“Roaring Kitty” Keith Gill, the influential figure behind the 2021 meme stock craze, appears to be sitting on a substantial paper profit from his GameStop options position, potentially worth tens of millions of dollars. However, capitalizing on these gains might prove challenging. The entire world is now watching his moves, and the eyes of the regulators and big brother are looking to come down on him.
Susquehanna Co-Head of Derivative Strategy Chris Murphy joins @KellyCNBC on @CNBCTheExchange to discuss how ‘Roaring Kitty’ can use options to cash in on his GameStop bet. pic.twitter.com/Y8bKL6JPEW
— The Exchange (@CNBCTheExchange) June 4, 2024
GameStop’s stock surged over 20% on Monday after a post from Gill’s Reddit account, showing a screenshot of a $116 million bet on the struggling video game retailer. This was the account’s first post in three years. The screenshot revealed Gill’s position of 120,000 GameStop June 21 call options at a $20 strike price, valued at $65.7 million at Friday’s close. Call options give the holder the right to buy shares at a predetermined price in the future.
Despite the excitement, it was not independently verified if the Reddit post was indeed made by Keith Gill or if the positions disclosed were genuine.
Data from Trade Alert indicated a significant increase in the number of open contracts in GameStop, rising to 145,000 by the end of May from around 15,000 on May 19. Given an average trading price of $5.52 during that period, a buyer of 120,000 options contracts would have seen a paper profit of about $54 million on Monday, based on the contracts’ closing price of $10 each.
Roaring Kitty is back with $180M in $GME and the meme army is rallying behind him! 🚀 Options are flying, with 93M shares traded in just 90 minutes! Is this the return of the meme stock craze? @petenajarian @jonnajarian Rebel’s Edge 🏴☠️ 1pm #itsnotanoption #GameStop #MemeStocks… pic.twitter.com/Q1w4efimgn
— Market Rebellion (@MarketRebels) June 3, 2024
Exiting such a large options position presents considerable challenges. Selling the options or taking delivery of the underlying shares are potential strategies, but both have their complications. Market participants noted that selling even a portion of the options could attract unwanted attention, potentially driving down the price of the options and the stock itself.
“It’s much easier to sell 10 to 12 million shares than if you sold 120,000 call options,” explained Steve Sosnick, chief strategist at Interactive Brokers and a former options market maker.
Additionally, selling the options might tarnish Gill’s reputation for having “diamond hands” – a term in the meme stock community for someone with a high risk tolerance who holds their position under pressure.
“Unless he is super committed to being a long-term investor and taking delivery of the shares, it’s going to be challenging to monetize this without moving the market just because everybody’s hyper-aware of this now,” said Garrett DeSimone, head of quantitative research at OptionMetrics.
Taking delivery of the 12 million shares commanded by the options contracts could require hundreds of millions of dollars, which poses another significant challenge.
The SEC has announced they are looking at GameStop, $GME options activity for manipulation after Roaring Kitty disclosed his option trades.
For reference, US Congress option trades all the time!
For example, Nancy Pelosi bought $NVDA, Nvidia call options before major bills and… pic.twitter.com/2cSFJyC85E
— unusual_whales (@unusual_whales) June 4, 2024
One alternative strategy for Gill to realize his gains while maintaining his “diamond hands” reputation would be to short 12 million shares of GameStop before the options expire. Short selling involves borrowing shares and selling them with the hope of buying them back at a lower price later.
If GameStop’s share price remains above the $20 strike price at expiration, Gill could theoretically exercise his options to buy the stock at $20 per share and use those shares to cover his short position. Based on Monday’s closing prices, this would mean selling the shares at $28 and buying them back at $20, resulting in a profit of about $8 per share, or approximately $96 million.
“That would make it seem like he’s still ‘a diamond hands’ and he’s still going to make money,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
Keith Gill stands to make substantial profits from his GameStop options, the logistics of realizing these gains are complex. The attention on his position and the size of the trade make it challenging to exit without impacting the market or his reputation. However, with strategic maneuvers like shorting shares, Gill may be able to profit while maintaining his image within the meme stock community.
Major Points:
- Significant Potential Profit: “Roaring Kitty” Keith Gill could have tens of millions of dollars in paper profits from his GameStop options position.
- GameStop Surge: GameStop’s stock jumped 21% after Gill’s Reddit account posted about a $116 million bet on the company.
- Verification Issues: It is not confirmed if the Reddit post was actually made by Gill or if the disclosed positions are authentic.
- Exit Strategy Complications: Exiting his options trade is challenging due to the size of the position, potential market impact, and maintaining his “diamond hands” reputation.
- Alternative Strategy: Gill could short 12 million GameStop shares before options expiration to realize profits without damaging his market image.
TL Holcomb – Reprinted with permission of Whatfinger News
