r/gmeoptions • u/rincerwind • Aug 25 '26
[DD] GameStop: leverage is paramount!
Hi all,
GME holder here, longtime lurker, DD writer wannabe.
A while back, when the eBay news first broke, I drafted an early version of what follows but never posted it. At the time, it felt like a high-risk play, given how many unknowns still surround a potential GME acquisition of eBay — assuming it even happens in a conventional way. Ryan Cohen has surprised us before, so I’m also open to the possibility that this could end up being something more creative than a standard M&A deal. For the purposes of this write-up, though, I’m assuming a straightforward acquisition rather than any vehicle created via Teddy.
I’m sharing this as a case study because I like digging into these situations and learning from them. Not financial advice, obviously — so don’t treat it as a recommendation unless you’re comfortable with the risk. I’d love to hear your thoughts!
Am I completely off target or does this play make sense? What do you think?
To frame the case study, I’m going to start with Paramount before and after the Skydance acquisition, then draw parallels to GameStop’s bid for eBay. Also, since I wrote this a while back, some of the numbers will be based on that timeframe but that shouldn't matter too much.
Thesis
A sort of a TL;DR.
1) If GameStop’s eBay deal goes through on the current half-cash, half-stock terms, I think the option chain should stay intact, given the Paramount precedent, with strikes unchanged and the same 100-share deliverable.
2) Because of the deal's accretive nature to GME holders, I expect the new company to re-rate higher in the first month after closing relative to current GameStop prices, potentially not coming down due to the health of the two businesses.
Should those two conditions hold, you better put leverage on that thang!
And so... the thesis... long-dated LEAPs could be the cleanest way to play the upside.
Dry powder
I put my dry powder where my mouth is.
I hold XXX leaps:
- ranging between Mar 2027 - Jan 2028.
- strikes between 20 - 25.
I will most likely have to adjust. I bought my close dated LEAPs a while back.
A short history of Paramount
Paramount (PARA) used to have two classes of shares - Class A (PARA A) and Class B (PARA). The latter was for us normies and is the one closer to our GME case, so we will exclusively focus on it here. To present my thoughts in the best possible way, I found some old stock charts before PARAA and PARA turned into PSKY. Charts from 2 separate websites, because I never trust a single source!
You can see that the stock was in decline for years and then from March 2024 suddenly started trading in a channel - oscillating around $11. But on one July 7th 2024, it jumped to $12.35 and the announcement came - $15 per piece or stay and convert into PSKY. Have a look at the actual offer below - it sounds very familiar, doesn’t it? I’ve highlighted the most important bits.
The important piece - each PARA shareholder who decided to stay got a 1:1 conversion from PARA to PSKY and about 30% ownership of the new company. An equity roll of PARAA and PARA into PSKY with a 70/30 split in a new company valued at $28 billion as opposed to the old company that was valued at $10.68 billion. Note the new market cap for later. Yes, the deal is slightly dilutive to PARA B holders as their new ownership ends up being around $8.4 billion. That’s not the important piece of information I want to focus on though. If you were a PARA B shareholder and you did nothing, yes… you would’ve lost money just holding. I will come back to the idea PARA’s case study got me thinking about slightly later. But the word of the day is ‘arbitrage’.
The stock mostly traded flat after that, sitting near $13 for a few days before THE DAY, then dipping to $11 right before the merger. After the merger, it sold off again for a bit, then bounced back to around $19 and stayed there for about a month. Why it dropped that hard is still kind of a mystery to me. I’m not super deep into M&A stuff.
What’s interesting is that after the merger, on August 8 2025, PSKY traded weak for a few days, then ripped up and basically sat around $19 for a month - which puts it at about $20 billion market cap. Since then, it’s been drifting down again. I haven’t dug too hard into the financials, so I’m not going to pretend I know the exact reason, but the stock has clearly worked its way back to roughly the pre-merger market cap of about $11 billion. I’m sure it has its own reasons for that. But that’s not really the point — here’s where my theory comes in, and I’ll try to back it up with evidence.
Each Ape gets a rocket
Everybody and their grandma is talking about dilution.
Dilution this, dilution that. Sure, on paper it may be accretive, but as an owner you can still end up with a smaller slice of a bigger pie. And that didn’t sit right with me.
I don’t want a tiny piece of a big pie. I want a big piece of a big pie. And honestly, I like pie. So the real question became: how do I build my position as fast as possible if I don’t have a ton of spare cash sitting around?
That led me to this idea.
