How Roaring Kitty’s wealth went from $53,000 to nearly $300 million — and could one day top $1 billion

US Markets
Tuesday, June 4th, 2024 4:17 pm EDT

Keith Gill, the Reddit user known as “DeepF——Value” who rose to fame during the GameStop short squeeze in 2021, has seen his net worth balloon to over $289 million. Gill, who initially invested $53,000 in GameStop, has held onto his position through its wild swings, and a recent post showed he still owns 5 million shares and 120,000 call options. This strategy has made him a very wealthy individual, but also raised eyebrows among financial professionals.

Gill’s massive gains came from a combination of factors. He originally bought into GameStop believing it was undervalued, and his public support on Reddit helped fuel a surge in buying pressure that squeezed short sellers. By the end of the initial trading frenzy in April 2021, Gill had exercised his call options to hold 200,000 shares. Notably, he reappeared online three years later with a significantly larger position.

However, GameStop’s business fundamentals haven’t necessarily caught up to its stock price. The company is still transitioning from brick-and-mortar sales to e-commerce, and some experts believe Gill’s trading strategy is extremely risky. “The most successful players are those that are just out of their minds,” said Michael Khouw, co-founder of OpenInterest.PRO. “You would never see a professional trader make those kinds of numbers.”

There’s also the possibility that Gill could face issues with his broker. The Wall Street Journal reported that Morgan Stanley’s E-Trade considered removing him from their platform due to concerns about market manipulation. CNBC was unable to independently verify the details of Gill’s portfolio.

Looking ahead, Gill’s next move with his GameStop holdings could significantly impact the stock price. His most recent portfolio screenshot showed 120,000 call options with a strike price of $20 expiring on June 21st. If the stock closes above $20 on that day, Gill could exercise the options and acquire an additional 12 million shares. This would make him the fourth-largest shareholder in GameStop, with a total of 17 million shares.

Exercising these options would come with its own set of challenges. Gill would need the capital to take ownership of the stock, or he would risk having to sell them before expiry to avoid assignment. “Unless you have the money to take custody of the stock after exercising the calls, you’re just renting them with the assumption of selling them, or selling stock against them before they expire,” said CC Lagator of Options AI. “The issue on a position of that size is, it would be very apparent to other market participants.”

The potential rewards are significant. If Gill exercises the options and the stock stays at its current price of $28, his stake would be worth $476 million. At GameStop’s recent peak of $64.83, it would have been worth a staggering $1.1 billion. However, there’s always the risk that the stock price could fall before he can capitalize on his options.

Gill also has the option to roll his call options to a later expiration date, but this would come at the cost of additional premiums. “The problem with that is he’s going to be wasting money on new option premium each time he does that,” said Lagator.

Regardless of his next move, Gill’s continued involvement with GameStop is sure to keep the stock volatile. With a large options position expiring soon, his actions could have a significant impact on the company’s future.

For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/04/how-roaring-kittys-wealth-went-from-53000-to-nearly-300-million-and-could-one-day-top-1-billion.html