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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 By the time you read this, that number may be horribly outdated, as the stock continues to bounce up and down with extreme volatility hour by hour (it dipped down as low as $61 and peaked as high as $159 on Friday).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: 3, Interesting) by Anonymous Coward on Thursday January 28 2021, @08:41AM (17 children)

    by Anonymous Coward on Thursday January 28 2021, @08:41AM (#1105965)

    I'm no finance expert, but my guess is this kind of activity can cause a market crash. Short-selling is actually blamed for the 1929 crash that led to the Great Depression.

    Right. You are no expert and you are just guessing.

    This "kind of activity" with GME is barely a blip on a market that involves trillions of dollars. It's not going to cause a "crash."

    Regardless, crashes happen -- that is just the way free markets work. Additionally, the big crashes are usually symptoms of underlying problems in the general economy. The Great depression wasn't caused by short-selling.

    The good thing is that the SEC isn't run by the typically ignorant luddites (and politicians) who think that free markets need to be regulated to protect "mom & pop" investors from those "nefarious short sellers" and from those "evil high frequency traders." To anyone who has the slightest clue, the truth is that if no one is selling a stock then no one can buy stock. Thankfully there are short sellers and HFT's who make stock available to buy. The short sellers and especially the HFT's are also great for liquidity, which most definitely helps "mom & pop" get a better deal when buying and selling.

    So, short sellers and HFT's are actually beneficial to the overall market and particularly to retail traders.

    Stock prices go up and down for all kinds of reasons, most of which are perfectly legit/valid. Anyone who invests (whether long, short or neutral) takes a risk, and one party has to make money while the other party has to lose money -- that is integral to trading. If that were not the case, and if risk was eliminated with regulation for one or both sides, no one would ever invest on the side that has all the risk, and there would be no reason to invest if neither side had risk.

    This reddit activity and the "opposing" institutional shorting are both perfectly legitimate trading occurrences. Don't hamstring the free market with misinformed regulations!

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  • (Score: 1) by khallow on Thursday January 28 2021, @06:21PM

    by khallow (3766) Subscriber Badge on Thursday January 28 2021, @06:21PM (#1106196) Journal
    The short sellers are particularly useful when you squeeze them!
  • (Score: 2) by quietus on Thursday January 28 2021, @06:29PM (14 children)

    by quietus (6328) on Thursday January 28 2021, @06:29PM (#1106203) Journal

    Indeed. Short sellers are just identifying the weaklings before anybody else does. If there were good economic reasons why Gamestop et al could return/become successful companies once again, you'd just wait until the price goes lower due to the shorters, then move in with your own long position.

    What all those foming at the mouth against shorters don't see is that if you chase shorters out of the market, you only encourage zombie companies i.e. exactly the companies who thrive on political connections to survive. What they also don't see is that this stinks to high haven of a pump-and-dump scheme, fuelled by social media manipulation.

    Enjoy holding your Gamestop shares for ever and eternity (that is, if you ever cared about the people at Gamestop): and be comforted, you just made a couple of rich assholes very, very happy. You better return to being Tesla fanbois and QAnon adherents, now.

    • (Score: 2) by Socrastotle on Thursday January 28 2021, @07:50PM (6 children)

      by Socrastotle (13446) on Thursday January 28 2021, @07:50PM (#1106248) Journal

      I don't think you understand what's happening here. The shorts got way too greedy and dramatically over-shorted the company. This left them *extremely* vulnerable. The shorts, likely due to illegal naked shorting, need to buy about 140% of floated shares in order to cover their shorts. When they buy these shares, it's going to send the price of the stock skyrocketing. They clearly were just hoping nobody would notice/exploit this. People did. And now the shorts are screwed. They, unlike the people who bought the stock, are on a strict time limit for two reasons:

      1) They are paying interest on their short positions each and every day that passes.
      2) The shorters are generally from elite hedge funds that promise huge returns and, in turn, charge huge fees. They can't just sit around with billions of dollars not only tied up but actively costing them money.

