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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 By the time you read this, that number may be horribly outdated, as the stock continues to bounce up and down with extreme volatility hour by hour (it dipped down as low as $61 and peaked as high as $159 on Friday).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: 1) by khallow on Thursday January 28 2021, @12:49PM (8 children)

    by khallow (3766) Subscriber Badge on Thursday January 28 2021, @12:49PM (#1106039) Journal
    I don't have such a high opinion of AOC, but the stock market is part of the economy. It isn't a stretch to say that an interaction with the stock market is an interaction with the economy - especially when that's how you interact with the economy. Maybe she makes that conflation more explicit elsewhere?

    Trading stocks (and derivatives) is often a gamble, but stock trading is not treating the economy as a casino.

    Except, of course, when it is. You can bet a lot about the economy by betting on companies that are effected, good or bad, by the particular aspects or dynamics of the economy you are interested in.

  • (Score: 0) by Anonymous Coward on Thursday January 28 2021, @01:04PM

    by Anonymous Coward on Thursday January 28 2021, @01:04PM (#1106044)

    A casino is part of the economy too. It is a casino not a market because when they lose outcome the bailouts, trading halts, etc. The casino will just shut down rather than pay you if it becomes unprofitable.

  • (Score: 0) by Anonymous Coward on Thursday January 28 2021, @05:48PM (6 children)

    by Anonymous Coward on Thursday January 28 2021, @05:48PM (#1106178)

    It isn't a stretch to say that an interaction with the stock market is an interaction with the economy - especially when that's how you interact with the economy.

    Well, if most individuals and most company put all of their cash into the stock market, your notion might be true, and the stock market events could directly effect the economy. However, that is not the reality. If anything, it's the other way around -- events in the economy directly effect the stock market. Such cause and effect is referred to as a "binary event" by some traders, and the phenomenon is frequent and common.

    Furthermore, market capitalization usually has little bearing on a company's financial condition, but a stocks price can be a reflection of a company's health/prominence.

    Trading stocks (and derivatives) is often a gamble, but stock trading is not treating the economy as a casino.

    Except, of course, when it is. You can bet a lot about the economy by betting on companies that are effected, good or bad, by the particular aspects or dynamics of the economy you are interested in.

    No. You can bet on sports, but your betting is not the sport. The betting and the sport are two independent entities (unless there is some sort of hanky-panky going on). Likewise, the stock market and the economy are mostly independent from each other.

    • (Score: 1) by khallow on Thursday January 28 2021, @06:16PM (5 children)

      by khallow (3766) Subscriber Badge on Thursday January 28 2021, @06:16PM (#1106191) Journal
      She wasn't speaking of most people or most companies, but rather of "Wallstreeters", whom we can safely assume put most of their cash in things like stock markets.

      You can bet on sports, but your betting is not the sport.

      But your betting is betting. When your stock trading (which is not sports too) is indeed gambling, then there you go circularly.

      Likewise, the stock market and the economy are mostly independent from each other.

      Incorrect, since stock markets and trading on stock markets are part of the economy, they're by default dependent on the economy. When you say "economy" here you really mean economy outside of the stock market. Even then there are parts that are heavily intertwined and parts that aren't.

      • (Score: 0) by Anonymous Coward on Thursday January 28 2021, @08:54PM (4 children)

        by Anonymous Coward on Thursday January 28 2021, @08:54PM (#1106283)

        She wasn't speaking of most people or most companies, but rather of "Wallstreeters", whom we can safely assume put most of their cash in things like stock markets.

        What is your point?

        But your betting is betting.

        Yes. So what?

        When your stock trading (which is not sports too) is indeed gambling, then there you go circularly.

        Huh? No.

        Playing the stock market is just like betting in a sports book, and "the economy is just like the world of sports. You can make all kinds of bets (huge or small), but those bets don't affect the world of sports. Likewise, one can make all kinds of stock trades, but those trades don't affect the general economy.

        Likewise, the stock market and the economy are mostly independent from each other.

        Incorrect, since stock markets and trading on stock markets are part of the economy, they're by default dependent on the economy.

