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posted by martyb on Thursday January 28 2021, @04:57AM   Printer-friendly
from the ups-and-downs dept.

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 By the time you read this, that number may be horribly outdated, as the stock continues to bounce up and down with extreme volatility hour by hour (it dipped down as low as $61 and peaked as high as $159 on Friday).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)


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  • (Score: 4, Interesting) by Anonymous Coward on Thursday January 28 2021, @05:06AM (25 children)

    by Anonymous Coward on Thursday January 28 2021, @05:06AM (#1105894)

    Melvin Capital, Hedge Fund Targeted by Reddit Board, Closes out of GameStop Short Position

    This is lies - there hasn't been enough volume to liquidate their position. Which nicely exposes the "friendly" relationship between The Money and The Media.

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  • (Score: 1) by Arik on Thursday January 28 2021, @05:09AM (24 children)

    by Arik (4543) on Thursday January 28 2021, @05:09AM (#1105896) Journal
    Please elaborate.
    --
    If laughter is the best medicine, who are the best doctors?
    • (Score: 0) by Anonymous Coward on Thursday January 28 2021, @05:17AM (21 children)

      by Anonymous Coward on Thursday January 28 2021, @05:17AM (#1105897)

      Short is still at 140% of float. Nobody liquidated shit but News reports short positions are over, it's over, everyone go to bed, excitement over.

      • (Score: 2) by Arik on Thursday January 28 2021, @05:22AM (20 children)

        by Arik (4543) on Thursday January 28 2021, @05:22AM (#1105900) Journal
        Ah. I think I understand.

        Deals not yet closed, still /possible/ rich dicks can unload with less loss.

        Not feeling it but I'm no stock expert.
        --
        If laughter is the best medicine, who are the best doctors?
        • (Score: 1, Interesting) by hemocyanin on Thursday January 28 2021, @05:47AM (19 children)

          by hemocyanin (186) on Thursday January 28 2021, @05:47AM (#1105909) Journal

          I'm not expert, not even a mere idiot when it come to understanding shorts, but I get the impression he means the opposite. That they have to somehow buy 140% of the stock that exists, and with that being impossible, the losses will likely be even worse. But maybe I'm reading it wrong.

          • (Score: 2, Interesting) by Anonymous Coward on Thursday January 28 2021, @05:58AM

            by Anonymous Coward on Thursday January 28 2021, @05:58AM (#1105917)

            Actually more interesting is the financial press coming up with BS to try and help the hedge funds. Nobody closed out their shorts. The news reported it presumably to sow FUD on behalf of the hedge funds. Also, the talk of SEC investigations... FUD FUD FUD designed to scare people. I even heard on NPR today that the real losers were the pensioners. Oh noes think of the poor pensioners invested in exclusive hedge funds.

            Why would "The News" say things like that?

          • (Score: 0) by Anonymous Coward on Thursday January 28 2021, @06:10AM

            by Anonymous Coward on Thursday January 28 2021, @06:10AM (#1105920)

            That they have to somehow buy 140% of the stock that exists, and with that being impossible, the losses will likely be even worse.

            No. It's not impossible, and all those who shorted GME can still make a profit.

            Let's say that the short sellers buy back "100%" of the GME stock this week. It doesn't mean that no stock will never be offered for sale again. Those holding the remaining "40%" of GME short positions can buy back their shares from the stocks offered for sale the following week.

            The short sellers will make a profit if their buy-back price is lower than the price at which they sold the stock.

          • (Score: 5, Interesting) by Socrastotle on Thursday January 28 2021, @07:59AM (16 children)

            by Socrastotle (13446) on Thursday January 28 2021, @07:59AM (#1105954) Journal

            No it's all pretty straight forward.

            Shorts are basically the opposite of longs. You buy stock and profit when it goes down. The way this works is you borrow stock from somebody (and pay them interest while holding it). Imagine you borrow a share at $10. You go and immediately sell that share and get $10. Now a couple of weeks later the stock is at $1. You go and buy a share of that stock for $1. You now return the stock you borrowed and you've made a profit of $10 - ($1 + interest). So you basically double your investment as the price of a stock approaches $0.

