Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
Join 100,000+ Like-Minded Investors Today
Twitter
Tags: Options
Stocks: AMC, BBBY, GME, KR, OLLI, XRT

How to Play GameStop Without Touching GameStop

By Chris Johnson, Quantitative Specialist, Money Morning • February 2, 2021

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

Chris JohnsonChris Johnson

The other day, I mentioned GameStop Corp. (NYSE: GME), as a trade or a buy, is radioactive right now. The stock is off-the-charts expensive, totally divorced from fundamental reality - and most of the options you can trade on it are just as bad.

Other beaten-down stocks the Redditors have set their sights on, like AMC Theaters Holdings Inc. (NYSE: AMC), Bed Bath & Beyond Inc. (NASDAQ: BBBY), and a few others, aren't much better.

Ultimately, these stocks will likely sink again, which, at any other time, would make for a compelling short play, but conditions are so volatile, spreads are so wide, that, for the most part, trading them is neither feasible nor sensible right now.

All the same, I think there's still money on the table, from what will ultimately be downside moves. It'd be a shame to just leave it lying there.

I found a fantastic trade on my screen the other day that I'm calling a "back door" to all this.

You can put this trade on for a fraction of the cost and risk of coming anywhere near stocks and options the Redditors are controlling right now.

Here's what to do...

The Retail Sector ETF Is Getting Thrown for a Loop

It's not surprising when you think about it: GameStop is having a sector-wide ripple effect.

Those effects are obvious when you look at the SPDR Select Sector Retail ETF (NYSEArca: XRT).

Sign up for SMS so you never miss special events, exclusive offers, and weekly bonus trades.


XRT gets you exposure to 95 S&P 500 retail stocks from every corner of the sector. It's tempting to think of the entire retail sector as "GameStop... and these 94 other stocks" right now, but there's more to it than that.

Now, it's true that, as of today, GME is the 800-lb. gorilla in XRT's tree. Its shares count for a bit less than 20% of XRT's holdings by weight, when they should come out to around 1%, but that's the kind of impact the Reddit-savvy day trading crew is having right now.

But dig a little deeper, and we'll see some familiar, welcome faces that have handed us some nice profits over the past 11 months or so....

Kroger Co. (NYSE: KR), Ollie's Bargain Outlet Holdings Inc. (NASDAQ: OLLI), Overstock.com Inc. (NASDAQ: OSTK), Sportsman's Warehouse Holdings Inc. (NASDAQ: SPWH), Big Lots Inc. (NYSE: BIG) - all stocks we've played successfully, some for 100% or better profits, over the course of the coronavirus pandemic.

XRT itself is up more than 29% since the start of the year, but, over the past week or so, XRT has seen around $700 million in outflows, or around 80% of its assets. You usually don't see that in an ETF that surges 20% in a week.

GOT A 10-FOOT POLE? Don't put it anywhere near these 19 popular stocks. Get the free list here...

I've heard and read some interesting theories as to why. XRT offers in-kind redemptions, which means ETF shares can be exchanged for actual stock the fund owns.

Now, there weren't a lot of GME shares when this stock was trading at $5, only around 69 million or so. But now that the stock's gone several thousand percent higher, demand is, well, higher, and with buying restrictions kicking in left and right across popular investing apps, they're that much harder to come by.

There's a frenzied treasure hunt on for GME shares, in other words, and speculators figure they'll just take the ones XRT owned.

If that weren't enough, GameStop is sliding sharply as I write this, down nearly 30% for the day, and that's dragging XRT down, too.

XRT has backed off its Jan. 29 all-time intraday high of $98.50 to trade at $83.50 today.

I think it's going to go even lower.

This is creating a dynamite trade opportunity right now, with XRT acting as a "stand in" for GME, at a fraction of the risk and cost.

You can pull up your trading platform right now and buy an at-the-money (ATM) put, like the XRT March 5, 2021 $83.50 put (XRT210305P00085000) for less than $15 right now, whereas a similar GME put would set you back around $125 - that's if you could manage to trade one.

I'm not sure how the Reddit vs. Wall Street slugfest will end, but I'm pretty sure it won't end with GameStop at $350 a share. "What goes up must come down" is a clichƩ for a good reason. Same goes for the other newly popular stocks the day trading crowd is into right now; sensible investors should consider those off-limits until further notice.

The safest profits right now will go to investors and traders who can see how the ripple effects from GME, BBBY, and others will move through the markets. XRT is a great example of that.

With all that said, the market's most dangerous stocks aren't necessarily the ones making headlines today. My friend and colleague, Shah Gilani, has a list of 19 companies he thinks are pure poison right now. Even better, he's naming five stocks to consider buying instead. Watch him here...

Follow Money Morning on Facebook and Twitter.

Join the conversation. Click here to jump to comments…

Chris JohnsonChris Johnson

About the Author

Browse Chris's articles | View Chris's research services

Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.

At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.

He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.

Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.

Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.

He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.

Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.

… Read full bio

Login
guest
guest
1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Swass
Swass
2 years ago

Chris that is an excellent idea. If not for gme, xrt has a pretty solid flat line around 50. I recognized the short squeeze early on and have been trying to figure out a reasonable longer term short situation because that stock is not worth more than possibly 30 bucks. I opted for the September 91 put at $9. This third stimulus will probably keep the economy hot until then so hopefully the gme short squeeze will end stronger than any further potential increases in the retail recovery. Well let's see how it goes. Thanks

Last edited 2 years ago by Swass
0
Reply


Latest News

June 8, 2023 • By Nick Black

Why Elizabeth Warren is Wrong About Cryptocurrency (A Lesson in Hypocrisy)

June 8, 2023 • By Tom Gentile

Why High Dividend Yields Can Be Misleading

June 8, 2023 • By Shah Gilani

earnings
How to Deal With the Oil Market Right Now
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles Brutus Alerts Resource Traders Alliance

Ā© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz