Video game retailer GameStop has renewed its strategy of utilizing Bitcoin through options contracts, which allows the company to trade potential price gains for immediate cash flow. This decision comes after the expiration of an earlier batch of options contracts at the end of May. GameStop disclosed this arrangement in a quarterly filing to the Securities and Exchange Commission, providing insights into its financial maneuvers during the three months leading up to May 2.
In its latest filing, the retailer stated that its Bitcoin assets no longer qualify as direct holdings but instead represent a claim for repayment valued at $369.6 million. This figure is approximately $58 million less than the original cost of the Bitcoin, but GameStop was able to generate $5.8 million from selling the options over the same period.
The revised strike price for the new contracts dropped to $80,000, down from a previous range of $105,000 to $110,000. This adjustment brings the coins closer to the threshold at which Coinbase can claim them, as reported by Protos. The previous options expired worthless on May 29, leading GameStop to re-pledge the Bitcoin under similar terms.
A covered call option is a financial tool where a company sells someone the right to purchase an asset at a predetermined price while retaining ownership. Although this strategy collects premiums that can serve as an income buffer against price declines, it also means that if the asset’s value surpasses the strike price, the company may lose out on potential gains.
Denis Dariotis, Founder and CEO of GoQuant, explained that GameStop is leveraging these covered-call contracts to earn income from its Bitcoin without selling the underlying assets. While the premium income can help mitigate losses in a bear market, it comes at the cost of reduced upside potential if Bitcoin rallies beyond the strike price. Dariotis warned that shareholders should be cautious, as this strategy presents a level of risk regarding GameStop’s control over its Bitcoin holdings, given that the assets are pledged to Coinbase as collateral.
GameStop’s Bitcoin investments began in March of the previous year when the company borrowed $1.5 billion to invest heavily in the cryptocurrency. The company’s strategy of forming a Bitcoin treasury—holding part of its cash reserves in Bitcoin instead of traditional currency—was designed to capitalize on anticipated price increases.
By early March, GameStop had shifted almost all of its 4,710 Bitcoin into this options strategy. The shift allowed Coinbase to utilize, mix, or sell the coins while requiring GameStop to remove these assets from its balance sheet, replacing them with a repayment claim.
Despite this, the impact of the Bitcoin holdings on GameStop’s earnings was minimal for the quarter, contributing only about $1 million, while the company achieved a record net income nearing $390 million. Most of this profit stemmed from interest accrued on its cash reserves and gains realized from other investments, rather than from its retail operations.
By the end of the reporting period, Bitcoin was trading near the $80,000 mark, which slightly increased the value of the contracts. However, Bitcoin remained below that level through the expiration date of the options, allowing GameStop to retain the premiums collected. Currently, Bitcoin is trading around $63,900, reflecting a 34% drop from its peak earlier in the year and sitting about $43,000 below the average price GameStop paid for its holdings.
Decrypt has contacted GameStop for further comments regarding these developments and will provide updates should a response be received.
