The Rise and Potential Fall of GameStop’s Champion Keith Gill

The Rise and Potential Fall of GameStop’s Champion Keith Gill

Almost five years ago, GameStop champion Keith Gill revealed a $53,000 bet in his favorite video game retailer. This week, Gill’s net worth is over $289 million. The meme stock leader, who can move the stock by simply posting cryptic messages online, shared a screenshot of his portfolio Monday night, showing he held onto his 5 million shares of GameStop and 120,000 call options even after a 21% rally. He made a whopping $79 million on paper on Monday — a single trading day.

Gill, whose handle is “DeepF——Value” on Reddit and “Roaring Kitty” on YouTube and X, started sharing his GameStop position in September 2019 with a $53,000 stake, encouraging a band of retail traders to squeeze out short-selling hedge funds. By the end of the jaw-dropping episode in April 2021, Gill exercised his call options position to have 200,000 common shares. The size of his positions dramatically increased when he resurfaced online three years later. Meanwhile, GameStop, a stock he originally bought because he thought it was a deep-value bet, is still struggling with shifting away from brick-and-mortar video game purchases to e-commerce.

“The most successful players are those that are just out of their minds. You have to be made of something different to trade like that,” said Michael Khouw, co-founder and chief strategist of OpenInterest.PRO. “You would never see a professional trader make those kinds of numbers,” Khouw added. “Most of our risk managers would have come down on this way before you ever got to something swinging around like this. It’s just unimaginable.”

Gill could run into some trouble, though. The Wall Street Journal reported that Morgan Stanley’s E-Trade broker was considering booting him because of the worry that what he was doing could amount to market manipulation. CNBC was unable to verify what Gill has shared about his GameStop stake and portfolio.

The last screenshot of Gill’s portfolio showed 120,000 call options against GameStop with a strike price of $20 that expires June 21. Put another way: If the stock closes above $20 that day, Gill could exercise the options at $20 apiece, leaving him owning an additional 12 million shares. A total of 17 million shares would make him the fourth-biggest shareholder in GameStop, coming in behind Vanguard, BlackRock and Ryan Cohen’s RC Ventures, according to FactSet. The notional value, if exercised, would be $240 million worth of stock bought at $20.

“If Gill exercises the calls, that would leave him with 17 million shares. At Monday’s close of $28, the stake would be worth $476 million. At GameStop’s recent peak of $64.83 on May 14, it would be worth $1.1 billion. (His cost to acquire such a stake this way would be $421.4 million.)”

Gill could also roll those call options to a further expiration date to buy some time, which means exiting the current position and immediately entering a similar position. However, that could be a costly option. “The problem with that is he’s going to be wasting money on new option premium each time he does that,” said CC Lagator, co-founder of brokerage Options AI. Shares of GameStop are down about 2% on Tuesday.

Keith Gill’s journey from a $53,000 bet to a net worth of over $289 million is one for the history books. However, the risks associated with his trading strategies, potential market manipulation allegations, and the volatility of GameStop stock itself could spell trouble for the meme stock leader in the future. As the saga unfolds, all eyes will be on Gill’s next move and the impact it has on the market.

Global Finance

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