GameStop reset its Bitcoin covered-call strike to $80,000 after previous contracts expired worthless, generating $5.8 million in premium income. Shareholders accept counterparty risk and reduced upside in exchange for the income stream. The $80,000 strike puts coins closer to the level at which Coinbase could claim them.
GameStop reset its Bitcoin covered-call strike to $80,000 after previous contracts expired worthless, generating $5.8 million in premium income.
"The strategy holds up in a falling market because the premium income keeps coming, while capping gains if Bitcoin climbs well past the strike," Denis Dariotis, founder and chief executive officer of GoQuant, said.
The arrangement, disclosed in GameStop's quarterly filing for the three months through May 2, shows the coins now sit as a $369.6 million claim for repayment — about $58 million below their cost. Selling the options brought in $5.8 million over the period. The earlier batch of contracts, struck between $105,000 and $110,000, expired worthless on May 29.
Shareholders are accepting counterparty risk and reduced upside participation in exchange for the income stream, Dariotis said, noting that Coinbase holds the Bitcoin as collateral rather than GameStop holding it directly. The strategy generates yield from the company's $1.5 billion Bitcoin treasury without selling the underlying coins.
GameStop began building its Bitcoin position in March last year, borrowing $1.5 billion to load up on the coin. A Bitcoin treasury is formed when a company keeps part of its cash reserves in Bitcoin rather than in dollars or bonds, betting the price will climb and effectively turning its balance sheet into a bet on the cryptocurrency.
The renewed deal weakens GameStop's hold on the coins, Dariotis said, because shareholders are exposed to the risk that GameStop may not have the same direct control over those assets. Coinbase may be a relatively low-risk counterparty, he added, but the arrangement still adds a layer of risk for holders to weigh.
The $80,000 strike price puts the coins closer to the level at which Coinbase could claim them under the options contract. If Bitcoin climbs past that level, GameStop keeps the premium but loses the upside above the strike.
This article is for informational purposes only and does not constitute investment advice.
