Globe Life: Gamma Squeeze Heading Into Earnings

Last week Globe Life (GL) tanked on some half-assed short report by someone called Fuzzy Panda Research. This was a blatant attempt at manipulation and it worked. Unusual Whales reported that large put option positions were being opened, including a $500,000 position in May $80 puts that was closed five hours later for $5 million. It looks like a coordinated attack with a short report that wasn't particularly strong between buddies on Wall Street. That leaves retail put option holders holding the bag as thousands of puts worth of open interest at strikes below $60 are now set to expire worthless. 

The more interesting play will be the gamma squeeze potential heading into earnings. GL will be reporting its Q1 after close on Monday the 22nd. Despite a very weak market this week, GL's upward momentum has been accelerating. Since closing at its low of $49.17 on April 11, it has risen 28% to $63, with Tuesday and Wednesday (so far) increasing in excess of 5%. This creates a problem for call option writers, where a lot of options were written when the implied volatility was high with the expectations of having those options expire worthless. 

The $55 strike calls went in the money two days ago. While they only have 784 open contacts, the $60 strikes that just went in the money today have a much bigger position of 1,636 in open interest. The $65 strikes, which have the highest volume today, have 1,522 in open interest and that will likely increase. The problem with gamma squeeze theories is that retail usually goes long call options then simply closes the position before expiry. Now we think the open interest has been driven by retail shorting of call options on the way down based on the high implied volatility and a bunch of bandwagon jumpers who ended up buying tons of now worthless put options. Those who went long puts and shorted calls already took a bath on the puts. Now they are at risk of seeing the liability stemming from the value of the open call positions skyrocketing. 

Volume on GL has drastically declined since it dropped over 50% on over 36 million shares on April 11th. Volume declined to 5 million yesterday and is at just over 3 million today after lunch. This is a reverse pump and dump situation where retail traders chase high volume stocks at the top of the spike then watch the stock price erode on lower and lower volume. This was a short and distort where retail went short stock, long puts or short calls at the absolute bottom when volume was heaviest and now the stock price is going back up on lighter and lighter volume. 

This drying up liquidity will make it a challenge for call option writers to cover should they be assigned shorts on the stock. The open interest at $55 and $60 strikes represent over 240,000 shares. The $65 strike represents another 150,000 while the $70 strike represents 300,000 shares. Things could get very interesting quickly if those options become in the money over the next couple of days.