The Sentiment Maestro

Analyzing Roaring Kitty's Trade via Open Interest and Volume

Created with DALL-E

Setting the Table:

• May capped off a +5% month for SPX with a whimper, then indices came bounding back the first week of June. But the 1.4% gain to all time highs we got this week is not what options traders are talking about - it’s GME. Stock is up over 100% last week as Keith Gill/Roaring Kitty has rallied the troops. It was up +10% premarket, but now trading down 5%.

• There’s a lot of speculation about his options position, and what impact it might be having on market structure. I’ll cut to the chase - very little. 

• As for a gamma squeeze, the 120k June 20 call options he owns have a 96 delta. That means market makers are hedged just about 1:1 on his position - it would take a significant move down to change that dynamic. 

• While they’re 96^ options, there is still a decent amount of extrinsic value - about $0.68 on the puts as of the close. If he exercises these options, he gives away about $8M to market. There’s no “gotcha” demanding delivery of the 12M shares. You want to exercise calls and puts early (and risk being assigned as a short) if they are worth more dead than alive. That’s true when call punches get you a dividend worth more than the extrinsic value, or puts save/gain you short interest. The easy shorthand is look at the opposing call/put value. 

• Unlike much of the call buying fury that we saw gamma squeeze meme stocks last cycle, the antics in this trade are off the field. I’ll let Matt Levine parse the legality of how Gill is talking his book, but from my armchair, he’s a sentiment maestro that knows how to get well paid for his work. 

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Identify:

• Here’s what I like about Gill’s trade. He went for liquidity. Whether you’re moving size from Maiden Lane or your mother’s basement, a trade is only as effective as the pool you make it in.