Billionaire investor Chamath Palihapitiya follows Reddit investors into GameStop with purchase of bullish options that start paying out if the stock soars another 28%
- Billionaire investor
Chamath Palihapitiyajoined GameStopwith a purchase of bullish call options on Tuesday.
- Palihapitiya tweeted on Tuesday that he purchased $115 call options that expire on February 19.
- "Let's gooooooo!!!!!!!!" Palihapitiya tweeted.
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On Monday, the billionaire investor asked his 804,000 Twitter followers "what to buy tomorrow" and said he would "throw a few 100 k's at it" if he was convinced.The chorus of responses ranged from cryptocurrencies to electric vehicle stocks, but in the end GameStop won out.
Based on a screenshot attached to the tweet, Palihapitiya bought 50 call options in GameStop with a strike price of $115 and an expiration date of February 19. Based on Tuesday morning trading prices of around $25, a single contract of the specific option costs $2,500, bringing Palihapitiya's total purchase price of the options to about $125,000.Read more: MORGAN STANLEY: Buy these 9 sports-betting stocks ahead of the industry's expected legalization in 12 states this year and its growth to $10 billion in 2025
Assuming Palihapitiya did pay $2,500 per contract, GameStop would need to surge more than 60% from Tuesday morning trading levels to $140 for Palihapitiya's option bet to turn a profit, accounting for the premium paid on the options. The options contract itself would be in-the-money roughly 28% above the current level of $89.50 as of 12:10 p.m. ET.If GameStop is trading above $140 by February 19, Palihapitiya could exercise the call options upon expiry, allowing him to pay $575,000 for 5,000 shares of GameStop at $115 per share. Alternatively, if GameStop soars between now and February 19, Palihapitiya could sell the options contracts for a higher price than he paid for them. Palihapitiya is joining a group of retail investors that have sparked a massive short squeeze in the video-game retailer. The stock soared as much as 145% in Monday's trading session on no apparent news.
That spike led hurt one hedge fund, Melvin Capital, which received a $2.75 billion investment from Steve Cohen's Point72 and Ken Griffin's Citadel to help it weather the losses from a short position in GameStop.
Shares of GameStop were up as much as 32% on Tuesday.Read more: GOLDMAN SACHS: These 22 stocks still haven't recovered to pre-pandemic levels - and are set to explode amid higher earnings in 2021 as the economy recovers
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