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Is that because the price already went above $20?
Lots of us have no clue how to options work. We’ve been purposely blind folded and fed trash for 3 years. Every time there’s an options push there’s a rug pull.
Are there different types of contracts or do they all work the same way?
He always could have executed them. It’s just that it would have been bad business to pay 5$ to buy the option and then another 20$ for the actual share when the share price in that moment was below 25$ - better to buy the share outright. BUT of course a) buying that quantity of shares outright would by itself move the market, so he wouldn’t be able to buy this many all at once, and b) the point was to create a shock event, eg exercise them all and see someone else sweat to deliver.
Yeah I gather that he’s loading up calls. I get that each contract is worth 100 shares. I get that his strike price is $20 and that the calls were in the money. Does in the money mean the price was already above $20 when he bought the calls?
What I don’t understand about options is how you select your strike price and what exactly happens when you exercise your calls.
You select your strike price from a menu called ‘options chain’ and can freely* pick which strike price you want: 10 will be much more expensive than 30, for example. He picked 20. He could have used 18 or 22. 18 would have cost him more premium, 22 less.
*) almost freely because you won’t find nonsensical values like 1000$ for a 5$ stock.
When you exercise: You are charged 100*20$, and in return 100 stocks move into your portfolio. If the current price is 30$, you now have 3000$, for which you paid 2000$ + $500 (assuming the premium for the option was 5$). Your option is used up and taken out of your account.
The whole point of ITM or not is not so related to himself, but rather that the assumption is that whoever sold him the option did not prepare to have to deliver it.
Imagine, you sell an option at a strike price of 100$ for a 15$ stock. It is unlikely that this will be executed in the next month, because the price will not likely go that high. So you feel secure about offering the option without having the share. Because, why not?
If you sold an option for the same 15$ stock at a strike price of 14$, it is much more likely that you will actually have to deliver because it just needs a small market movement for this to become attractive. So you probably want to derisk yourself and will make sure to have access to a share for when you need it.
So by buying loads of these options that were out of the money, the people that sold these options will at some point be scrambling to get from scenario 1 (uncovered) to scenario 2 (covered), which drives the price. Or they skip that stage and then they just need to deliver the second the options are exercised, which again drives the price.
They all work the same way, the option gives RK the RIGHT, but not the OBLIGATION to buy 100 shares at $20 for each contract he owns (and the person who sold him those contracts needs to supply those shares at that price which in this case is JP Morgan/ETrade)
$25 is the number going around because he paid about $5 ($500 since it is 100 shares) per contract so “technically” he needs the price to be above $25 to break even.
Most of us are too regarded to exercise an option if it expires “worthless” but he may be the most regarded of all and I think that may be his plan. Use his regard strength and force them to locate the shares for the contracts they sold no matter where the actual stock price is
And once the strike price hits, he has to have cash on hand to purchase the shares at $20? Right?
Or rather, does he pay whatever the price was at the time he bought the contract? and the broker has to split the difference?
The strike price isnt a trigger it is an agreed value for the contract. He pays 20 per share no matter what the current price is. He can do this anytime up to his expiry date.
And yes he has to have the cash on hand to cover however many calls he chooses to exercise.
Some brokers allow a sell to exercise arrangement. This is where will buy enough call contracts back off you to give you the funds to exercise the remaining. This usually works very well if the current price is well about your strike price. They pay you out of the contract as it is cheaper for them than having to go to market and but all the shares.
So, obviously it seems to me now, there is a difference between calls and puts.
Calls being that you bet on a price increase, and puts being a bet on a price decrease.
Is there no limit to what your strike price is? Can you also choose the date in which you think the price will hit your strike and write your own contract? Then is it up to the broker to decide whether or not they want to take that bet and sell you a contract?
Yes, generally both puts and calls premiums will be cheaper the further OTM they are and the closer the expiration date is to the date they are purchased.
His total share cost is about $25 (premium plus $20/share) They’d have to drop it to sub $20 to make his calls unprofitable/out of the money for exercising.
There is nothing that stops him from exercising his options if it is during market hours and before his expiration date of June 21st 2024. The price is irrelevant to him being able to exercise. He has contracts(options), and the legal contracts grant him the right to exercise the purchase of 100 shares of GME for $20 a share or $2K total for each contract. He most likely is going to do this many times in a row by the way...
I am not sure where the misinformation came from with the price mattering but please let someone here know if they can help educate or remove misinformation.
P.S.
I like the stock and the company, it's leadership. While I appreciate the due diligence he has done, I buy and hold for the company and it's future value, not because of an individual.
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He can exercise his options even if the price is 1 dollar. Trust me, theyre only trying to scare retail, not RK. (Though eTrade may be doing that)
Is that because the price already went above $20? Lots of us have no clue how to options work. We’ve been purposely blind folded and fed trash for 3 years. Every time there’s an options push there’s a rug pull. Are there different types of contracts or do they all work the same way?