      Of course getting out would also cost them what could amount to tens of billions of dollars. Bahaha. It's hilarious and awesome. The hedge fundies might want to brush on their Nassim Nicholas Taleb. They could have hedged against this extremely improbable possibility at a negligible cost to their profit margin. But they thought 'nah, fuck it - all in!' And now they get to pay the price. And, in the process, they're making millions of not-rich assholes very, very happy.

      • (Score: 2) by quietus on Thursday January 28 2021, @08:11PM (3 children)

        by quietus (6328) on Thursday January 28 2021, @08:11PM (#1106255) Journal

        You forget another thing: margin call. A short seller needs to put up collateral with his brokerage, which itself has a maintenance margin on those [short] sales. Typical for a short sale is that the collateral needs to go up when the stock price rises. In practical terms, when the stock price has gone up with, say, 30%, the shorter got a call from his/her brokerage to increase the collateral. And another call at the next threshold. And another one at the next threshold, and so on. Shorters though have their own thresholds, and are non-emotional number people: they'll cap their losses, and ditch the short sale the moment that threshold has been called. They're not going to hang around to prove their point.

        Besides, that a few shorters get burned is not the issue here: the real issue is that the share price has gone up to ludicrous levels; and somebody's going to cash in. All he/she needed was a little investment in bots, and a loophole in robinhood's registration process.

        • (Score: 2) by Socrastotle on Thursday January 28 2021, @08:36PM (2 children)

          by Socrastotle (13446) on Thursday January 28 2021, @08:36PM (#1106274) Journal

          The one thing I think many people are missing here is that the shorts need to buy shares to close their positions. And not only do they need to buy, but they need to buy 140% of all floated shares. This is why Gamestop was targeted. The hedgies got greedy and *massively* over-shorted this stock. When they try to buy to cover, prices are going to go into lala land. Real losses are already in the billions of dollars. Losses when they try to close out their positions, and as a result jack the price up, are going to be *easily* in the tens of billions of dollars. This isn't a 'darn, cut my losses, time to go' type thing - we're talking about losses far larger than the net income Goldman Sachs, and perhaps surpassing even Alphabet/Google. This is real money, even in our world of fake money.

          This is why they're already now turning to widespread collusion and what is likely illegal activity by getting brokerages to try to manipulate their users in order to manipulate the market and ideally drive the price down. They're in bed with the government and will be able to get off likely breaking the law/regulations with a limp slap on the wrist, if that. But bigger than that is the perception stuff. This stuff involves millions of people, all around the globe. And they're now overtly 'taking off the masks', colluding, and likely breaking the law - all to save Wallstreet vultures. And they're doing this in front of everybody. That's just unimaginably huge, and shows how critical this has become.

          • (Score: 1) by khallow on Friday January 29 2021, @12:34PM (1 child)

            by khallow (3766) Subscriber Badge on Friday January 29 2021, @12:34PM (#1106562) Journal

            This is why they're already now turning to widespread collusion and what is likely illegal activity by getting brokerages to try to manipulate their users in order to manipulate the market and ideally drive the price down. They're in bed with the government and will be able to get off likely breaking the law/regulations with a limp slap on the wrist, if that. But bigger than that is the perception stuff. This stuff involves millions of people, all around the globe. And they're now overtly 'taking off the masks', colluding, and likely breaking the law - all to save Wallstreet vultures. And they're doing this in front of everybody. That's just unimaginably huge, and shows how critical this has become.

            I don't think the private world has this kind of rapid coordination - there's no private organization that can deploy media and collude this fast. Look to the feds. They're the ones with the infrastructure already deployed for this sort of thing. They also have a lot of legal protection (such as sovereign immunity) against charges like collusion.

            I see that the price of Gamestop dropped dramatically yesterday. That indicates to me that a good portion of the short is gone.

