[ISL]

In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.

If you look at the option chains, it is clear that traders value GameStop in the long run far below the current trading price.

https://www.nasdaq.com/market-activity/stocks/gme/option-cha...

A November 2021 "put" at the present market price of ~$360, the right to sell GameStop stock in November at $360, is selling for about $300.

For comparison, a January 2022 put at Microsoft's present market price of ~$235 is selling for ~$30.

GameStop is presently a cafeteria food-fight. It will end, a lot of people will be sad, everyone will remember the story, and GameStop stock will eventually better-correlate with business performance.

Edit: Indeed, the fact that one can buy puts for so cheap is interesting, as GameStop is probably "worth" $30 or less at present. However, is it worth risking $300 to perhaps make $30 while food is flying around? Not for me.

[mikestew]

You should probably put the bottom, italicized part closer to the top of what is a good illustration. Many folks (most?) won't immediately know what a $300 premium means to a $360 strike price. Meaning even if it goes to zero, you make a whopping $60. But your point of making $30 on a $300 risk clears it up, I think.

[dannyw]

You don’t actually understand option prices. Put-call parity. The reason why options are so expensive is because of high implied volatility. Both calls AND puts are expensive; as they always will be, because if they’re not balanced, a risk free arbitrage ensures.

Here’s an article on why calls and puts must be the same price: https://robotwealth.com/why-arent-call-options-more-expensiv...

[hervature]

No, they are only the same price under very strict assumptions. The put-call parity says that buying a call and selling a put creates the same payoff structure as being long the stock itself. Depending on the strike, the put or the call could be ~100% of the value of the position. Only when you get near the price of the underlying do the put and call equal each other.

[ISL]

I think I do understand them, from a value-investor's perspective. If I buy an option, I actually intend to exercise it or hold it until expiration, not hedge with it.

If I bought a GameStop put today, for the pricing in my post above, it would be because I was willing to make a strong bet that GameStop's intrinsic value in November would remain below $60/share and that I was fairly sure the market would return to its senses by then. How the option-seller reaches her offering price is entirely irrelevant to me.

It is true that much of the pricing of options comes from volatility, but for me, as a buyer, it is perhaps irrelevant.

Thanks for your perspective, though. I'll read your link with interest.

[dannyw]

What I mean is you cannot make directional predictions of a stock from option prices. The information just isn’t there. The same way you can’t use long dated futures. Because S&P 500 futures (during regular trading hours) will always be the current price, modified by the financing cost. There can never be a directional prediction, because all directional predictions get arbitraged away into the current price.

[ISL]

I've had more time to think about this now -- it would appear that directional prediction can be arbitraged away in a world where the future cannot be known. In general, however, through research, one can begin to divine a glimmer (or more) of the future direction of the underlying.

In that situation, someone with a reasonable guess at the future could absolutely murder uninformed arbitrageurs, right? It is my expectation that "correct" pricing of the options should fold in information about both the expected volatility and the direction of the underlying.

[ISL]

Ah. Understood. Thank you.

[fennecfoxen]

> In the short term, the market is a popularity contest.

In the long term, stocks that actually make money are the popular ones.

[thebean11]

I think you're just seeing volatility difference between the stocks, not sentiment difference. Calls on Gamestop are also more expensive than Microsoft right?