US Markets
Wednesday, June 12th, 2024 2:42 pm EDT
Key Points
- Keith Gill, also known as Roaring Kitty, holds 5 million GameStop shares and 120,000 call options, with a strike price of $20 and expiration on June 21, facing the challenge of potentially needing $240 million to exercise these options if the stock remains above $20.
- If Gill lacks the capital to exercise the options, his broker, E-Trade, may liquidate the options or issue a “do not exercise” order, raising concerns about potential market manipulation and whether E-Trade might ban him from the platform.
- Gill has alternatives like selling his options early to secure profit or rolling the options to a later date to buy more time, though these moves have their own complications and public perception risks.
Keith Gill, known online as Roaring Kitty, is facing a significant decision regarding his large options position in GameStop shares as the expiration date approaches. Gill, a prominent figure in the meme stock movement, holds 5 million GameStop shares and 120,000 call options, which equate to 12 million underlying shares. These call options have a strike price of $20 and are set to expire on June 21. With GameStop’s current share price around $30, these options are likely to be profitable or “in the money.”
If Gill chooses to exercise these options, he would need $240 million to purchase the 12 million shares at $20 each. However, it appears unlikely that Gill has the necessary capital, as his E-Trade account shows $29.4 million, and he would need significantly more to cover the entire position. While Gill has stated he has no institutional backers, he hasn’t ruled out having additional funds in other accounts.
Should Gill lack the funds to exercise his options, his broker, E-Trade, may have to intervene by liquidating his options before they expire. E-Trade’s client agreement allows the brokerage to cancel or reverse orders at its discretion, and they might sell the contracts Gill cannot support with his cash balance. Alternatively, they could submit a “do not exercise” order, marking the options as worthless, which would be financially detrimental.
Another option for Gill is to sell his call options early to secure a profit and avoid last-minute complications. However, selling such a large position could attract negative attention and potentially be seen as market manipulation. Traders and market participants would likely notice his selling activity, which could also negatively impact GameStop’s stock price.
Gill could also choose to roll his options to a later expiration date, buying himself more time. This involves exiting his current position and entering a similar one with a new expiration date. Given the size of his position, this would require coordination with E-Trade’s risk teams and trading desks to manage effectively.
If Gill holds the options until expiration and GameStop’s stock price falls below $20, his options will expire worthless, resulting in a significant financial loss. The position cost him over $60 million to acquire. Conversely, if he can find the funds to exercise the calls, he would own 17 million shares, making him one of the largest shareholders in GameStop.
Gill could also sell his existing 5 million GameStop shares to raise funds for exercising the options. However, for this to work, the stock would need to trade above $48, far above its current price. In light of these challenges, Gill has maintained a sense of humor, posting a meme titled “Options Basics 101” on social media, reflecting the complexity and high stakes of his situation.
As the expiration date nears, Gill must navigate these options and potential strategies carefully to manage his substantial position in GameStop effectively.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/12/roaring-kitty-has-some-tough-choices-to-make-on-his-gamestop-options-.html
