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Roaring Kitty: Still a Knight in Shining Armor? How does his hype really impact retail traders?

Keith Gill aka Roaring Kitty
Keith Gill aka Roaring Kitty

Roaring Kitty, the online alias of Keith Gill, captured the financial world's attention with his bold and spirited promotion of GameStop stock on social media. To some, he is a hero—a modern-day Robin Hood standing up against Wall Street's elite. He commands a significant cult following on Wall Street Bets, along with retail traders who are familiar with his story and the film "Dumb Money" that features his side to the story. Here we find ourselves once again in a scenario involving GME and Keith Gill under familiar circumstances. Yet, we must ponder whether his involvement in the financial markets this time around will be perceived differently?

The Genesis of Roaring Kitty

Keith Gill, a former financial analyst, began his journey as Roaring Kitty on YouTube, sharing his investment insights and strategies with a growing audience. His charismatic personality and detailed analysis of GameStop's potential attracted a dedicated following. Gill's conviction that GameStop was undervalued and ripe for a turnaround resonated with many retail investors, sparking a grassroots movement.

The GameStop Phenomenon

In early 2021, Roaring Kitty's relentless advocacy for GameStop stock played a pivotal role in a massive short squeeze that saw the stock's price skyrocket. This unprecedented event pitted retail investors against hedge funds and drew widespread media coverage. The GameStop rally became a symbol of the little guy fighting back against the financial establishment.

Hero or Villain?

As GameStop's stock soared, questions arose about Roaring Kitty's intentions. Was he genuinely trying to empower retail investors, or was he orchestrating a scheme to profit at their expense? Critics argue that his relentless promotion of the stock, coupled with his substantial holdings, blurred the line between genuine advocacy and market manipulation.

Recent Activities and Positions

Roaring Kitty has once again made headlines with his recent positioning. As of May 13, 2024, he resumed posting on X (formerly Twitter) with a photo of a gamer leaning forward on his seat, signalling renewed interest in the market. He continued posting from May 13 to May 16, took a brief hiatus, and resumed activity from June 7 to June 8. Notably, spikes IN implied volatility coincided with his social media activity.

Roaring Kitty
Roaring Kitty post caused a large jump on IV on the same options contracts he disclosed

Through his live streams on YouTube, Roaring Kitty disclosed two significant positions in GameStop (GME):

  • 5 million shares of GME at $21.274, totalling 106.37 million shares.

  • 21/06/24 $20 call options at $5.6754 per contract, amounting to 120,000 contracts totalling $68.1 million.

GME 21/06/2024 20 Strike - Price Fluctuations
GME 21/06/2024 20 Strike - Price Fluctuations

On May 14, these options surged 546% to $31 per contract, resulting in a staggering $303 million in unrealised profit. However, by May 17, the value had plummeted back to $4.85 per contract, indicating a significant unrealized loss. Roaring Kitty has not yet disclosed if he has sold any of his positions, leaving many to speculate on his next moves.

GME continues to be highly volatile, with any activity from his tweets causing frenzied market reactions. This volatility is problematic and raises concerns about the impact on retail traders. The promotion of such high-risk trading strategies is seen by many as disingenuous, potentially leading less experienced investors into dangerous financial territory.

Implications for retail traders trying to copy trade

With such a hype around GME and the options positions held by Roaring Kitty. Lets take a look at a simulation of the same options contract that Roaring kitty is currently holding a $20 strike call when he first disclosed his position. This contract is going to cost $6.35 as of the 13/06/2024. So one contract is going to be $635, and the breakeven point is $26.35 which is currently a 3.43% move from the current price being $25.39 (13/06/2024). If traders had purchased the identical position at the time Roaring Kitty revealed his own position, they would have acquired it for $31 and paid $3100 per contract. Consequently, simply chasing the excitement surrounding Roaring Kitty's disclosure of his GME position on X would have resulted in a loss of 388%.

Many retail traders have been burnt by just following the hype of YOLO type trading.

This high risk-reward ratio strategy doesn't always pay off. An when a stocks volatility jumps around so flippantly and leveraged positions fall into the wrong hands, they can deteriorate rapidly and consequently result in large loses.

The true beneficiaries are those like Roaring Kitty who are initially exposed to the volatility and can then exit their positions.

The Aftermath and Legacy

"Fool me once, shame on you; fool me twice, shame on me" is a well-known proverb that emphasizes the importance of learning from past mistakes. In the aftermath of being deceived or tricked, individuals often reflect on their experiences and the consequences of being fooled. This proverb serves as a reminder to be cautious and vigilant to avoid being taken advantage of again.

The aftermath of the GameStop frenzy saw significant financial repercussions for both retail investors and hedge funds. Regulatory bodies launched investigations into the events, scrutinizing the roles of influencers like Roaring Kitty. Despite the controversy, Keith Gill maintained that his actions were driven by his genuine belief in GameStop's potential and a desire to democratize investing.

The interpretation of Roaring Kitty's recent trading activities and speculative social interactions remains uncertain. However, one could say that its probable that his current status and past experience in a similar situation will lead to different outcomes compared to his initial encounter with the SEC.


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