By Saqib Iqbal Ahmed
NEW YORK (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 as the company’s share price wobbles and the expiration date for the contracts draws closer.
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% to a low of $22.79 before paring losses. The stock has lost nearly 50% since Friday’s high of $48, when Gill’s first livestream in three years failed to turn the shares around after the company announced a more than $3 billion stock offering.
The sharp declines have pressured the large options position that Gill disclosed earlier this month. A screen shot 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 screen shot 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 briefly changed hands at an average price of $5.50 a contract, putting the value of Gill’s position at about $66 million, down about $2 million from their purchase price, according to Trade Alert data. With the shares last at $24.60, the contracts were trading at $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 Gill’s options position during Friday’s livestream. “But at the end of the day, you know, he kind of blew it.”
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, 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.
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.
(Reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)
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