By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The clock is ticking for Keith Gill, the stock influencer known on YouTube as “Roaring Kitty,” to lock in gains on his options position in GameStop as the company’s stock price fluctuates and the expiration date for the contracts approaches closer.
Shares of GameStop fell 12% to $24.83 on Monday. It was the second consecutive session of losses for the video game retailer, whose shares fell 40% on Friday after Gill’s first livestream in three years failed to lift the stock following the announcement of a more than $3 billion stock offering.
The recent declines have hit the profitability of a large options position that Gill, who helped launch the 2021 meme stock phenomenon, announced earlier this month.
On June 2, Gill posted a screenshot showing a position of 120,000 GameStop June 21 call options at a strike price of $20, purchased for $5.6754 per contract, or $68.1 million. The screenshot also showed that as of June 2, he owned 5 million GameStop shares worth $115.7 million.
The price of the options contracts rose to $28.41 on Friday – bringing their value to $340.9 million – before Gill held a livestream in which he reiterated his reasons for being bullish on GameStop.
On Monday, when the contracts closed at $6.81 each, the total value of the disclosed options stood at $81.9 million, after falling along with the company’s underlying shares.
“He had an opportunity to do something,” said Brent Kochuba, founder of analytics service SpotGamma, referring to the increase in the value of Gill’s options position during Friday’s livestream. “But at the end of the day, you know, he kind of screwed up.”
Gill has said he is a long-term investor in GameStop and has confidence in the company’s CEO, billionaire Ryan Cohen.
But the nature of short-term options contracts may mean Gill has to make some short-term moves, especially if share prices continue to fall.
The calls expire on June 21 and lose value at an accelerated rate as that date approaches, in a process known as time decay. Furthermore, contracts with strike prices close to where the underlying stock is traded become even more sensitive to price fluctuations.
Gill can also exercise his options and take delivery of the shares, which means he would have to commit $240 million for 12 million shares of GameStop.
“This guy is in a race against the decay of time,” said Henry Schwartz, global head of customer engagement at Cboe Global Markets.
So far, nothing in the publicly traded options market indicates Gill has been able to make a profit or establish an offsetting position, Schwartz said.
“I think everyone is watching those contracts like a hawk,” he said.
MARKET MAKERS
Another factor that could impact GameStop’s stock price in the near term is how market makers — typically large financial institutions that facilitate options trading but try to remain market neutral — will react if the stock continues to fall.
Market makers who sold Gill his call contracts likely would have doubled the risk on their books by buying GameStop stock.
If the stock price falls below the strike price of the contracts, market makers would have less need to remain hedged and could be in a position to sell shares, potentially exacerbating the stock’s weakness.
“Traders will anticipate this potential for the stock to accelerate to $20 if it heads that way,” Cboe’s Schwartz said, noting that market positioning ahead of such a move would inject more volatility into the stock.
(Reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)
