What’s the best way to trade shares of video-game retailer GameStop (NYSE:GME)? Is it better to buy and hold GME stock, or flip it for a quick gain on a short squeeze? Actually, it’s not an either/or scenario, as both approaches are valid depending on one’s risk tolerance. Either way, however, it’s important to watch the $20 level closely, as this will likely be significant during the coming weeks.
It’s amazing to consider how GameStop has changed the face of tradable assets in the 2020s. A small group of Reddit users banded together and took on the well-heeled short-sellers, trading GameStop shares and options and sometimes booking tremendous gains.
You don’t have to be a Reddit user, though, to potentially profit from the GameStop trade. Just know when to get in and maintain a small position size, and prepare for an exciting battle against the shorts and skeptics.
GME Stock Could Be a Worthy Long-term Investment
If you don’t mind short-term volatility, GME stock could be worthy of a small long-term allocation. Some fundamentals-focused investors might balk at this idea, but hear me out.
It’s true GameStop isn’t currently a profitable business. That might be a deal-breaker for some folks. However, consider GameStop CEO Matt Furlong’s conviction in this statement:
“After spending a year strengthening our assortment, infrastructure, and tech capabilities, we’re now focused on achieving profitability, launching proprietary products, leveraging our brand in new ways, and investing in our stores.”
Chairman Ryan Cohen echoed this sentiment, asserting, “With GameStop, we are targeting higher returns and we are focused much more on short-term profitability.” This isn’t just empty talk, as GameStop has aggressively reduced its expenditures, including cutting staff and overhauling its compensation structure.
The company also made a smart move in cutting all ties with failed cryptocurrency exchange FTX. Just maybe, GameStop will make the right moves in 2023 to achieve a profitable profile.
$20 Is a Price Level to Watch for GME Stock
Regardless of your time frame, you’ll want to be precise with your entry when it comes to GME stock. Otherwise, you could be underwater in your trade for a while.
Is it a coincidence the GameStop share price touched $20 in March before bouncing, and then $20 again in May before rallying again? I don’t want to get into conspiracy theories, but there’s definitely an established floor for the stock.
Possibly, $20 is where the short-squeeze crowd starts to deploy its troops, so to speak. Even if that’s not true, $20 is a good price point to consider a long position in anticipation of a potential short squeeze.
By the time GME stock gets to that price point, the shorts will be leveraged up and big-money GameStop bears like Carl Icahn will already have their positions in place. It will be like a coiled spring, and as history has shown, the snapback effect can be quite powerful.
Don’t Trade GME Stock Now — Just Be Patient
Remember, you don’t have to place a trade every single day. A big part of success in investing is knowing when to do nothing.
Keep an eye on that $20 price level for GME stock, and think about how much you’d like to buy. If you have a long-term time horizon, watch for further evidence GameStop could turn a profit someday. For short-term traders, get in when the time is right and prepare for that coiled spring to (hopefully) snap back.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.