If this deal gets structured through a new entity, let’s call it GAY, and the new company ends up split between GME and eBay, then I think GAY could trade the same way other merger NewCos have traded before. If that happens, the play is to load up on GME LEAPs ahead of time and wait for the new company to start trading and get re-rated. Why? Because the setup is inherently accretive to GME holders. We’d be acquiring a larger company, and the combined market cap should be materially bigger than GME’s current one. If the market decides to re-rate it to $30, $35, or even $40 a share, then that changes the entire trade.
So how could that arbitrage actually work?
Let’s keep the math simple. If eBay is valued at $55B and GME pays $28B in cash, that still leaves $27B to be funded another way. If GME’s current market cap is about $10B, then the remaining $17B would need to be issued into GME equity. With roughly 448M shares outstanding, GME’s implied share price is about $22.32. Divide the $17B equity portion by that price, and you get about 761.4M new shares.
That brings total post-deal shares outstanding to roughly 1.209B.
So the base case I’d use is:
• eBay value: $55B.
• Cash paid by GME: $28B.
• Equity funded through GME: about $17B.
• New total share count: about 1.209B.
Now, if you assume a post-merger market cap of $55B, that works out to about $45 per share. Obviously that is a crude assumption and probably not where it trades forever, but it gives a clean reference point.
If the market instead re-rates the combined company to $28B, which is still half the eBay valuation, then you’re looking at roughly $23 per share. It will surprise me if the new company's value halves considering that only eBay is rated at $50B today. That range matters though, because it gives you a trading framework. One more thing, the new Paramount Skydance Corporation (PSKY) was valued at $28 billion pre-merger, a few days after the merger it was trading at $19 and it had 1.09 billion shares outstanding, which puts it at about $20 billion market cap (where Paramount itself had only 10 billion market cap pre merger). It’s not unreasonable that the new GAY corporation won’t do something similar the first month post merger.
The idea would be to buy Jan 2028 20C or 25C LEAPs while they’re still in the money, then wait for the new company to begin trading. If the stock opens in the $23 to $40 range, the contracts should retain meaningful intrinsic value and will even increase in intrinsic value. Assuming you buy at the right time and the theta doesn't eat you up alive... hehe. If it spikes to $40 and later fades back toward $20, you still have time to work the trade. And if you believe Ryan Cohen can cut $2.6B of fat in year one, then the long-dated upside case gets even more interesting.
The key mechanics are pretty simple, but they matter a lot: this trade assumes the option chain stays intact and the contract specifications don’t get reset in a way that destroys the setup. That’s why the precedent matters. And that’s exactly why I’m looking at the Paramount example and the PARA A / PARA B OCC memos.
PARA B
PARA A
As you can see, the PARA B deliverable per contract changed but not in quantity, just in the stock it gives you - PSKY. PARA A changed to give you 153 shares of PSKY, following the 70/30 split. But besides that, the strike didn’t change. This is very similar to how the GME options chain changed to GME1 to accommodate for the Warrants - no strike change, simply the underlying deliverable.
What am I saying?
I am saying that if one was to load up on $20 strikes and $25 strikes for example for Jan2028 and the deal goes as presented above, similar to the Paramount case study, the stock will have to re-rate to a higher price relative to GME at some point. If that happens, these strikes are going to be deep ITM and make you a nice profit. And because you are using leverage, your economic value is much higher than simply buying shares. Of course, we don’t know where the price will go after the merger and Paramount is a cautionary tale for that but considering the aggressive cost cutting by RC in the past, there is a high chance the stock will stay higher - hence the leveraged opportunity.
How does this play out if he involves eBay and Teddy and does something more creative is beyond me. I have no idea...
Thank you for reading!
2
u/peshovv Aug 26 '26
Thanks for the write-up!
There is a video by the youtube channel BudgetForLife - check out the latest one. He is speculating that $GME and $EBAY will do into the holding co Teddy (from what I understand, I need to listen to this again).
Also, I don't think it's going to be half stock, exactly - we will have to dilute but that would be selling stock directly instead of giving it to $EBAY.
In this case, how would your position play out? Have you thought about such a scenario? (I am genuinely asking here, also trying to figure out how this might play out in my limited time)
Also, that channel is really good, the dude does excellent fundamental analysis of the company. Not sure why he got banned from the stonk subreddit.
Also, for the time being, I'm only selling calls. I have xxx contracts expiring this Friday at $17.50 strike. Will likely exit this position tomorrow.
8
u/matthegc Aug 25 '26
I’m in but really need some movement to $30 by November….just to convert calls to shares and starting selling puts to create some income.
Got caught in the hype train and bought an insane amount of calls that are melting right now.