Legendary investor Bill Gross who profited $10 million from GameStop (NASDAQ: GME) stock rally in January is betting against the game retailer again. During an interview with BloombergTV on Tuesday, Gross discussed positioning himself against GameStop by selling call options.
“The volatility is super high… and promoting an ability to make some money,” he explained.
Gross, co-founder and former CEO of Pimco said he sold contracts called “call options” with “strike prices” of $250 and $300. This means he will be gaining if the stock keeps trading below the $208.20.
Nevertheless, Gross could lose if the GME stock leads another rally. The loses could be substantial if prices jump over $300 as it did in January. This new year rally was due to WallStreetBets Reddit group investing heavily in the stock.
Gross profited $10 million from battle between bulls and shorts
In January, amateur investors – led by YouTuber and Redditor Keith Gill – “Roaring Kitty” – made a hard bet on GameStop stock. Redditors resulted in an epic battle between bulls and Wall Street financial institutions and giants acting as short-sellers of the American game retailer stock. The battle had pushed GME to its all-time high price of $480 before suffering a severe correction. This ‘correction’ drove stock prices back down to $60 in February.
Following the dip, Gross who short-sold the stock disclosed in the Citywire Selector podcast he was losing between $10 million and $15 million, but after the short-squeeze effect faded, the stock market turned the table in his favor, leaving him with $10 million profit.
“I was losing millions of dollars and that’s not a good feeling when you go to bed,” he told the podcast.
Billionaire and investor Gross told Bloomberg on Tuesday: “I did manage to overcome my insecurities and hold on and ride it all the way back down in terms of getting out.” He added he’s now “back in, I’m still selling call options at $250 and $300.”
Call option sellers promise to sell a stock to the option’s buyer for a limited timeframe. A specific sale price is negotiated and set. The option sellers benefit if the stock plunges below the contracted price also known as the strike price.
The position Gross took is a very risky one since GameStop has been leading a rally since January’s stock plummet. GME has surged to more than $200 in a rally. Unfortunately, this time, Redditors are not the only reason behind the stock price surge.
Gross added GME’s high volatility “is a perfect opportunity for options sellers to take advantage.”