A GameStop store in New York, on Jan. 27, 2021.CARLO ALLEGRI/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 Corp. GME-N as the company’s share price wobbles and the expiration date for the contracts draws closer.
Mr. Gill helped launch the meme-stock phenomenon in 2021. His GameStop options holdings briefly slipped into the red on Tuesday as the company’s shares fell 8 per cent to a low of US$22.79 before paring losses. The stock has lost nearly 50 per cent since Friday’s high of US$48, when Mr. Gill’s first livestream in three years failed to turn the shares around after the company announced a more than US$3-billion stock offering.
The sharp declines have pressured the large options position that Mr. Gill disclosed earlier this month. A screen shot posted on June 2 showed Mr. Gill held 120,000 GameStop June 21 call options at a strike price of US$20, bought at US$5.6754 a contract or US$68.1-million in all. The screen shot also showed he owned five million GameStop shares worth US$115.7-million on June 2.
The price of the options contracts soared as high as US$28.41 on Friday – putting their value at US$340.9-million – before Mr. Gill conducted the livestream during which he reiterated his rationale for being bullish on GameStop.
On Tuesday, the options contracts briefly changed hands at an average price of US$5.50 a contract, putting the value of Mr. Gill’s position at about US$66-million, down about US$2-million from their purchase price, according to Trade Alert data. With the shares last at US$24.60, the contracts were trading at US$6.65.
“He had a chance to do something,” said Brent Kochuba, founder of analytic service SpotGamma, referring to the rise in the value of Mr. Gill’s options position during Friday’s livestream. “But at the end of the day, you know, he kind of blew it.”
Mr. Gill has said he is a long-term investor in GameStop and that he is confident in the company’s chief executive officer, billionaire Ryan Cohen.
But the nature of short-dated options contracts may mean Mr. Gill would have to make moves in the short term, especially if the stock continues to fall.
The calls expire on June 21, and lose value at an accelerated pace as that date approaches in a process known as time decay. Additionally, contracts with strike prices that are close to where the underlying stock is trading become even more susceptible to price swings.
Mr. Gill can also exercise his options and take delivery of the stock, meaning he would have to put up US$240-million for 12 million GameStop shares.
“The guy is in a race against time decay,” said Henry Schwartz, global head of client engagement at Cboe Global Markets.
So far, nothing in the listed options market indicates that Mr. Gill has been able to take profit or set up an offsetting position, Mr. Schwartz said.
“I think everybody’s watching those contracts like a hawk,” he said.
Another factor that could influence GameStop’s near-term share price is how market makers – typically big financial institutions that facilitate options trading but seek to remain market-neutral – will react if the shares continue sliding.
Market makers who sold Mr. Gill his call contracts would have likely squared the risk on their books by buying GameStop shares.
If the stock price slips below the contracts’ strike price, market makers would have less need to remain hedged and could be in a position to sell shares, potentially exacerbating weakness in the stock.
“Traders will be anticipating this potential for the stock to accelerate towards US$20 if it starts to move that way,” Cboe’s Mr. Schwartz said, noting market positioning ahead of such a move would inject more volatility into the stock.