The rise, fall, and rise of GameStop (GME) is difficult to ignore. We find it extremely entertaining but also educational. As a result of this, we started looking at reversion to the mean which has produced some amazing charts.
Before we jump to GameStop $GME, we want to show you the same model applied to Bitcoin (BTC-USD). We have plotted out the chart of Bitcoin with the 200 simple moving average (SMA), and a 1x standard deviation band. The spiked in Bitcoin only managed to reach +300% above 200 SMA. This was the rise of Bitcoin to 20,000.
With this context, let's look at GameStop. As of the January 28, 2021 close, the stock was +2,670% above its 200 SMA.
While we are not experts in options trading, the pricing for these derivative is absolutely puzzling. On the day that GameStop is up +70%, the March 19, 2021 $10 Put rose +46%. This is an option to sell GameStop at $10, -97% from today's price, within 49 days. There were more than 4,000 contracts traded before 10am today.
This is truly remarkable and we are observing this on the sideline.