall portfolio significantly and its used that cash to buy back shares and repay debt. At the same time, the rapid increase in the company's share price means it's been able to issue equity and pay off even more debt.That has combined with the overall streamlining of the company's operations allowing it to improve its portfolio. Interested investors can get a more than 6% yield in a company that'll have a net cash position higher than the strike price. GameStop will be able to utilize this to drive strong long-term shareholder rewards.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":373170133,"gmtCreate":1618835389622,"gmtModify":1704715559318,"author":{"id":"3560736841816623","authorId":"3560736841816623","name":"李育儒","avatar":"https://static.tigerbbs.com/f2c196ab620e62eba6f9dfcbc9464a6d","vip":1,"hat":"https://static.tigerbbs.com/4c5ceab71416b120bab4604c0754b52a","crmLevel":2,"crmLevelSwitch":1,"idStr":"3560736841816623","authorIdStr":"3560736841816623"},"htmlText":"Virtually no chance of bankruptcy so why buy put with strike price of $2?Another way is to park 30% or more in GMElong and wait for 3 years. Probably gains are seen&nbsp;within 3 months though.","listText":"Virtually no chance of bankruptcy so why buy put with strike price of $2?Another way is to park 30% or more in GMElong and wait for 3 years. Probably gains are seen&nbsp;within 3 months though.","text":"Virtually no chance of bankruptcy so why buy put with strike price of $2?Another way is to park 30% or more in GMElong and wait for 3 years. Probably gains are seen within 3 months though.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/373170133","repostId":1118040582,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":373183422,"gmtCreate":1618831353266,"gmtModify":1704715493297,"author":{"id":"3581765272832510","authorId":"3581765272832510","name":"Ahoon","avatar":"https://static.tigerbbs.com/81bb43fa20e6b2aea2bff0c8696c78c9","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3581765272832510","authorIdStr":"3581765272832510"},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/373183422","repostId":1118040582,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":373195648,"gmtCreate":1618829036584,"gmtModify":1704715456070,"author":{"id":"3572968392598415","authorId":"3572968392598415","name":"PaulMardling","avatar":"https://static.tigerbbs.com/0919d3658912343433bf81007b1c4f11","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3572968392598415","authorIdStr":"3572968392598415"},"htmlText":"I actually laughed a this…. I’m buying shares when I can, holding and waiting. Definitely not buying options.","listText":"I actually laughed a this…. I’m buying shares when I can, holding and waiting. Definitely not buying options.","text":"I actually laughed a this…. I’m buying shares when I can, holding and waiting. Definitely not buying options.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/373195648","repostId":1118040582,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":373198206,"gmtCreate":1618828762905,"gmtModify":1704715451844,"author":{"id":"3575455489344050","authorId":"3575455489344050","name":"Myname","avatar":"https://static.tigerbbs.com/3fff4aa421deeb7a8d801ab27a14a82f","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3575455489344050","authorIdStr":"3575455489344050"},"htmlText":"Hmmm","listText":"Hmmm","text":"Hmmm","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/373198206","repostId":1118040582,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":373107707,"gmtCreate":1618828304409,"gmtModify":1704715445142,"author":{"id":"3577869882489488","authorId":"3577869882489488","name":"Ezec","avatar":"https://static.tigerbbs.com/443aba89e513b819e922bef06e4591e3","vip":1,"crmLevel":5,"crmLevelSwitch":1,"idStr":"3577869882489488","authorIdStr":"3577869882489488"},"htmlText":"Interesting&nbsp;","listText":"Interesting&nbsp;","text":"Interesting","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/373107707","repostId":1118040582,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":373378757,"gmtCreate":1618826689379,"gmtModify":1704715425381,"author":{"id":"3581678918909639","authorId":"3581678918909639","name":"Jon89","avatar":"https://static.tigerbbs.com/30b3d43718a133f47da22154d533f71e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581678918909639","authorIdStr":"3581678918909639"},"htmlText":"Seriously?","listText":"Seriously?","text":"Seriously?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":4,"repostSize":0,"link":"https://ttm.financial/post/373378757","repostId":1118040582,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4073675,"gmtCreate":1618830754664,"gmtModify":1680784664924,"authorId":3581678918909639,"author":{"id":3581678918909639,"idStr":"3581678918909639","authorId":3581678918909639,"name":"Jon89","avatar":"https://static.tigerbbs.com/30b3d43718a133f47da22154d533f71e","vip":1,"currentWearingBadge":{"badgeId":"972123088c9646f7b6091ae0662215be-3","templateUuid":"972123088c9646f7b6091ae0662215be","name":"Legendary 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