Written by Saqib Iqbal Ahmed
NEW YORK (Reuters) – The clock is ticking for Keith Gill, a stock influencer known on YouTube as “Roaring Kitty,” to make gains on his options position in GameStop as the company’s stock price swings wildly and contracts expire. Approaching.
Gill helped launch the meme stock phenomenon in 2021. The value of his large holdings of GameStop options briefly dipped into the red on Tuesday when the stock fell as much as 8%. Its value rose later in the day as GameStop rose to end the session 23% higher at $30.49.
The stock has lost about 36% since Friday’s high of $48, when Jill’s first live stream in three years failed to lift shares after the company announced a surprise stock offering. GameStop said Tuesday it has completed an “at-market” offering of its stock to raise approximately $2.14 billion.
A securities filing on Tuesday showed that GameStop CEO Ryan Cohen owned an 8.6% stake in the company as of Monday, down from his previous 10.5% stake in May.
The sharp movements in stock prices have led to large swings in the value of the large options position that Gill disclosed earlier this month. A screenshot posted on June 2 showed that Gill owned 120,000 June 21 GameStop call options with a strike price of $20, purchased at $5.6754 per contract or $68.1 million in total. The screenshot also showed that he owned 5 million shares of GameStop stock worth $115.7 million on June 2.
The price of options contracts rose to $28.41 on Friday — making them worth $340.9 million — before Gill conducted a live stream during which he repeated his rationale for being bullish on GameStop.
On Tuesday, options contracts traded for at least $5.05, valuing Gill’s position at about $60.6 million, down about $7.5 million from the purchase price, according to Trade Alert data. The contracts last traded at $11.25 apiece, valuing Gil’s options position at about $135 million.
Gill said he is a long-term investor in GameStop and that he is confident in the company’s CEO, billionaire Ryan Cohen.
But the short-term nature of options contracts may mean that Jill will have to make short-term moves to capture gains.
The calls expire on June 21, and are losing value at an accelerating pace as that date approaches in a process known as time decay.
Gill could also exercise his options and take delivery of shares, meaning he would have to pay $240 million for 12 million shares of GameStop stock.
“Man is in a race against the decay of time,” said Henry Schwartz, global head of client engagement at Cboe Global Markets.
So far, there is nothing in the listed options market to suggest that Gill has been able to take profits 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 affect GameStop’s stock price in the near term is how market makers — typically large financial institutions that facilitate options trading but seek to remain neutral in the market — will react if shares continue to decline.
Market makers who sold Jill’s call contracts will likely offset the risk on their books by buying GameStop shares.
If the stock price falls below the contracts’ strike price, market makers will have less need to remain hedged and could be in a position to sell the stock, which could exacerbate weakness in the stock.
“Traders will anticipate this potential for the stock to accelerate towards $20 if it starts moving this way,” said the Chicago Mercantile Exchange’s Schwartz, noting that positioning the market ahead of such a move would inject more volatility into the stock.
(Reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosibashvili and Matthew Lewis)
“Devoted student. Bacon advocate. Beer scholar. Troublemaker. Falls down a lot. Typical coffee enthusiast.”