            • (Score: 0) by Anonymous Coward on Friday January 29 2021, @06:16PM

              by Anonymous Coward on Friday January 29 2021, @06:16PM (#1106654)

              From what I understand when it was down the amount of shares being sold was small and possibly just back and forth between brokers to try to get retail investors to sell when a lot of them could only sell because many brokers blocked retail investors from buying.

      • (Score: 2) by FatPhil on Friday January 29 2021, @01:00PM (1 child)

        by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Friday January 29 2021, @01:00PM (#1106566) Homepage
        No. For the 140th time, the 140% is not a measure of what ratio of the float is being shorted. So no, no illegal naked shorts are required. And therefore the majority of the people taking short positions are *doing nothing wrong*, either legally or morally. Whether they are greedy is irrelevant. You might even find that it's a fund manager's *job* is to be greedy - if he isn't, he ain't much of a fund manager, get a better one. Yes, that includes you, mom & pop business owner, get a greedier fund manager, for your own good.
        --
        Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
        • (Score: 0) by Anonymous Coward on Saturday January 30 2021, @12:57PM

          by Anonymous Coward on Saturday January 30 2021, @12:57PM (#1106861)

          Naked shorting isn't required. The contacts are not all for the same date.

    • (Score: 2) by quietus on Thursday January 28 2021, @08:43PM (6 children)

      by quietus (6328) on Thursday January 28 2021, @08:43PM (#1106278) Journal

      Two consequences.

      Consequence A. People are going to rebalance their portfolio away from companies with a small amount of outstanding shares, because these are the most vulnerable to such flash mob attacks by "retail investors". And no, because this time the price went up, that doesn't mean that next time the stock price also is going to go up.

      Consequence B. The Reddit crowd went wild on evil hedge funds. Those hedge funds will incorporate that in their risk strategy, wait with bringing liquidity back in the market, and increase their own reserves. The net effect will be that there's less money in the market (though a bit of deflation there is not overdue), and even bigger price swings: which in turn is not necessarily good for retirement funds, which should prefer stability.

      This whole idiocy, if it spreads, will hurt exactly the younger and smaller companies, who need the stock market money the most for growth -- and with it the US economy.

      Me, I prefer Buffalo Man.

      • (Score: 1, Insightful) by Anonymous Coward on Thursday January 28 2021, @10:23PM (1 child)

        by Anonymous Coward on Thursday January 28 2021, @10:23PM (#1106315)

        Could someone explain? Thanks.

        This whole idiocy, if it spreads, will hurt exactly the younger and smaller companies, who need the stock market money the most for growth -- and with it the US economy.

        From my understading, when a company sells shares to be publicily traded, they get money once, and then just have to give profits to whoever owns the shares. But the companies does not get money again for those shares, it's a one time thing.

        OTOH, I know that companies can suffer if their shares are worthless, because people will think the company is worthless, ignoring if it really is an empty shell, or a full bag (maybe even with with lots of recurrent business in the future, or even growth path) with a cheap sticker attached.

        If the quote is about companies playing with someone else stocks... well, I guess different thing and I could see what it means.

        • (Score: 2) by quietus on Friday January 29 2021, @11:02AM

          by quietus (6328) on Friday January 29 2021, @11:02AM (#1106542) Journal

          Errr ... you know of any company that brings shares to the market only once? Any company at all? While the share price at IPO might be based on estimates about the future profitability of a company, the next rounds of share selling will be heavily based on the performance of the shares already present on the stock market.

          If that performance whipsawed, or has shown valuations that have clearly no economic basis, serious investors will not want to get involved unless the premium (guaranteed profit) you offer them rises; which in turn will lower the valuation at which you can bring your shares to market, which in practice means that your borrowing rate [from the stock market] has gone up, which means you'll either have to grow slower, creating fewer jobs in the process, or sell ever more of your company away, which also has an impact on job creation.

