GME stock is over 1000%, Should you buy a PUT?

Quick! If you believe this is a bubble this might be of interest to you!

Also notable potential bubble mention is AMC as well.

We are in the midst of an extreme short squeeze.

What you need to know

The implied volatility is extremely high on the options chain.

When I say high, it is over 500%,

This means that if the stock stabilizes and stops moving, then the value of the options will decrease significantly. Normally, a high implied volatility is 145% which usually could be right before an earnings just to give you an example of how extreme this is! This could decay rapidly as you can from the chart below.

Implied volatility is one part of the equation in valuation of an option contract but in this instance it is a metric controlling the prices substantially. Implied volatility rises due to interest in the options on a particular stock.

Here's a chart of what the dollar profits & losses would like like for a $70 strike PUT on GME that expires February 12th bought at close yesterday before the spike.

As you can see, if I bought yesterday at closing bell, I am still up today on my put contract.

However this contract can decay rapidly if the GME stock price does not move down in value.

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Below is a put that I bought yesterday 1/26 before close to show you the implied volatility:

Final thoughts:

Check out the steps in a short squeeze here

If your sentiment is bearish (or you think this is going down) the usual higher probability to profit is to sell a call credit spread. But in this instance it can also be very dangerous. Be very careful and do not follow the crowd! BE SAFE!!!

Thanks and be safe on your investing journey,

Brad Mitchell

I am not certified with a financial license, nor have intent to advise you on your decisions.

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