As Roaring Kitty continues to watch his favorite GameStop shares swing wildly, he might be contemplating what to do with his massive options position that is approaching expiration.
The meme stock champion, whose real name is Keith Gill, has so far held onto his positions of 5 million GameStop common shares and 120,000 call options, according to a screenshot he shared Monday evening. The mammoth options position — involving 12 million underlying GameStop shares — could be a nightmare for Gill to offload or exercise even if the calls end up profitable or “in the money.”
His call options against GameStop have a strike price of $20 and an expiration date of June 21. Shares of the video game company have gained about 7% so far this week to around $30 a share. If the stock trades above $20 that Friday, which makes his call position in the money, Gill could exercise the options at $20 apiece, allowing him to purchase an additional 12 million shares at the discounted price. However, many think it’s unlikely he has enough capital to pull off such a move.
Loading chart…
For Gill to exercise the calls, he would need to have $240 million to take custody of the stock (12 million shares bought at $20 apiece). His last screenshot showed he has $29.4 million in cash in his E-Trade account, though he could deposit more money from other undisclosed accounts.
During Friday’s live stream, Roaring Kitty told some 600,000 viewers that he doesn’t have any institutional backers, but he didn’t entirely rule out the possibility of having more cash elsewhere.
E-Trade dilemma
Let’s say he doesn’t have the $240 million to exercise the calls. As June 21 looms, his broker E-Trade may have to intervene by liquidating his options prior to expiration.
“If they remain in the money 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.
The Morgan Stanley-owned E-Trade declined to comment.
E-Trade’s client agreement for self-directed accounts stated that the brokerage may decline, cancel or reverse a client’s orders or instructions at its discretion and without notice.
If Gill doesn’t give an instruction prior to expiration, the broker could sell the contracts that his cash balance doesn’t support, or submit a “do not exercise” (DNE) order for the same amount.
“The DNE option would be extremely costly as it marks them at zero. I’d imagine they would be in contact in the days ahead to make sure he has a plan. They can’t wait until the last hour,” Lagator said.
E-Trade has been debating whether to ban Gill from the trading platform over concerns regarding potential market manipulation, The Wall Street Journal reported last week.
Selling early?
Theoretically, Gill could start selling his calls early to turn a quick profit and avoid the drama in a week and a half, but many argue that it’s not a good look.
“He definitely has the public perception that’s perhaps to some degree stopping him from selling because then he would definitely be marked as a manipulator, kind of like a modern day pump and dump scheme,” said Tony Zhang, chief strategist at OptionsPlay.
Meanwhile, market participants would easily catch wind of his sale given the sheer size of his position, said traders. His active selling could also put downward pressure on the stock and it could inspire his legion of retail traders to follow suit.
The Securities and Exchange Commission has been monitoring GameStop’s options trading activity, while Gill is under the scrutiny of the Massachusetts securities division.
Rolling the options
Gill also has the costly option to roll those calls to a further expiration date to buy some time, which means exiting the current position and immediately entering a similar position. He could opt for that up until 4 p.m. on June 21.
“It’s not something you just want to sit there doing on your laptop in the last hour. It’s too big. Again, if he’s in contact with them, it would be in his best interest to be working with their risk teams and trading desks, if rolling is his plan,” Lagator said.
If Gill holds the calls to expiration date with the stock falling below $20, this position would expire worthless. It cost him more than $60 million to acquire the position.
‘Options 101’
Still, if Gill somehow comes up with enough money to exercise all of his calls, it would leave him a total of 17 million shares and he would become the fourth-biggest shareholder in GameStop, behind Vanguard, BlackRock and Ryan Cohen’s RC Ventures, according to FactSet.
Alternatively, he could sell his other 5 million shares of GameStop to help fund the transaction to exercise the calls, but still, the stock would have to trade above $48 for him to secure enough money, nowhere near where it is now.
On Tuesday, Gill made light of his dilemma, posting on X a meme of a banana reading “Options Basics 101.”