      • (Score: 1) by khallow on Friday January 29 2021, @12:48PM (2 children)

        by khallow (3766) Subscriber Badge on Friday January 29 2021, @12:48PM (#1106563) Journal

        This whole idiocy, if it spreads, will hurt exactly the younger and smaller companies, who need the stock market money the most for growth -- and with it the US economy.

        You say that like it's a bad thing. Sorry, I don't see a problem here. Look at consequence A. Companies with a small amount of outstanding shares have a lot of risk. Investors realizing that risk is there, now will make better trades. That's better for the economy.

        Consequence B is temporary. And well, you acknowledge it is needed too. Sounds like another better for the economy thing.

        Let's use car analogies. You blissfully followed your car's GPS to Portland, Maine when you wanted to go to Portland, Oregon. Oops. There's no way to get between the two cities without thousands of miles of travel. We could choose to interpret the subsequent trip as bad for you, but it's less worse than staying in Portland, Maine when you need to be in Portland, Oregon. The mistakes that were bad for you have already been made.

        Similarly, the mistakes that led to your concerns have already been made. It's less bad for the economy for those investors and hedge funds to be a bit more conservative and correct their exposure to these problems, than to just ignore the lessons from this little episode and perhaps lose billions of dollars down the road (a way markets correct participants who choose not to learn from others' mistakes).

        • (Score: 2) by quietus on Friday January 29 2021, @03:50PM (1 child)

          by quietus (6328) on Friday January 29 2021, @03:50PM (#1106617) Journal

          The risk your talking about here -- flash mob manipulation of share trading -- has no economic basis: it is not based on P/E analysis, insights into the company's liquidity or cash flow situation or any other type of business indicator. Its only basis is emotion -- the lulz for some, anti-evil-i-don't-understand for others -- manipulation through social media.

          A better comparison is that bunch of anti-maskers trying to block the entrance of a Trader Joe's of a few weeks ago: convinced they're doing the good fight, but really only falling for disinformation, and very much out of their depth anyway.

          • (Score: 1) by khallow on Saturday January 30 2021, @08:50PM

            by khallow (3766) Subscriber Badge on Saturday January 30 2021, @08:50PM (#1106959) Journal

            The risk your talking about here -- flash mob manipulation of share trading -- has no economic basis: it is not based on P/E analysis, insights into the company's liquidity or cash flow situation or any other type of business indicator. Its only basis is emotion -- the lulz for some, anti-evil-i-don't-understand for others -- manipulation through social media.

            I'm not seeing the point to this comment. A lot of what we do has economic effect without apparent economic basis. If market participants only take into account economic bases rather than economic effects, then they're doing it wrong and indicates deeper problems than merely being unable to anticipate lulz. Things like this short squeeze will help correct that erroneous behavior.

            A better comparison is that bunch of anti-maskers trying to block the entrance of a Trader Joe's of a few weeks ago: convinced they're doing the good fight, but really only falling for disinformation, and very much out of their depth anyway.

            And apparently handled well by the Trader Joe's employees. My take on this is that if your business can't handle sporadic adverse activity taken on a non-economic basis, then what else can't it handle? Losing a few billion will both help reduce the future risk from that business and it's issues, and give them appropriate feedback that they're not paying appropriate attention to the risks of their actions.

      • (Score: 2) by quietus on Saturday January 30 2021, @08:07AM

        by quietus (6328) on Saturday January 30 2021, @08:07AM (#1106842) Journal

        A funny thing, I didn't know (next to DeepFuckingValue having $21M in his trading account): Robinhood makes money by selling its order flow data to high-frequency traders i.e. established traders making a buttload of money out of this.

  • (Score: 0) by Anonymous Coward on Friday January 29 2021, @12:33AM

    by Anonymous Coward on Friday January 29 2021, @12:33AM (#1106374)

    Anyone who invests (whether long, short or neutral) takes a risk, and one party has to make money while the other party has to lose money -- that is integral to trading.

    Clearly, you have no idea how the stock market actually works. My suggestion: stick to index funds. It will be much safer for you.