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The Complete Moron’s Guide to GameStop’s Stock Roller Coaster
The Complete Moron’s Guide to GameStop’s Stock Roller Coaster:
Last week, an epic short squeeze had driven GameStop stock up to $40 a share, a roughly 1,500 percent increase from its low point nine months ago. Little did anyone know at the time that this would only be the beginning of the story.
As I write this, GameStop's stock price is hovering around $350, up another 775 percent or so since I wrote about this situation eight days ago. By the time you read this, that number may be horribly outdated, as the stock continues to bounce up and down with extreme volatility hour by hour (it dipped down as low as $61 and peaked as high as $159 on Friday).
The current stock price now gives the company a market cap of about $26 billion.
On the surface, that means the market currently thinks GameStop is worth more than twice as much now (during a potentially existential threat to brick and mortar game sales) as it was during the height of the Wii boom in late 2007, when console game downloads were barely a thing.
Also at: Business Insider.
Melvin Capital, Hedge Fund Targeted by Reddit Board, Closes out of GameStop Short Position
Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position:
Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund's manager told CNBC's Andrew Ross Sorkin.
GameStop, hedge funds' most-hated stock, was targeted by an army of retail investors who marshaled forces against short sellers in online chat rooms. In the Reddit forum "wallstreetbets" with more than 2 million subscribers, rookie investors encouraged each other to pile into GameStop's shares and call options, creating massive short squeezes in the stock.
CNBC could not confirm the amount of losses Melvin Capital took on the short position. Citadel and Point72 have infused close to $3 billion into Gabe Plotkin's hedge fund to shore up its finances. On Wednesday's "Squawk Box," Sorkin said Plotkin told him that speculation about a bankruptcy filing is false.
GameStop shares have soared more than 400% this week alone to $347.51 apiece, driving its January gains to 685%. The stock was worth just $6 four months ago.
Reddit's WallStreetBets is locked as AMC, GameStop stocks fall after-hours
For the past week, Reddit's WallStreetBets community has been the center of an epic war between large Wall Street investors and small scale social media betters. Now, it's been locked, and spooked investors appear to be dumping their shares.
Shares of GameStop and AMC dropped dramatically in after-hours trading shortly after Reddit's community was made only viewable through an invite.
See also: Reddit traders cause Wall Street havoc by buying GameStop
GameStop and Elon Musk send Reddit and Robinhood to the top of the App Store charts
'Dumb Money' Is on GameStop, and It's Beating Wall Street at Its Own Game (archive)
(Score: 1, Interesting) by Anonymous Coward on Thursday January 28 2021, @05:03AM (15 children)
I don't see a way out for the shorts.
The stock STILL has 140% of its float shorted. That means the short sellers need to buy 140% of all the shares ever issued in this company. And everyone knows that. The buying pressure on GME is going to be intense. Honestly I just thought about this today but was reading the reddit thing when it was at $60. Loaded up my fidelity account but decided it was gambling and closed it again. Now its at $350, fair enough I missed it. But theoretically I can't see shorts getting out - they need to buy 140% of ALL stocks issues while paying massive interest rates and getting margin called daily.
(Score: 0) by Anonymous Coward on Thursday January 28 2021, @05:51AM (2 children)
Do huge hedge funds suffer from "interest rates and getting margin called"?
I would figure that a huge hedge fund owner would be both a bank and a broker. They would impose that stuff on other people.
(Score: 0) by Anonymous Coward on Thursday January 28 2021, @07:29AM
No, the advantage of hedge funds is that they are private and not subject to much of the SEC regulations covering brokers and banks.
(Score: 2) by Phoenix666 on Thursday January 28 2021, @02:17PM
Yes. That is what happened to Long Term Capital Management [wikipedia.org]. The East Asian Financial Crisis of 1997 hit them. They were over-leveraged and got hit with margin calls on both sides. Alan Greenspan had to step in and force the big investment banks to cover LTCM's positions. If he hadn't, the stock market would have collapsed then and there.
Washington DC delenda est.
(Score: 2) by DrkShadow on Thursday January 28 2021, @05:52AM (10 children)
Where do you see this number?
From my reading, we only have information on shorted stocks twice a month, and for this stock the last such information was given out on December 31st. I haven't found anything current on how many shares are shorted.
(Score: 2) by Socrastotle on Thursday January 28 2021, @08:49PM (9 children)
The numbers are updated in real time. Check out any market numbers site. Marketwatch [marketwatch.com] for instance.
public float (number of shares excluding restricted shares) = 51.44million
short interest (number of short sales that need to be covered) = 61.78million
Currently at 120% of float, shorted - largely because of the overt scumminess happening over the past several hours. You even had Robinhood close people's position (who were trading on margin - so completely legal) at what was literally the lowest rate on the day. It's overt collusion from the app that billed itself as 'democratizing the markets'.
