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As GameStop shares gyrate, Roaring Kitty faces ticking clock

REUTERS/BRENDAN MCDERMID / JUNE 3
                                A screen displays GameStop stock trading information on the floor at the New York Stock Exchange (NYSE) in New York City.
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REUTERS/BRENDAN MCDERMID / JUNE 3

A screen displays GameStop stock trading information on the floor at the New York Stock Exchange (NYSE) in New York City.

NEW YORK >> 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 as the company’s share price swings wildly and the expiration date for the contracts draws closer.

Gill helped launch the meme-stock phenomenon in 2021. The value of his sizeable GameStop options holdings briefly slipped into the red on Tuesday when the stock tumbled by as much as 8%. Their value rose later in the day as GameStop surged to finish the session up 23% at $30.49. The stock has lost about 36% since Friday’s high of $48, when Gill’s first livestream in three years failed to lift the shares after the company announced a surprise stock offering. On Tuesday, GameStop said it has completed an “at-the-market” equity offering of its shares to raise roughly $2.14 billion. GameStop CEO Ryan Cohen held an 8.6% stake in the company as of Monday, down from his prior stake of 10.5% in May, a securities filing showed on Tuesday.

The sharp price moves in the shares have led to big fluctuations in the value of a large options position that Gill disclosed earlier this month. A screenshot posted on June 2 showed Gill held 120,000 GameStop June 21 call options at a strike price of $20, bought at $5.6754 per contract or $68.1 million in all. The screenshot also showed he owned 5 million GameStop shares worth $115.7 million on June 2. The price of the options contracts soared as high as $28.41 on Friday – putting their value at $340.9 million – before Gill conducted the livestream during which he reiterated his rationale for being bullish on GameStop.

On Tuesday, the options contracts traded for as little as $5.05, putting the value of Gill’s position at about $60.6 million, down about $7.5 million from their purchase price, according to Trade Alert data. The contracts last traded at $11.25 apiece, valuing Gill’s options position at about $135 million.

Gill has said he is a long-term investor in GameStop and that he is confident in the company’s CEO, billionaire Ryan Cohen.

But the nature of short-dated options contracts may mean Gill would have to make moves in the short term to capture gains.

The calls expire on June 21, and lose value at an accelerated pace as that date approaches in a process known as time decay.

Gill can also exercise his options and take delivery of the stock, meaning he would have to put up $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 Gill has been able to take profit or set up an offsetting position, Schwartz said.

“I think everybody’s watching those contracts like a hawk,” he said.

MARKET MAKERS

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 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 $20 if it starts to move that way,” Cboe’s Schwartz said, noting market positioning ahead of such a move would inject more volatility into the stock.

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