By Saqib Iqbal Ahmed
NEW YORK (Reuters) – “Roaring Kitty” Keith Gill, the stock market influencer behind the 2021 meme stock market frenzy, may be sitting on a paper profit of tens of millions of dollars on his position in GameStop options, but reaping those gains might not be easy.
GameStop soared 21% on Monday after Gill’s Reddit account posted a screenshot showing a $116 million bet on the struggling video game retailer. The post, the account’s first in three years, also showed a position of 120,000 GameStop call options on June 21 at a $20 strike price, worth $65.7 million at close from Monday. Call options give the right to buy shares at a fixed price in the future.
Reuters was unable to independently verify whether the Reddit post was written by Keith Gill or whether the leaked positions were authentic.
However, Trade Alert data showed that the number of open contracts in GameStop jumped to 145,000 by the end of May, up from around 15,000 on May 19. Calculating an average trading price of $5.52 during that period, a buyer of 120,000 options contracts would have been up about $54 million on Monday, based on the closing price of the options contracts. 10 dollars each.
Exiting an options trade can mean selling the options themselves or taking delivery of the underlying shares. Both picks could be problematic, given the size of the position and the focus on GameStop, options specialists said.
It would be difficult to sell even a partial option position without attracting attention, which could depress the price of the options as well as that of the underlying stock, players said of the market.
“It’s a lot easier to sell 10 to 12 million shares than if you sold 120,000 call options,” said Steve Sosnick, chief strategist at Interactive Brokers and a former options market maker.
It could also damage Gill’s reputation for having “diamond hands” – common parlance for someone with a high risk tolerance and a reluctance to buckle under pressure by selling their holdings.
“Unless he’s very committed to being a long-term investor and taking delivery (of the shares), it’s going to be difficult to monetize that without moving the market just because everyone is hyper aware of it now.” , said Garrett DeSimone, head of the quantitative department. research at OptionMetrics.
The other variant – delivering the 12 million shares the disclosed options contracts call for – could require hundreds of millions in capital, analysts say.
One way for Gill to get around this problem and still make money, options traders say, would be to short 12 million shares of GameStop stock before the options expire. A short investor borrows shares and sells them in the hopes that they can be bought back at a lower price in the future.
If GameStop’s stock price is above the $20 options strike price at expiration, Gill could, in theory, exercise his options – buying the stock at $20 each and using the shares to close its short position.
Using Monday’s closing prices, Gill would sell the shares at $28 and exercise his options to buy them back at $20, earning him about $8 per share, or $96 million.
“It would give the impression that he’s still a diamond hand and he’s still going to make money,” said Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group.
(Reporting by Saqib Iqbal Ahmed; editing by Ira Iosebashvili and David Gregorio)
