Reddit user Keith Gill is credited with galvanizing the GameStop rally during a June 7, 2024 YouTube livestream from his laptop at the New York Stock Exchange.
Michael Nagel | Bloomberg | Getty Images
Roaring kitten continues to watch his favorite show game station The stock price is fluctuating wildly, and he may be considering what to do with his large option position that is about to expire.
The meme stock champion, whose real name is Keith Gill, has so far held 5 million shares of GameStop common stock and 120,000 call options, according to a screenshot he shared late Monday night. The massive options position — covering 12 million shares of underlying GameStop stock — could be a nightmare for Gill to sell or exercise, even if the calls end up being profitable or “in the money.”
His call option on GameStop has a strike price of $20 and an expiration date of June 21. If the stock trades above $20 that Friday, which puts his call option in the money, Gill can exercise the option at $20 per share, allowing him to purchase an additional 12 million shares at a discount. However, many believe it is unlikely he will have the wherewithal to pull off the move.
In order for Gill to exercise his subscription rights, he would need $240 million to escrow the stock (to purchase 12 million shares at $20 per share). His last screenshot showed that he had $29.4 million in cash in his electronic trading account, but he could have deposited more from other undisclosed accounts.
During a live broadcast on Friday, Roaring Kitty told about 600,000 viewers that he didn’t have any institutional backers, but he didn’t completely rule out the possibility of having more cash elsewhere.
Electronic trade dilemma
Assume he does not have the $240 million to exercise his subscription rights. As June 21 approaches, his broker, E-Trade, may have to intervene by liquidating his options before expiration.
“If they stay in the funds and he doesn’t close them, the brokerage may be forced to take action on his behalf,” said CC Lagator, co-founder of brokerage Options AI.
Morgan Stanley’s E-Trade declined to comment.
electronic trade Self-Directed Account Customer Agreement Statement that the brokerage firm may, in its sole discretion, refuse, cancel or revoke a client’s order or instruction without prior notice.
If Gill does not issue an instruction before expiration, the broker can sell a contract that its cash balance does not support, or submit a “do not execute” (DNE) order for the same amount.
“The DNE option would be extremely costly because it would mark them to zero. I imagine they’ll be contacting him in the next few days to make sure he has a plan. They can’t wait until the last hour,” Lagat said.
E-Trade has been debating whether to ban Gill from the trading platform over concerns about potential market manipulation, “Wall Street Journal” reports last week.
Sell early?
Theoretically, Gill could have started selling his calls earlier to take a quick profit and avoid the drama that unfolded in a week and a half, but many believe this doesn’t look good.
“Public perception of him would certainly discourage him from selling to some extent because then he would definitely be labeled as a manipulator, kind of like a modern pump and dump scheme,” said Tony Chang, chief strategist at OptionsPlay.
Meanwhile, traders said it would be easy for market participants to hear about his selling given the size of his position. His aggressive selling could also put downward pressure on the stock and could inspire his legions of retail traders to follow suit.
The U.S. Securities and Exchange Commission has been monitoring GameStop’s options trading activities, while Gill is under scrutiny from the Massachusetts Division of Securities.
Scroll options
Gill also has the option to extend these calls to further expirations to buy some time, which means exiting the current position and immediately entering a similar position, an option that is costly. He has until 4pm on June 21 to make his choice.
“This is not something you just want to do at the last hour sitting on your laptop. It’s too big. And again, if he engaged with them, it would be in his best interest to work with their risk team and their trading desk, If rolling was his plan,” Lagarto said.
If Gill holds the call option on the expiration date and the stock price falls below $20, the position will expire worthless. He spent more than $60 million to get the position.
“Option 101”
Still, if Gill somehow raises enough money to exercise all of his subscription rights, he would own a total of 17 million shares, making him GameStop’s fourth-largest shareholder behind Vanguard, BlackRock, and Ryan Cohen’s RC Ventures.
Alternatively, he could sell another 5 million shares of GameStop to fund the transaction to exercise his call rights, but the stock would still have to trade above $48 for him to have enough money, which is nowhere near where it is now .
On Tuesday, Gill eased his woes by posting a banana meme on X that read “Options Basics 101.”
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