Keith Gill, a Reddit user credited with inspiring GameStop’s rally, during a YouTube livestream arranged on a laptop at the New York Stock Exchange on June 7, 2024.
Michael Nagle | Bloomberg | Getty Images
As Roaring Kitty continues to watch his favorite GameStop As stocks fluctuate wildly, he may be wondering what to do with his huge options position that is nearing expiration.
According to a screenshot he posted Monday evening, the meme stock champion, whose real name is Keith Gill, has so far retained his positions of 5 million shares of GameStop common stock and 120,000 call options. The huge options position — which includes 12 million GameStop shares — could be a nightmare for Gill to unload or exercise, even if the calls end up profitable or “in the money.”
His call options against GameStop have a strike price of $20 and an expiration date of June 21. Shares of the video game company are up about 8% so far this week, to about $30 per share. If the stock trades above $20 this Friday, making his call position in-the-money, Gill could exercise the options at $20 apiece, buying another 12 million shares at the discounted price. However, many consider it unlikely that he has enough capital to pull off such a move.
In order for Gill to exercise the calls, he would need to have $240 million to take custody of the shares (12 million shares are purchased at $20 apiece). His latest screenshot showed that he had $29.4 million in cash in his E-Trade account, although he could have deposited more money from other, undisclosed accounts.
During Friday’s livestream, Roaring Kitty told around 600,000 viewers that he had no institutional backers, but did not completely rule out the possibility of having more money elsewhere.
E-Trade dilemma
Let’s assume he doesn’t have the $240 million to make the calls. As June 21 approaches, his broker E-Trade may have to step in and liquidate his options before expiration.
“If they stay in the money and he doesn’t close them, the broker could 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.
E-Trade’s Customer Agreement for self-managed accounts states that the broker may reject, cancel or reverse a customer’s orders or instructions at its sole discretion and without notice.
If Gill does not issue an instruction before expiration, the broker could sell the contracts that its cash balance does not support or place a do-not-execute (DNE) order for the same amount.
“The DNE option would be extremely costly as it sets it to zero. I would imagine they will be in touch in the coming days to make sure he has a plan. You can’t wait until the last hour,” Lagator said.
The Wall Street Journal reported last week that E-Trade was debating banning Gill from the trading platform over concerns about possible market manipulation.
Sell sooner?
In theory, Gill could start selling his calls early to make a quick profit and avoid the drama in a week and a half, but many argue that’s not a good look.
“He definitely has the public perception that might discourage him from selling to some extent because then he would definitely be labeled a manipulator, something like a modern-day pump-and-dump scheme,” said Tony Zhang, chief strategist at OptionsPlay .
Meanwhile, market participants would easily catch wind of his selling due to the sheer size of his position, traders said. Its active selling could also put downward pressure on the stock and inspire its legion of retail traders to follow suit.
The Securities and Exchange Commission has been monitoring GameStop’s options trading activities, while Gill is under the watch of the Massachusetts Division of Securities.
Roll the options
Gill also has the costly option of moving these calls to another expiration date to buy some time, which means leaving the current position and entering a similar position immediately. He had until June 21 at 4 p.m. ET to opt in.
“It’s not something you want to just sit at your laptop and do for the last hour. It’s too big. “Again, if he is in contact with them, it would be in his best interest to work with their risk teams and trading departments if rolling is his plan,” Lagator said.
If Gill holds the calls until expiration and the stock falls below $20, this position would expire worthless. It cost him more than $60 million to acquire the position.
“Options 101”
However, if Gill somehow got enough money to exercise all of his calls, he would be left with a total of 17 million shares and would become GameStop’s fourth-largest shareholder, behind Vanguard, BlackRock and Ryan Cohen’s RC Ventures to FactSet.
Alternatively, he could sell his other 5 million GameStop shares to fund the transaction to exercise the calls, but the stock would still need to trade above $48 for him to secure enough money, nowhere near current levels Was standing.
On Tuesday, Gill made light of his dilemma by posting a meme of a banana on X with the caption “Options Basics 101.”
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2024-06-12 16:29:09
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