(Corrected second paragraph to show closing prices on Friday rather than Monday)
Saqib Iqbal Ahmed
NEW YORK (Reuters) – “Growling Kitten” Keith Gill, the power broker behind 2021’s stock frenzy, may be making tens of millions of dollars in paper profits from his position in GameStop (NYSE:) options, but he’s reaping those profits . achieving success can be difficult.
GameStop shares soared 21% on Monday after Gill’s Reddit account posted a screenshot showing a $116 million bet on the embattled video game retailer. The announcement, the first in three years, also included a position of 120,000 GameStop call options dated June 21 with a strike price of $20, worth $65.7 million as of Friday’s close. Call options give you the right to buy shares at a fixed price in the future.
Reuters was unable to independently verify whether the Reddit post was made by Keith Gill or whether the positions disclosed were genuine.
However, Trade Alert data showed that the number of open contracts in GameStop rose to 145,000 by the end of May from about 15,000 on May 19. on Monday, up about $54 million based on the closing price of $10 apiece.
Exiting an options trade may mean selling the options themselves or taking delivery of the underlying shares. Both options could prove problematic given GameStop’s position size and attention, options experts say.
Market participants say it would be difficult to sell even a fraction of the options position without attracting attention, potentially lowering the price of the options as well as the underlying shares.
“It’s much easier to sell 10 to 12 million shares than if you sold 120,000 call options,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:) and a former options market maker.
It could also damage Gill’s reputation as having “diamond hands,” a meme that describes people with a high tolerance for risk and an unwillingness to succumb to pressure to sell their assets.
“If he’s not committed to being a long-term investor and taking delivery (of shares), it’s going to be hard to monetize that without moving the market just because everyone knows about it now,” said Garrett DeSimone, head of quantitative research. research at OptionMetrics.
Another option, taking over the 12 million shares covered by the disclosed options contracts, could require hundreds of millions in capital, analysts say.
One way to get around this problem and still make money would be for Gill to sell 12 million shares of GameStop before the options expire, options traders say. A short investor borrows shares and sells them in hopes of buying back the shares at a lower price in the future.
If the GameStop stock price exceeds the option’s $20 strike price at expiration, Gill could theoretically exercise his options—buy the shares at $20 apiece and use the shares to cover his short position.
Using Monday’s closing prices, Gill would sell the shares at $28 and exercise his option to buy them back at $20, netting about $8 per share, or $96 million.
“This could give the impression that he is still a ‘diamond master’ and is still going to make money,” said Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.