To The Moon

TL;DR: The key question - Why start setting up the play 3 weeks in advance?

Roaring Kitty = The Whale

Two weeks after the May 13th spike, on Monday June 3rd, GME saw another 75% pre-market surge.

On Sunday June 2nd, Roaring Kitty (u/DeepFuckingValue) on Reddit posted a screenshot showing he had purchased 5 million shares of GameStop at $21.27 per share for a total of $115.7 million.

Additionally, Roaring Kitty bought 120,000 $20 strike calls expiring June 21st ( $GME 20240621 20.0 CALL$  ) worth around $65.7 million.

Just looking at this account, Roaring Kitty's total GME securities are worth $210 million.

Source: Reddit

After this news, one key question comes to mind - why this specific timing? For the June 21st expiry options, why start setting up the play 3 weeks in advance? What kind of setup is he going for? How can we profit from this play?

This article will explore the above questions.

But remember, whether this play succeeds or not, Roaring Kitty has already made money. Whether retail can profit by jumping in now comes down to emotional discipline.

The Methodical 2021 Setup

Adjusting the chart to not account for splits/dividends, let's revisit the classic 2021 battle. We'll see the setup took around a month, while the spike ignition took 2 weeks.

Wednesday January 13th was a key day, with the stock spiking 57% from $20 to $38.65, then consolidating around $40 until the following Thursday January 21st.

• On Friday January 22nd it opened at $42.59, spiked 51% higher, closing at $65. Monday the 25th it opened at $95, closing at $76.

• Tuesday the 26th opened at $88.65, spiked 92.7% to close at $147.98.
  Wednesday the 27th opened at $354.83, closing at $347.51.

• The Whale's 2021 playbook had three steps: anchor $40, anchor $60-70, then ignite the rip.

Establishing that $60-70 base was critical for the spike higher.

Conservatively assuming 80% upside, $70 * 180% = $126, $112 * 180% = $226.80

This is why the exchanges started adding $100+ strikes once it hit $60.

The Rushed May 13th Setup?

Looking back at the week of May 13th now, it's clear the Whale didn't give the stock enough time to develop properly.

Monday anchored $40, Tuesday $70, then crashed back to $40 on Wednesday, free-falling back to $20 by Friday.

The inability to hold $70 is understandable, but not even being able to hold $40 means the stock couldn't get a running start to challenge $70, let alone $100 or $200.

Beyond the lack of price stability, option buying was sparse. Despite >60% daily pops, whether due to broker restrictions on higher strikes or newbie retail not understanding options, key strikes saw very little volume to sustain upward momentum.

Without offexchange participation, intraday ramps alone couldn't prop it up.
Not to mention constant trading halts disrupted any upside rhythm - one step forward, three steps back. The upside lacked fuel and gravity prevailed. The setup seemed to fail completely.

But in hindsight, the most successful part of the May 13th setup was getting $120+ strikes added and attracting a swarm of small call sellers.

As of Monday June 3rd, the June 7th $128 calls had 12,100 open contracts, the June 14th $128 calls had 7,134 contracts, and the June 21st $125 calls had 11,300 contracts.

If the stock consolidates around $40 this week, then suddenly spikes on Friday or after-hours, what will happen to those call sellers?

Baiting the Shorts

Even after two weeks of consolidation, the extremely out-of-the-money call options still have attractive implied volatilities luring in short sellers.

For example, this week's $128 calls expiring June 7th have 591% implied vol. Selling them offers 25% annualized returns, or 196% on leverage!

Previously I'd say as long as you have enough margin, just short it for easy money.

Like with $500 margin per share, how could you get blown out?

But after last week's gamma event, it seems the Whale has leveled up their nauseating tactics.

As is well known, option buyers have the right to exercise, and sellers the obligation to be assigned. If sold calls go in-the-money, even just in the 1.5 hour after-hours window, buyers can exercise immediately.

At that point, the seller's account gets short 100 shares per contract. With enough money they can stay short, but it's super annoying - paying stock borrow fees, plus 100% margin usage on a meme stock short.

Most normal people would likely just buy-to-cover at that point, succeeding in the bear trap.

Battle Guide for Trading Wits with the Whale:

Warning: This is purely fiction, not investing advice. Do not trade based on this.

Two weeks ago, the Whale made a big bullish option buy, likely aiming to attract more players. But frustratingly, everyone got spooked by their big size and just treated the $20 calls as ordinary news, instead wasting time overanalyzing hedge fund causalities - laughable.

Of course, it could've been a smokescreen while they quietly loaded up amidst the confusion before revealing their hand.

Chasing it higher now is suboptimal - they've already won.

But after this review, allow me to boldly speculate:

June 3rd - 21st Three Week Playbook: Small goal is stabilize $40, medium goal is $70, next week's goal is challenge $100 with $400 strikes.

If you're long:

If you already own shares, assuming a $20 cost basis, you can continue holding to see if it reaches $60+ by June 10th. If not, cut losses - it's unlikely to drop below $20 in the short-term.

If you don't have shares yet but want to get long, consider buying 1 June 21st $40 call instead of 100 shares to define risk.

100 shares at $40 risks $2,000 to $20. The $40 call was $8 on Monday, risking $800.

The option plan is - either lose it all if $70 isn't reached, or take profits at $70. Or go for glory and hold for a run at $100-$200.

If you're short:

I'd advise waiting. Despite the high vols, this may not be the best entry to get short.

Roaring Kitty's calls expire June 21st, meaning the ramp needs to complete by then. Post-21st, it needs to sell off.

If they fully replicate 2021, we can patiently wait, getting short $40 puts each time it hits $70 and $100, then aggressively short after June 21st.

Given how dirty their tactics have become with sudden after-hours exercises, I don't recommend taking the seller side. But open season after June 21st.

Key positions to watch:

Whale Position 1: $GME 20240621 20.0 CALL$ 

Whale Position 2: $GME 20241018 13.0 CALL$ 

Relative to Position 1 being reduced/closed, I think Position 2 being closed would be more significant.

Other meme opportunities like AMC FFIE aren't worth mentioning. When trading memes, always remember - If you're not at the table, you'll probably be on the menu