        Not really.

        Sure, there has to be an economy with companies for the stock market to exist, and there are frequently events that happen in the economy (and in the world) that temporarily affect the overall market and individual stocks. However, something really serious has to happen to the economy to significantly affect the overall stock market. Otherwise, the two entities are independent.

        Take just last year, for instance. In 2020, the US economy shrank by 3.5%, in its worst year for growth since 1946:
        https://www.msn.com/en-gb/money/news/us-economy-shrank-by-35-25-in-2020-the-worst-year-since-second-world-war/ar-BB1db4Hc

        In that same year (2020), the S&P 500 gained a whopping 16.26%!:
        https://www.macrotrends.net/2324/sp-500-historical-chart-data#menu2

        So, the "economy" and the stock market often move in different directions and are, thus, mostly separate and independent from each other.

        When you say "economy" here you really mean economy outside of the stock market. Even then there are parts that are heavily intertwined and parts that aren't.

        Well, yes... just like when I say "sports" when I mean the sports world outside of the sports book.

        The only time that the economy and the stock market are "heavily intertwined" is when "binary" events occur in the economy and in the world.

        • (Score: 1) by khallow on Thursday January 28 2021, @11:27PM (3 children)

          by khallow (3766) Subscriber Badge on Thursday January 28 2021, @11:27PM (#1106347) Journal
          My point is that you are saying things that are trivially false.

          Playing the stock market is just like betting in a sports book, and "the economy is just like the world of sports. You can make all kinds of bets (huge or small), but those bets don't affect the world of sports. Likewise, one can make all kinds of stock trades, but those trades don't affect the general economy.

          An analogy and final assertion that is irrelevant to AOC's quote. I already explained why. She was specifically talking about a small class of people who invest in stock markets and similar securities markets. It would be exactly like talking about sport betters who interact with the world of sports through betting.

          Take just last year, for instance. In 2020, the US economy shrank by 3.5%, in its worst year for growth since 1946:
          " rel="url2html-1944">https://www.msn.com/en-gb/money/news/us-economy-shrank-by-35-25-in-2020-the-worst-year-since-second-world-war/ar-BB1db4Hc

          In that same year (2020), the S&P 500 gained a whopping 16.26%!:
          " rel="url2html-1944">https://www.macrotrends.net/2324/sp-500-historical-chart-data#menu2

          So, the "economy" and the stock market often move in different directions and are, thus, mostly separate and independent from each other.

          I find it remarkable how you picked one of the worst possible examples to back that claim. Those two parameters are both moving in the same direction!

          When there's a great deal of uncertainty in an economy (such as generated by a covid pandemic), investors buy the more reliable (or at least the investments perceived as being more reliable) at a premium and raise the price of those investments. Thus, things like S&P 500 stocks rise in price as one would expect. We have here an example of the couplings between the stock markets and the greater economy, contrary to assertion.

          The only time that the economy and the stock market are "heavily intertwined" is when "binary" events occur in the economy and in the world.

          Well, we already have one such "binary" event above. It's time to rethink your assumptions.

          • (Score: 0) by Anonymous Coward on Friday January 29 2021, @11:02AM (2 children)

            by Anonymous Coward on Friday January 29 2021, @11:02AM (#1106541)

            My point is that you are saying things that are trivially false.

            Nope. You just need to get a little education regarding the stock market.

            Playing the stock market is just like betting in a sports book, and "the economy is just like the world of sports. You can make all kinds of bets (huge or small), but those bets don't affect the world of sports. Likewise, one can make all kinds of stock trades, but those trades don't affect the general economy.

            An analogy and final assertion that is irrelevant to AOC's quote. I already explained why. She was specifically talking about a small class of people who invest in stock markets and similar securities markets. It would be exactly like talking about sport betters who interact with the world of sports through betting.

            Everything I said is most certainly relevant to AOC's (and your) misinformed notion that the stock market and the economy are the same and strongly correlated. You just repeated my analogy to suggest the reality -- hence, my analogy is relevant!

            And by the way, AOC referred both to "Wall Streeters" and to "message board posters."

