GameStop Price Declines, ‘Time Decay’ Hammer Roaring Kitty’s Option Position

GameStop Corp.’s (GME) stock price has plummeted in recent weeks, delivering a blow to the option position of retail investor and social media celebrity Roaring Kitty. Kitty, whose real name is Keith Gill, became known for his bullish bets on GME and his viral videos on Reddit’s WallStreetBets forum. However, the recent price declines have eroded the value of his long call options, which were set to expire in January 2023. Option contracts experience “time decay” as they approach their expiration dates. The closer an option gets to its expiration, the less intrinsic value it retains. This means that even if the stock price remains stable, the option’s value will decline over time. In Kitty’s case, his call options have lost significant value due to time decay. When he purchased them in early 2021, the stock was trading around $300. However, GME has since fallen to around $100, meaning that his options are now significantly out of the money. The decline in GME’s stock price has also triggered a margin call for Kitty. Due to the high volatility of GME, options brokers require traders to maintain a certain amount of collateral in their accounts. As the stock price has fallen, so has the value of Kitty’s collateral, forcing him to sell some of his options to cover the margin call. The combination of time decay and the margin call has had a devastating effect on Kitty’s option position. According to estimates, his unrealized loss on his GME options is now over $50 million. The decline in GME’s stock price and the subsequent losses for Kitty serve as a reminder of the risks associated with options trading. Even when the stock price is moving in the desired direction, time decay can still erode the value of the options. Trailing stop losses should be used for position sizing to reduce downside risk.Keith Gill’s Option Position in GameStop

Keith Gill’s Option Position in GameStop

As GameStop’s share price fluctuates, stock influencer Keith Gill, known as “Roaring Kitty,” faces a ticking clock on his large options position. On June 2, Gill disclosed owning 120,000 June 21 call options, worth $68.1 million at the time. However, Monday’s 12% decline in GameStop shares has reduced the value of the options to $81.9 million. Analysts note that the short-dated nature of Gill’s options means he may need to take action soon, especially if the stock continues to fall. The options expire on June 21 and lose value rapidly as that date approaches. Gill has the option to exercise his calls and acquire 12 million GameStop shares, but this would require a significant upfront investment of $240 million. Market makers, who facilitate options trading, could also influence GameStop’s share price. If the stock slips below the options’ strike price ($20), market makers may sell shares to reduce their risk, potentially accelerating the decline. Observers are closely monitoring Gill’s options position and market conditions to anticipate his next move and its impact on GameStop’s share price.GameStop’s stock price declined on Thursday, as the “time decay” of options held by retail investors caught up with the popular stock. The stock closed at $172.28, down 14.4% from its closing price of $201.45 on Wednesday. The decline comes after a week of volatility for the stock, which has seen it trade in a range of $150 to $250. The decline in GameStop’s stock price is likely due to a number of factors, including the expiration of options contracts that were purchased by retail investors during the recent rally. These options contracts gave investors the right to buy or sell GameStop stock at a certain price on a certain date. However, as the expiration date approached, the value of these options contracts declined, and investors were forced to sell their shares to avoid losing money. The decline in GameStop’s stock price is also likely due to the fact that many retail investors who purchased the stock during the recent rally are now taking profits. These investors are selling their shares in order to lock in their gains, which has led to a decline in demand for the stock. The decline in GameStop’s stock price is a reminder that the stock market is volatile, and that investors should be aware of the risks involved before investing. While it is possible to make money investing in the stock market, it is also possible to lose money. Investors should always do their own research before investing in any stock, and they should only invest money that they can afford to lose.