GameStop shares slipped in early Tuesday trading, and have lost more than $7.6 billion in market value since last week's high, putting a key bet from its most visible investor under increasing pressure.
GameStop (GME) shares have soared more than 640% since the return to social media last month of retail investor Keith Gill, better known by his online moniker Roaring Kitty. The stock has continued to swing wildly this week amid huge trading volumes on major stock exchanges and a series of key moves in the options market.
The money-losing videogame retailer, meanwhile, has raised more than $1 billion in fresh equity capital since the early-May surge —late last week unveiled plans to sell 75 million shares — despite a fiscal-first-quarter report that showed slumping sales and rising expenses.
Related: Keith Gill’s net worth: How much did the “Dumb Money” investor make on GameStop?
Gill's overall position in GameStop, which by some estimates makes him the company's fifth-largest investor, continues to capture the market's attention following his return to social media and a YouTube livestream event he hosted late last week.
The former MassMutual executive posted screenshots that he claimed were a true representation of his interest in GameStop, including 5 million shares valued at $115.7 million as of June 2.
— Roaring Kitty (@TheRoaringKitty) June 10, 2024
He also owns 120,000 call options that would enable him to buy more GameStop shares at a strike price of $20 each on June 21.
Call options give the holder the right, but not the obligation, to buy the underlying asset (in this case GameStop shares) at a fixed price by a certain date.
Roaring Kitty's GME stake under pressure
Last week, that position was valued at around $341 million. But with the stock's slide now extending into a third session, and the exercise date on his options rapidly approaching, Gill's options stake is now valued at around $58.8 million, according to Nasdaq pricing data that shows June 21 call options trading at $4.90 each.
Options-market arithmetic means the calls will lose their inherent value as the strike date approaches, with Gill's holdings set to expire in nine days.
Related: GameStop slides amid Roaring Kitty YouTube return, slumping sales
Short interest in the group will also be a major factor in pushing the price of GameStop shares below the $20 strike price, as investors line up to bet against the group. GameStop has posted two profitable quarters in the past three years.
Short-sellers bet against a company by borrowing shares and selling them. If the price of the stock declines, the short-sellers will buy back the shares at a lower price, return the borrowed stock (while paying a fee), and pocket the difference.
Short-sellers in focus
Recent data from S3 Partners suggest total bets against GameStop are valued at $1.3 billion, representing around 47.6 million shares, or 17.7% of the share float outstanding.
If short-sellers can lean against the broader wave of GameStop buyers, they can put downward pressure on the share price.
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That can also have an impact in the options market by reversing what is known as a gamma squeeze, where call-options sellers will hedge their risk by buying shares of the underlying stock.
The unwinding of those moves can create big downside risks for a stock that has been driven higher by heavy call-option buying.
GameStop shares were marked 8.1% lower in early Tuesday trading and changing hands at $22.95 each.
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