            But in contrast to going long, there is one huge difference. When you buy a stock your max loss is whatever you spent on that stock, and that's if it goes down to $0. But when you're going short on a stock, your losses are basically infinite. Right now Gamestop is about 1800% higher than where it was before this all began. So they borrowed shares at $20, sold them, and now can only repay them by buying shares that currently cost $350. And it's going to get *worse.*

            The way you get to 140% short interest is by naked shorting, which is in a legally grey area that leans much closer to the black than not. Naked shorting is basically selling stock you don't own and that doesn't exist that you'll buy back later to make everything even again. Obv this is not something you can do, even if you want, as a little guy. But the big money types get to play by their own rules. The big money types were all so convinced that Gamestop was going to crash hard that they started going crazy shorting it it.

            It's not impossible for the shorts to cover their 140%. It just means that they need to buy a share, 'give it away' (so to speak), and repeat - for a total amount equal to 140% of all shares that currently exist. An analog given above is that I promise to sell you 10 cars. Instead I show up with only 6. To complete my promise I now ask you how much you'd be willing to sell 4 of those cars for. I buy them and then give them right back to you again - now I've delivered 10 cars to you and we're even. And so now to cover their shorts they need to start buying up stock like crazy. Yet when they buy that's going to send the stock even *higher* making their losses even worse. We're talking about losses easily running into the tens of billions of dollars.

            There are only two ways Wallstreet doesn't get destroyed here:

            1) The most probable path - corruption. They get the government and/or regulators to create rules/exceptions for them, and/or get the government to bail them out, and so on. But this is a very visible issue and this would be unimaginably horrible optics for the DNC because you can't spin this bailout in any way positive. You're only saving vultures here, and in the process you may well end up screwing over millions of mostly middle class Americans.

            2) If all the current holders start selling like crazy, which could help bring the price back down. This is what they're trying to do by getting the media to run fake news claiming that it's all a bubble, major shorts have exited their positions (which would mean they'd no longer need to buy in the future), etc.. But it was expected because the people buying in this game aren't mom and pops looking for a nest egg, but lots of cynical assholes gleefully cackling at completely legally screwing over our corrupt systems, making a ton of money while doing, and watching the vultures writhe. In other words, the propaganda was expected and isn't going to work.

            • (Score: 3, Insightful) by hemocyanin on Thursday January 28 2021, @08:30AM

              by hemocyanin (186) on Thursday January 28 2021, @08:30AM (#1105959) Journal

              That was an excellent explanation. But are the people making this happen "cynical assholes gleefully cackling"? Or maybe I'm one, because even though I don't have a nickel in this game, it warms my heart. I kind of feel like these guys are heros.

            • (Score: 4, Informative) by stretch611 on Thursday January 28 2021, @11:43AM (2 children)

              by stretch611 (6199) on Thursday January 28 2021, @11:43AM (#1106012)

              Actually, there is another way to make money... with stock options. https://www.theoptionsguide.com/stock-option.aspx [theoptionsguide.com]

              Basically options are a contract/agreement that allow me to buy or sell stock at a certain price up to a certain date.

              A "call option" allows me the opportunity to buy a stock at a certain price by a certain date. e.g. I can buy a call option contract to buy 100 shares of gamestop at $100 by April 13th. (option contracts are always for multiples of 100 shares) If at any time between now and April 13th, the price goes above $100 I can exercise the option and buy those shares. (and usually immediately sell them as well at the current price) So if the price is $120 and I exercise my option at $100 I make $20/share or $2000 based on 1 option contract of 100 shares. If the price never goes above $100 (or if it does and I do not exercise the option hoping to wait for it to go up more) on April 13th the contract expires and I can no longer buy the stock for $100.

              It costs money to buy an option contract. The longer the window of time before the contract expires costs more money. increased volatility also increases the cost of options. Also, obviously, options that are currently profitable cost more than options that are currently unprofitable. If you fail to exercise an option and it expires, you lose your entire investment.

