Roaring Kitty has some tough choices to make regarding his GameStop options

While Roaring Kitty continues to watch his favorite GameStop shares are swinging wildly, he may be considering what to do with his huge options position that is nearing expiration.

The meme stock champion, whose real name is Keith Gill, has so far maintained his positions of 5 million shares of GameStop common stock and 120,000 call options, according to a screenshot he shared Monday night. The massive options position – involving 12 million shares of underlying GameStop – could be a nightmare for Gill to offload or exercise, even if the calls ultimately become profitable or in the money.

His call options against GameStop have a strike price of $20 and an expiration date of June 21. The video game company’s shares are up about 8% so far this week to around $30 per share. If the stock trades above $20 that Friday, making his call position in the money, Gill could exercise the options for $20 each, buying an additional 12 million shares at the discounted price. However, many think it is unlikely that he did so. enough capital to take such a step.

If Gill wants to exercise the calls, he would need $240 million to take custody of the shares (12 million shares purchased at $20 each). His latest screenshot showed that he has $29.4 million in cash in his E-Trade account, although he could be transferring more money from other undisclosed accounts.

During Friday’s livestream, Roaring Kitty told about 600,000 viewers that he has no institutional backers, but didn’t completely rule out the possibility of having more money elsewhere.

Let’s just say he doesn’t have the $240 million to make the calls. With June 21 just around the corner, his broker E-Trade may have to intervene by liquidating his options before the expiration date.

“If they stay in the money and he doesn’t close them, the brokerage could be forced to take action on his behalf,” said CC Lagator, co-founder of brokerage Options AI.

E-Trade, owned by Morgan Stanley, declined to comment.

E-Trades customer agreement for self-directed accounts has stated that the brokerage may, in its sole discretion and without prior notice, refuse, cancel or reverse any client’s orders or instructions.

If Gill does not issue an instruction before the expiration date, the broker can sell the contracts that his cash balance does not support, or submit a ‘do not exercise’ order (DNE) for the same amount.

“The DNE option would be extremely costly as it would leave them at zero. I imagine they will be in touch in the coming days to make sure he has a plan. They can’t wait until the last hour” , Lagator said.

E-Trade has debated whether Gill should be banned from the trading platform due to concerns over possible market manipulation The Wall Street Journal reports this last week.

Sell ​​early?

Theoretically, Gill could start selling his calls early to make a quick profit and avoid the drama in a week and a half, but many argue that’s not a good prospect.

“He definitely has the public perception that might prevent him from selling to some extent because he would certainly be labeled as a manipulator, a kind of modern pump-and-dump scheme,” said Tony Zhang, chief strategist at OptionsPlay. .

Meanwhile, market participants would easily get wind of his selling given the sheer size of his position, traders said. Its active selling could also put downward pressure on the stock and it could inspire its legion of retail traders to follow suit.

The Securities and Exchange Commission is monitoring GameStop’s trading activities, while Gill is overseen by the Massachusetts securities division.

Rolling the options

Gill also has the costly option of rolling those calls to a further expiration date to buy some time, meaning he exits the current position and immediately moves into a similar position. He could choose to do so until 4:00 PM ET on June 21.

“It’s not something you want to just sit and do on your laptop for the last hour. It’s too big. Again, if he is in contact with them, it would be in his best interest to work with their risk teams and trading desks, if roles his plan is,” Lagator said.

If Gill holds the expiration while the stock falls below $20, this position would expire worthless. It cost him more than $60 million to acquire the position.

‘Options 101’

But if Gill somehow comes up with enough money to exercise all his calls, he would be left with a total of 17 million shares and would become GameStop’s fourth-largest shareholder, behind Vanguard, BlackRock and Ryan Cohen’s RC Ventures. to FactSet.

Alternatively, he could sell his other 5 million shares of GameStop to help fund the trade to exercise the calls, but still the stock would have to trade above $48 to secure enough money, nowhere near where it is now is.

On Tuesday, Gill made light of his dilemma: post on X a meme of a banana reading “Options Basics 101.”