The Money Tree

Safely Generating Income in Retirement

New Trade – GME

Posted by mounddweller on June 1, 2012

Fellow Traders,

Wow!  Volatility has returned has it not?  The bad job creation numbers released today by Uncle Sam gave Mr. Market an excuse to sell-off in a big way.  However, that’s not the reason for me writing this post.  Rather, I want to tell you about a trade I placed earlier today.

Today I entered a new trade in an old favorite of mine, Gamestop (GME).  Long-time readers of my blog will recall that I have successfully traded GME several times over the past few years.  Let me briefly give you the specifics of my trade then I’ll explain why I did it.

Here’s my trade: STO 6 GME JUN $18 puts at $0.27.   That’s a 1.5% ROIC with just 15 days to expiration and 7.7% DSP.

So why did I do this trade?  Well, first let’s look at Gamestop’s fundamentals.   It has a trailing P/E of 8.02 and a forward P/E of 5.68.  It is trading at 85% of it’s book value ($22.57).  GME has zero debt and $2.49/share of cash sitting on the balance sheet.  And last, but not least it pays an annual dividend of $0.60/share (3.1% at todays closing price).

Now, let’s take a look at the technical side of the equation.  The 52-wk low is $18.13 which was hit just a couple weeks ago on May 18.  The 5-yr low occurred back on February 22, 2010 at $17.20.  Below is a 3 year chart.  You can see GME has strong support at $18.  It has bounced off of this level several times.

I’ll wrap up my post by saying I believe Gamestop is a solid company with good future business prospects.  I would be happy to own it at $18.

Regards,

Troy

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One Response to “New Trade – GME”

  1. […] entered this trade back on June 1st by selling 6 JUN $18 puts.  The details are posted here: https://troysmoneytree.wordpress.com/2012/06/01/new-trade-gme/.  GME ended up moving against me and I had to work to manage myself back into a profitable […]

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