              Put options are similar, but reversed... A put option gives you a contract to sell shares at a specific price and you make money when the stock is worth less than the contracted sell price.

              Buying options in general is cheaper than buying the stocks themselves... but there is a greater chance to lose all the money you put into them.

              You can also make money selling option contracts. If you have the shares already in your account these are covered option... If you do not have the shares in your account you sell naked contracts. Naked contracts are quite risky and there is no limit to the amount of money you can lose with them. (e.g. if you sold someone options to buy 100 shares of gamestop at $100, and they exercised ot the day it was $400, you would have to pay $40,000 to buy shares only to get $10,000 from the person you sold the contract to.)

              Options add more ways to make and lose money in the stock market... but if you barely know the basics of stocks, you are better off staying away from options.

              --
              Now with 5 covid vaccine shots/boosters altering my DNA :P
              • (Score: 0) by Anonymous Coward on Friday January 29 2021, @12:49AM

                by Anonymous Coward on Friday January 29 2021, @12:49AM (#1106383)

                You can also bet on volatility. There is the straddle strategy. I don't do options but it seems relatively straight forward (you can google it. You need a minimum amount of volatility in either direction by a given time for you to make money).

              • (Score: 0) by Anonymous Coward on Friday January 29 2021, @12:54AM

                by Anonymous Coward on Friday January 29 2021, @12:54AM (#1106389)

                What's even riskier than shorting is selling naked puts or naked calls. One thing you can do, and I've considered doing this, is selling covered calls.

            • (Score: 2, Informative) by Anonymous Coward on Thursday January 28 2021, @11:44AM

              by Anonymous Coward on Thursday January 28 2021, @11:44AM (#1106013)

              this would be unimaginably horrible optics for the DNC because you can't spin this bailout in any way positive. You're only saving vultures here

              • The American people already hate both parties for bailing out Wall Street in 2008 and 2009. So yeah, I expect them to bail out their Wall Street buddies again on the backs of taxpayers, and then act indignant when the next Trump comes to power. Not that Trump improved anything related to Wall Street, but voters flocked to an outsider because they were angry at DC insiders.
              • You've just insulted vultures. Wall Street is a swamp full of leaches.
            • (Score: 2, Informative) by khallow on Thursday January 28 2021, @12:31PM (2 children)

              by khallow (3766) Subscriber Badge on Thursday January 28 2021, @12:31PM (#1106032) Journal

              The way this works is you borrow stock from somebody

              Actually, not even that. You're simply selling stock you don't have. As long as the resulting liability isn't near your real assets, no one will call you on it.

              • (Score: 2) by shortscreen on Thursday January 28 2021, @06:16PM (1 child)

                by shortscreen (2252) on Thursday January 28 2021, @06:16PM (#1106192) Journal

                GP explained naked shorts though. I suspect you didn't read the entire post.

                • (Score: 2, Informative) by khallow on Thursday January 28 2021, @11:32PM

                  by khallow (3766) Subscriber Badge on Thursday January 28 2021, @11:32PM (#1106349) Journal
                  Yea, when someone starts with something like that, I tend to ignore the rest. I'm glad I'm wrong here.
            • (Score: 0) by Anonymous Coward on Thursday January 28 2021, @03:51PM

              by Anonymous Coward on Thursday January 28 2021, @03:51PM (#1106113)

              Corruption. Democrats just swept national elections. Next elections in two years. Many middle class people voted for Trump.

              So fuck them.

            • (Score: 2) by shortscreen on Thursday January 28 2021, @06:15PM (2 children)

              by shortscreen (2252) on Thursday January 28 2021, @06:15PM (#1106190) Journal

              It would be easy to put a positive spin on government intervention here.

              future headline: "How Alt-Right Hackers Were Putting Your 401K at Risk"

              • (Score: 2) by Socrastotle on Thursday January 28 2021, @07:28PM

                by Socrastotle (13446) on Thursday January 28 2021, @07:28PM (#1106232) Journal

                Yip, for sure - they're 100% going to try to do a divide and conquer type thing. I'm betting it'll be blamed on either Trump or Russia, somehow.

