By Saqib Iqbal Ahmed
NEW YORK (Reuters) – “Roaring Kitty” Keith Gill, the stock influencer behind the meme stock frenzy of 2021, may be sitting on a paper profit of tens of millions of dollars on his position in GameStop options, but reaping those profits may not be Like this. simple.
GameStop soared 21% on Monday after Gill’s Reddit account posted a screenshot showing a $116 million bet on the embattled video game retailer. The post, the account’s first in three years, also showed a June 21 position of 120,000 GameStop call options at a strike price of $20, worth $65.7 million at Friday’s close. Call options give the right to buy shares at a fixed price in the future.
Reuters could not independently verify whether the Reddit post was made by Keith Gill or whether the views expressed were authentic.
However, Trade Alert data showed that the number of open contracts in GameStop rose to 145,000 at the end of May, up from about 15,000 on May 19. Assuming an average trading price of $5.52 during that period would have been a buyer of 120,000 options contracts. rose about $54 million on Monday, based on the contracts’ closing price of $10 each.
Exiting an options trade can mean selling the options themselves or taking delivery of the underlying shares. Either choice could be problematic given the size of the position and the spotlight on GameStop, options mavens said.
It would be difficult to sell even part of the options position without attracting attention, potentially driving down the price of the options and the underlying stock, market participants said.
“It’s much easier to sell 10 to 12 million shares than it is to sell 120,000 call options,” says Steve Sosnick, chief strategist at Interactive Brokers and a former options market maker.
It could also damage Gill’s reputation for having ‘diamond hands’ – a term used for someone with a high risk tolerance and who is unwilling to buckle under pressure by selling off his assets.
“Unless he is super committed to being a long-term investor and taking delivery of the stock, it will be challenging to make money on this without moving the market just because everyone is hyper aware of this now” , says Garrett DeSimone, head of the quantitative department. research at OptionMetrics.
The other variant – taking delivery of the 12 million shares covered by the publicly disclosed option contracts could require hundreds of millions in capital, analysts said.
One way for Gill to get around this and still make money, options traders said, would be to short 12 million shares of GameStop before the options expire. An investor who shorts borrows shares and sells them in the hope of being able to buy back the shares at a lower price in the future.
If GameStop’s stock price is above the options’ $20 strike price at expiration, Gill could theoretically exercise his options by purchasing the shares for $20 each and using the shares to close out his short position.
Based on Monday’s closing prices, Gill would sell the shares for $28 and exercise his options to buy them back for $20, which would net him about $8 per share, or $96 million.
“That would give the impression that he is still a ‘diamond hand’ and still going to make money,” said Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.
(This story has been corrected to reflect that prices are as of close of business on Friday, not Monday, in paragraph 2)
(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and David Gregorio)
