Roaring Kitty Ignites GameStop's Comeback, Short Sellers Gear Up for Battle
Shares of $GameStop(GME)$ are poised for another volatile trading session as the video game retailer once again captures the spotlight in the latest resurgence of meme stock enthusiasm, providing a boon for liquidity-seeking options traders.
On Monday, GameStop's stock soared 21%, buoyed by social media posts from Keith Gill, known online as "Roaring Kitty." Gill, who became a folk hero of sorts during the 2021 meme stock explosion, revealed a $116 million wager on GameStop through a $Reddit(RDDT)$ post that included a screenshot of his trading account.
After the market closed, Gill doubled down on his commitment to the stock, posting evidence of his holding of 5 million shares—about 1.8% of GameStop's float—and 120,000 call options. Despite Monday's rally netting him a paper gain of $78.6 million, Gill appeared unfazed and maintained his position.
GameStop, which saw its share price reach stratospheric levels in a David-versus-Goliath narrative last year, experienced wild price swings on Monday, opening at $40.19—nearly double the previous close—before settling at $28. The stock had rocketed 490% in eight days the previous month, only to relinquish those gains within three days. These numbers are a stark contrast to the peak of over $500 per share, or $125 post-split, seen in February 2021.
The options market was bustling with activity as a total of 913,600 contracts changed hands, a whopping 2.41 times the 30-day average volume. The day's trading saw a greater inclination towards bullish sentiment, with call options representing 62.05% of the total volume.
Open interest in GameStop options shows a significant concentration in the $20 calls and puts, as well as the $40 and $30 call options.
Currently, the implied volatility (IV) for the stock stands at 245.5%, which suggests substantial expectations for future price movement by the market. The IV Rank is at 65.22%, indicating that the current level of implied volatility is higher than 65.22% of the stock's IV readings over the past year, reflecting a relatively elevated level of uncertainty for the stock price ahead.
Not everyone is happy about this gain.
E*Trade and parent company Morgan Stanley are reportedly considering removing Gill from their platform, amidst concerns about possible market manipulation linked to his recent transactions, as reported by The Wall Street Journal. Both the Securities and Exchange Commission and the Massachusetts Securities Division are scrutinizing the situation for potential regulatory infractions.
In addition, Citron Research, which has previously clashed with Gill, weighed in. Citron's founder, Andrew Left, remarked on Twitter that while Gill's initial investment thesis and transparency had captivated many, his latest maneuvers suggest manipulation.
Citron tweeted, "What made Keith Gill aka Kitty interesting initially was his authenticity. He shared a detailed investment thesis and put his money where his mouth was, which combined with a high short interest and a restless country and boom... investing history. This time it feels different."
They added, "Now, with $GME, he posts with a large account and a significant near-term option position, appearing more like manipulation without a solid thesis. We believe someone is backing Gill — there's no way he made this size trade alone. His reported finances don't support this trade. Investors will see through this roaring Icarus."
Left himself disclosed a renewed short position against GameStop, though smaller than his past bets back in 2021. Citron, once known for its short-selling acumen, was caught in the first meme stock short squeeze, leading to a pivot away from publishing short-sale research.
In a recent commentary addressing the latest surge in meme stocks, Bill Gross expressed skepticism on the social media platform X on May 1th. Dismissing the hype around "Gamestonk," Gross declared his detachment from the buy-and-sell frenzy.
Gross's approach focuses on capitalizing on what he calls "400% annualized volatility." His method involves selling straddles—a combination of selling both call and put options at the same strike price—on GameStop, specifically targeting the $40 strike, according to Bloomberg's report. By executing this trade, Gross received a premium of $22 per set of options, positioning himself to profit should GameStop's stock price remain within the range of $18 to $62 by the close of trading on the Friday that week. Gross has applied an analogous strategy to $AMC Entertainment(AMC)$
The saga continues to unfold as GameStop remains at the epicenter of retail trading fervor, challenging traditional market dynamics and stirring debate on the influence of retail investors and the future of market regulation.
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