(Score: 0) by Anonymous Coward on Friday January 29 2021, @12:08AM (8 children)
I'm confused. How do you borrow more shares than the number of shares that exist? Are brokers lending out shares they don't have? If so you would think there would be regulations preventing them from doing this. But then there is the PDT rule and limitations on who can invest through peerstreet. SMH.
(Score: 0) by Anonymous Coward on Friday January 29 2021, @12:33AM (1 child)
(and I'm not subject to the PDT rule on my main trading account but I have multiple accounts and don't feel like I should have to drop 25 grand another account(s) just to avoid the PDT rule. Regardless the PDT rule discriminates against those with less money).
(Score: 0) by Anonymous Coward on Friday January 29 2021, @12:35AM
drop 25 grand into other account(s) *
(Score: 2) by Socrastotle on Friday January 29 2021, @04:19AM (5 children)
Yeah. Big money guys get to play by their own rules (and then get crushed by them). It's called naked shorting. And it is prevented by regulations, but as always - regulations don't mean much when the people being regulated and the people regulating them are pretty much one and the same.
(Score: 0) by Anonymous Coward on Friday January 29 2021, @06:48AM (4 children)
(same poster)
Anyone can short. I've directly shorted before (naked, ie: I didn't use options to hedge the short but I did have a stop loss but I haven't done it in a long time. I don't like directly shorting) though I don't do it often (if I 'short' I typically play inverse ETFs).
Typically with shorting professional traders use one of two (three if you count inverse ETFs) strategies to limit risk. You can use a stop loss or you can use options. If you use a stop loss you have a max loss before which you cover. This can be risky as you might incur slippage while executing a stop loss buy order (especially for stocks that aren't very liquid) and you may want to cover before market closes or you may incur large gaps (as market orders don't execute when the market is closed (stop loss orders are a type of market order) and the market is less liquid when closed which can drive the price up more if you are trying to cover (using a limit order) while the market is closed). If you use options you can buy call options (before directly shorting) that you exercise if the price goes up beyond a certain point which limits your losses.
(Score: 0) by Anonymous Coward on Friday January 29 2021, @06:56AM
(same poster)
In fact I was trying to play SPXU on the 1/27/2021 around the market (looking at ticker SPY or /ES as a gauge) high of the day (haven't attempted to 'short' in months) as it was so obvious the market was coming down that day. The SPY RSI value never reached oversold conditions (at least not based on how I have it configured) though (the market opened, immediately dipped, and bounced on low volume. I knew the bounce was going to be about where the market opened at, the fact that intra-day the bounce had low volume given other factors told me that buyers were not stepping in and so it's almost like seeing the ocean water receding/the buying activity stopping, you know that the market is going to come back down. It was very obvious).
(Score: 0) by Anonymous Coward on Friday January 29 2021, @07:01AM
(and when I say same poster I mean the same AC that Socrastotle (13446) is responding to originally).
(Score: 2) by Socrastotle on Friday January 29 2021, @08:45AM (1 child)
It sounds to me like you're mixing puts and shorting. A put is something anybody can do - it's just a plain old derivative letting you sell 'x' shares of something at 'y' date for 'z' price. A short is something very different because you don't actually own or buy anything, you instead *borrow* an asset which you immediately sell and then later repurchase to return it. Shorting involves operating on margin which may be restricted or simply have certain financial requirements depending on your broker. It generally also involves things like your broker being able to close your position for you if the price appreciates beyond what your granted (or deposited - again depending on details) margin can cover.
Naked shorting is a different game altogether, and one only the big boys can do (and they're not supposed to) that involves skipping that whole annoying borrow step and instead immediately selling stock you don't actually own, and obviously they're operating on infinite margin or there'd be 0 short interest in Gamestop right now.
(Score: 0) by Anonymous Coward on Friday January 29 2021, @11:21AM
I wasn't confusing puts and shorts. When I think of the term 'naked' in trading I think that's it's not covered (ie: selling naked options means potentially infinite losses. Well selling naked puts don't technically carry the potential for infinite losses but you can get some ridiculous losses just like buying puts can yield 1000 percent returns or more if you're lucky enough). IE: infinite potential for loss. Selling covered calls caps your losses. If you short directly and you have a call option in case it goes sideways then I guess that would be considered a covered short? Whereas shorting directly with no options is naked? I guess that's how I interpreted what you said.
(Score: 2) by JoeMerchant on Thursday January 28 2021, @06:58PM
Deep pockets and time. Deep pockets always win.
🌻🌻 [google.com]