Keith Gill, the Reddit user who inspired the GameStop rally, during a YouTube livestream hosted on a laptop at the New York Stock Exchange on June 7, 2024.
Michael Nagle | Bloomberg | Getty Images
While Roaring Kitty continues to watch her favorite GameStop stocks are fluctuating wildly, he may be contemplating what to do with his huge options position that is nearing expiration.
The meme stock champion, whose real name is Keith Gill, still holds his position in 5 million shares of GameStop common stock and 120,000 call options, according to a screenshot he shared Monday night. The gigantic options position, comprising 12 million underlying shares of GameStop, could become a nightmare for Gill to unload or exercise, even if the calls turn out to be profitable or in-the-money.
His call options on GameStop have a strike price of $20 and expire on June 21. Shares of the video game company are up about 7% this week to around $30 a share. If the stock trades above $20 that Friday, making his call position profitable, Gill will be able to exercise the options at $20 apiece, allowing him to buy another 12 million shares at the discounted price. However, many believe it is unlikely he has enough capital to make such a move.
For Gill to exercise the calls, he would need $240 million to hold the stock (12 million shares purchased at $20 each). His latest screenshot showed he had $29.4 million in cash in his E-Trade account, although he could have deposited more money from other unknown accounts.
During Friday’s livestream, Roaring Kitty told his roughly 600,000 viewers that he has no institutional backing, but he didn’t completely rule out the possibility of having more money elsewhere.
The e-commerce dilemma
Let’s say he doesn’t have $240 million to exercise calls. Ahead of June 21, his broker E-Trade may have to intervene by liquidating his options before they expire.
“If they remain in the money and he doesn’t close them, the brokerage may be forced to take action on his behalf,” said CC Lagator, co-founder of brokerage Options AI.
Morgan Stanley-owned E-Trade declined to comment.
Electronic commerce customer agreement for self-service accounts stated that the brokerage firm may reject, cancel or cancel a client’s orders or instructions at its sole discretion and without prior notice.
If Gill does not give the instruction before expiration, the broker may sell contracts that his cash balance does not support or submit a do not execute (DNE) order for the same amount.
“The DNE option would be extremely costly because it would reset them to zero. I assume they will contact him in the coming days to make sure he has a plan. They cannot wait until the last hour,” Lagator said.
E-Trade is debating whether to ban Gill from its trading platform due to concerns about potential market manipulation. The Wall Street Journal reports this. last week.
Sell early?
Theoretically, Gill could start selling his calls earlier to make a quick profit and avoid the drama a week and a half later, but many argue that this is not a good prospect.
“He definitely has a public perception that may be holding him back from selling to some extent because then he would definitely be labeled as a manipulator, sort of like a modern pump and dump scheme,” said Tony Zhang, chief strategist OptionsPlay.
Meanwhile, market participants would have easily known about his sale given the size of his position, traders said. His heavy selling could also put downward pressure on the stock and inspire a legion of retail traders to follow suit.
The Securities and Exchange Commission is monitoring GameStop’s options trading activities, and Gill is under scrutiny by the Massachusetts securities division.
Scrolling options
Gill also has the costly option of moving these calls to a later expiration date to buy some time, which means exiting the current position and immediately entering a similar position. He could do this until 16:00 on June 21.
“This is not something you want to just sit and do on your laptop for the last hour. It’s too much. Again, if he is in contact with them, it would be in his best interest to work with their risk management and trading teams.” if skating is his plan,” Lagator said.
If Gill holds the call until the expiration date when the stock price falls below $20, the position will expire worthless. Acquiring this position cost him more than $60 million.
“Options 101”
However, if Gill somehow manages to raise enough money to exercise all of his calls, he would be left with a total of 17 million shares, making him GameStop’s fourth-largest shareholder behind Vanguard, BlackRock and Ryan Cohen’s RC Ventures, according to in FactSet.
Alternatively, he could sell his remaining 5 million shares of GameStop to fund the transaction to exercise the calls, but still, the stock would have to trade above $48 for him to make enough money, which is nowhere near where it is now .
On Tuesday, Gill made light of his dilemma: publication on X Banana Reading Options Fundamentals 101 meme.