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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 By the time you read this, that number may be horribly outdated, as the stock continues to bounce up and down with extreme volatility hour by hour (it dipped down as low as $61 and peaked as high as $159 on Friday).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, Informative) by Anonymous Coward on Thursday January 28 2021, @05:31AM (14 children)
The trufax complete moron story goes more like this.
A "fair" price for the stock might be about $40. But some billionaires' kids in charge of hedge funds decided they could send it to 0 by shorting it. To do this they borrow millions shares and sell them at lower and lower prices to drive the price to zero. Once it's zero they return the grand sum of 0 to the owners of the shares and keep whatever they got selling it.
Typical frat billionaire investor morning play before moving onto blow and hookers.
(Score: 1) by hemocyanin on Thursday January 28 2021, @05:40AM (3 children)
Yeah and there are rumblings to make it illegal, or at least hard, for those fat cats to lose money. https://www.nasdaq.com/articles/gamestop-trading-ought-to-be-halted-for-30-days-one-regulator-says-2021-01-27 [nasdaq.com]
(Score: 2) by Grishnakh on Thursday January 28 2021, @06:32AM (2 children)
It should just be illegal to short stock. It was greatly curtailed after the Great Depression because it was blamed for that event. But that regulation was lifted in 2007.
(Score: 2, Insightful) by Anonymous Coward on Thursday January 28 2021, @07:24AM
It should be legal to print $10 trillion into existence and use it to pump the stock market? But not to buy a put contract that gives you the right to sell at a given price?
Let's just make selling stock illegal.
(Score: 2) by FatPhil on Friday January 29 2021, @10:36AM
You *borrow real stock* to sell, and need to return it after you've bought it back for less later.
So you never sell anything you don't have.
Whether the entity that loaned it to you actually had it and had the right to loan it to you is a subtly different question, and one that needs a thorough analysis, and preferably some stricter regulation. I'm 100% sure that stock that's being used as collatoral on other loans is being lent out, for example, and if that isn't pulling yourself up with your own bootstraps, I don't know what is.
However, Melvin weren't being picked on because they were shorting, as such, they were picked on because they had huge puts on the stock. And there's nothing in any way dodgy or illegal about buying an options contract. Selling one where you can't be sure that you can deliver if the underlying asset on the due date is a subtly different matter, and one that needs a thorough analysis, and preferably some stricter regulation.
Melvin did nothing wrong.
A million weaponised stimmy checks in the hands of unsophisticated shitlord gamblers did nothing wrong either, lest the logical-fallacy-tards attempt to conclude the latter from the prior.
Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
(Score: 3, Informative) by ElizabethGreene on Thursday January 28 2021, @05:53AM (9 children)
Clarification: You receive compensation if you, as a stock owner, choose to lend your shares out. That's not something usually available to small investors. e.g. with Fidelity you need to have 250k in an account to enroll in share lending. Details [fidelity.com] For securities with significant short interest it's a nontrivial ROI.
(Score: 1) by khallow on Thursday January 28 2021, @12:52PM (8 children)
(Score: 3, Informative) by ElizabethGreene on Friday January 29 2021, @03:02AM (7 children)
You are mistaken. To short shares I ask my broker to borrow them from someone, and I sell the borrowed shares. I pay for the privilege of borrowing them. Normally the cost of this borrowing is a rounding error, 0.2-0.3% annually. When the shares become "hard-to-borrow" like $GME that borrowing cost increases to up to 30%, two orders of magnitude.
That borrowing cost is what puts the squeeze in short squeeze. <3
(Score: 1) by khallow on Friday January 29 2021, @03:57AM (6 children)
Having said that, I didn't distinguish between a short where stock is borrowed and a naked short where nothing is borrowed. So sorry for introducing noise into this subject.
(Score: 0) by Anonymous Coward on Friday January 29 2021, @10:25AM (5 children)
That would be 100% illegal since the owners of these fake shares would not be able to vote as the shares don't exist.
https://www.investopedia.com/terms/n/nakedshorting.asp [investopedia.com]
(Score: 1) by khallow on Friday January 29 2021, @12:19PM
And given that there were indeed more shorted shares than shares, sounds like things got a bit naked whether or not it was illegal.
(Score: 1) by khallow on Friday January 29 2021, @02:58PM (2 children)
(Score: 2) by ElizabethGreene on Saturday January 30 2021, @04:24AM (1 child)
You are correct in this. Naked shorting is banned by the SEC, but it does occur. When it happens, it is recorded as "Failing to deliver" the underlying security. Oddly, it doesn't just happen for shorts; sale of a long can also result in a failure to deliver too.
The SEC publishes a naughty list with this data here: https://www.sec.gov/data/foiadocsfailsdatahtm [sec.gov]
(Score: 0) by Anonymous Coward on Saturday January 30 2021, @09:03AM
You sort of said this, but I wanted to make it clear: FTDs can arise from more than just naked shorting. Almost any stock transaction can have an FTD/FTR result for a multitude of reasons.
(Score: 2) by ElizabethGreene on Friday January 29 2021, @03:35PM
Naked shorting refers to shorting without borrowing the underlying. That is illegal. Covered shorting is entirely legal and, since the lender forgoes voting rights, it does not create this issue. <3