                The problem, and one I think they realize, is that this sort of propaganda could backfire in a very epic way. You have people from all walks of life, all ideologies, and just about everything involved in this. If people don't eat up the propaganda, it's likely to unite them in disgust against the media and politicians that'll be spreading the propaganda. Imagine the emergence of a successful anti-party running solely and entirely on a policy of anti-war and anti-corruption. Stranger things have happened!

              • (Score: 0) by Anonymous Coward on Friday January 29 2021, @10:15AM

                by Anonymous Coward on Friday January 29 2021, @10:15AM (#1106530)

                It would be easy to put a positive spin on government intervention here.

                future headline: "How Alt-Right Hackers Were Putting Your 401K at Risk"

                Except, not really, you have Ted Cruz agree with AOC on the side of Reddit

                https://twitter.com/tedcruz/status/1354833603943931905 [twitter.com]

            • (Score: 0) by Anonymous Coward on Friday January 29 2021, @12:42AM (3 children)

              by Anonymous Coward on Friday January 29 2021, @12:42AM (#1106380)

              So I mostly understood everything you said (maybe years(?) ago) but I'm still confused. It still sounds like brokers / hedge funds are lending out more shares than they actually have. I don't understand how that can be legal.

              • (Score: 0) by Anonymous Coward on Friday January 29 2021, @02:01AM

                by Anonymous Coward on Friday January 29 2021, @02:01AM (#1106426)

                (and/or selling more shares than they have which sounds like it should be illegal).

              • (Score: 2) by Socrastotle on Friday January 29 2021, @05:33AM

                by Socrastotle (13446) on Friday January 29 2021, @05:33AM (#1106484) Journal

                It's not. It's called naked shorting. Now go report it to regulators who happen to be directly tied to the exact people doing said naked shorting.

                The masks are coming off right now. Any and all politicians who care at all about the little guy should be coming out seriously in favor of them right now. Everything the Redditors did was undoubtedly completely and 100% legal. Wallstreet put themselves into a corner with illegal (or at least prohibited by regulation) activity, and is now trying to crawl out of it with even more illegal activity including widespread collusion and efforts to manipulate the market in illegal ways.

                So far exactly two political figures (that I am aware of) have come out in support of the people. Ted Cruz and AOC.

              • (Score: 0) by Anonymous Coward on Saturday January 30 2021, @12:28PM

                by Anonymous Coward on Saturday January 30 2021, @12:28PM (#1106859)

                The brokers write options on their customer's shares (and even the relatively small brokerages have billions of dollars worth of assets at their disposal), which actually belong to them, these options are all for different date ranges, so they do some accounting magic and everything somehow adds up. Sometimes companies sell options on their own stock, and private individuals can write options on their own holdings as well (you have to be pretty well off to qualify to do this though). The options contracts themselves can be resold too.

    • (Score: 1, Interesting) by Anonymous Coward on Friday January 29 2021, @01:53AM (1 child)

      by Anonymous Coward on Friday January 29 2021, @01:53AM (#1106421)

      Basically another hedge fund came in to 'save the day'.

      They bought out Melvin at some %. Melvin claims 'closed position'. They are playing a bit fast and lose with the term 'closed'.

      That same hedge fund just happens to be the same one most brokerages use to clear things at '0 dollars'. They also announce 'no buy longs only sell'.

      That savior hedge fund makes bank. Everyone else shits the bed Melvin does not lose everything just a lot.

      Now the rub is will another hedge fund step and and screw over the 'savior fund'. As the 'savior fund' has a *lot* more capital at its disposal. They have locked out the 'little guy' but greed knows no bounds.

      • (Score: 0) by Anonymous Coward on Friday January 29 2021, @02:15AM

        by Anonymous Coward on Friday January 29 2021, @02:15AM (#1106433)

        Supposedly they kept shorting even after they got bailed out ...