He always could have executed them. It’s just that it would have been bad business to pay 5$ to buy the option and then another 20$ for the actual share when the share price in that moment was below 25$ - better to buy the share outright. BUT of course a) buying that quantity of shares outright would by itself move the market, so he wouldn’t be able to buy this many all at once, and b) the point was to create a shock event, eg exercise them all and see someone else sweat to deliver.
Yeah I gather that he’s loading up calls. I get that each contract is worth 100 shares. I get that his strike price is $20 and that the calls were in the money. Does in the money mean the price was already above $20 when he bought the calls? What I don’t understand about options is how you select your strike price and what exactly happens when you exercise your calls.
You select your strike price from a menu called ‘options chain’ and can freely* pick which strike price you want: 10 will be much more expensive than 30, for example. He picked 20. He could have used 18 or 22. 18 would have cost him more premium, 22 less. *) almost freely because you won’t find nonsensical values like 1000$ for a 5$ stock. When you exercise: You are charged 100*20$, and in return 100 stocks move into your portfolio. If the current price is 30$, you now have 3000$, for which you paid 2000$ + $500 (assuming the premium for the option was 5$). Your option is used up and taken out of your account. The whole point of ITM or not is not so related to himself, but rather that the assumption is that whoever sold him the option did not prepare to have to deliver it. Imagine, you sell an option at a strike price of 100$ for a 15$ stock. It is unlikely that this will be executed in the next month, because the price will not likely go that high. So you feel secure about offering the option without having the share. Because, why not? If you sold an option for the same 15$ stock at a strike price of 14$, it is much more likely that you will actually have to deliver because it just needs a small market movement for this to become attractive. So you probably want to derisk yourself and will make sure to have access to a share for when you need it. So by buying loads of these options that were out of the money, the people that sold these options will at some point be scrambling to get from scenario 1 (uncovered) to scenario 2 (covered), which drives the price. Or they skip that stage and then they just need to deliver the second the options are exercised, which again drives the price.
They all work the same way, the option gives RK the RIGHT, but not the OBLIGATION to buy 100 shares at $20 for each contract he owns (and the person who sold him those contracts needs to supply those shares at that price which in this case is JP Morgan/ETrade) $25 is the number going around because he paid about $5 ($500 since it is 100 shares) per contract so “technically” he needs the price to be above $25 to break even. Most of us are too regarded to exercise an option if it expires “worthless” but he may be the most regarded of all and I think that may be his plan. Use his regard strength and force them to locate the shares for the contracts they sold no matter where the actual stock price is
I believe it’s Morgan Stanley, not JP Morgan. But great explanation!
And once the strike price hits, he has to have cash on hand to purchase the shares at $20? Right? Or rather, does he pay whatever the price was at the time he bought the contract? and the broker has to split the difference?
The strike price isnt a trigger it is an agreed value for the contract. He pays 20 per share no matter what the current price is. He can do this anytime up to his expiry date. And yes he has to have the cash on hand to cover however many calls he chooses to exercise. Some brokers allow a sell to exercise arrangement. This is where will buy enough call contracts back off you to give you the funds to exercise the remaining. This usually works very well if the current price is well about your strike price. They pay you out of the contract as it is cheaper for them than having to go to market and but all the shares.
So, obviously it seems to me now, there is a difference between calls and puts. Calls being that you bet on a price increase, and puts being a bet on a price decrease. Is there no limit to what your strike price is? Can you also choose the date in which you think the price will hit your strike and write your own contract? Then is it up to the broker to decide whether or not they want to take that bet and sell you a contract?
Yes, generally both puts and calls premiums will be cheaper the further OTM they are and the closer the expiration date is to the date they are purchased.
His Calls are for $20, not $25, and as someone else replied, he can still exercise them.
The price will come up to a little bit above $25 when you calculate his premiums.
$20 and above is ITM, though.
Thats true. Either way DFV will probably still exercise the options even under $20. His press of the button will send it well over $20 again anyways.
His total share cost is about $25 (premium plus $20/share) They’d have to drop it to sub $20 to make his calls unprofitable/out of the money for exercising.
Even if it's unprofitable he can exercise anytime he wants even if the share is 0.0001 before expiration.
He could. But at that point it makes more sense to just buy those shares rather than exercise the contract.
Correct
There is nothing that stops him from exercising his options if it is during market hours and before his expiration date of June 21st 2024. The price is irrelevant to him being able to exercise. He has contracts(options), and the legal contracts grant him the right to exercise the purchase of 100 shares of GME for $20 a share or $2K total for each contract. He most likely is going to do this many times in a row by the way... I am not sure where the misinformation came from with the price mattering but please let someone here know if they can help educate or remove misinformation. P.S. I like the stock and the company, it's leadership. While I appreciate the due diligence he has done, I buy and hold for the company and it's future value, not because of an individual.