            I find it remarkable how you picked one of the worst possible examples to back that claim. Those two parameters are both moving in the same direction!

            When there's a great deal of uncertainty in an economy (such as generated by a covid pandemic), investors buy the more reliable (or at least the investments perceived as being more reliable) at a premium and raise the price of those investments. Thus, things like S&P 500 stocks rise in price as one would expect. We have here an example of the couplings between the stock markets and the greater economy, contrary to assertion.

            You really should educate yourself a little before you post.

            Those two "parameters" are not moving in the same direction, and history mostly disagrees with your notion of how those moves are correlated. Historically, when there is a great deal of uncertainty in the economy, investors go from stocks to bonds and to hard commodities, and sometimes just to cash. However, that is not what happened last year (2020) nor in several instances prior. The correlation between significant drops in the economy and movement into bonds and commodities has broken down in recent years.

            It doesn't take much digging to realize that movement of the stock market and the economy are largely independent from each other, with little definite correlation. Merely recall the stock market crash of the Great Depression. During the first for full calendar years of that depression (1930, 1931, 1932 and 1933), the S&P 500 averaged a 26% drop each of those four years. However, I think that even you would agree that there was "uncertainty in the economy" during those for years. Similar economy/market moves happened at the 2008 crash. Yet 2020 (and other periods) show the stock market rising while the economy tanks.

            So much for your notion that about uncertainty in the economy accompanies a rise in the stock market.

            Other than at periods of really huge economic downturns, there is no solid correlation between the stock market and the economy.

            • (Score: 1) by khallow on Friday January 29 2021, @12:13PM (1 child)

              by khallow (3766) Subscriber Badge on Friday January 29 2021, @12:13PM (#1106556) Journal

              Everything I said is most certainly relevant to AOC's (and your) misinformed notion that the stock market and the economy are the same and strongly correlated.

              But that misinformed notion is a straw man. It's possible that AOC believes that, but we can't tell from what she wrote. I certainly don't nor gave that impression.

              It doesn't take much digging to realize that movement of the stock market and the economy are largely independent from each other, with little definite correlation. Merely recall the stock market crash of the Great Depression. During the first for full calendar years of that depression (1930, 1931, 1932 and 1933), the S&P 500 averaged a 26% drop each of those four years. However, I think that even you would agree that there was "uncertainty in the economy" during those for years. Similar economy/market moves happened at the 2008 crash. Yet 2020 (and other periods) show the stock market rising while the economy tanks.

              There was also massive problems with the S&P 500 companies back then. These events are all different - their causes and consequences. As a result, what investments are perceived as more or less reliable and secure change as well. You are trying to use a simplistic model to claim that there is no correlation. But there's no reason to expect a simple one-way correlation (positive or negative) between economic activity and stock price.

              • (Score: 0) by Anonymous Coward on Friday January 29 2021, @07:01PM

                by Anonymous Coward on Friday January 29 2021, @07:01PM (#1106663)

                But that misinformed notion is a straw man. It's possible that AOC believes that, but we can't tell from what she wrote. I certainly don't nor gave that impression.

                Ahh... So YOU admit that it is a misconception that the stock market and the economy are the same thing.

                The fact that AOC is always very direct combined with the fact that it is a very common misconception the stock market and the economy are the same would strongly suggest that AOC is misinformed.

                There was also massive problems with the S&P 500 companies back then.

                Not exactly. There were massive problems in the economy. Nevertheless, the 2008 crash didn't exhibit the same symptoms, and 2020 was a different situation from both of those crashes. There are countless other disparate examples, especially in the last few years.

                Again, the economy and the stock market are generally two independent entities, unless there is a huge catastrophe.

                These events are all different - their causes and consequences.

                You keep parroting my arguments. What is your point?

                As a result, what investments are perceived as more or less reliable and secure change as well.

                Of course, but there were never a lot of "reliable" investments -- not ones that would consistently return huge percentages over a long term.

                Again, what is your point? How does this argument relate to the common misconception that the stock market and the economy are the same thing?

                You are trying to use a simplistic model to claim that there is no correlation.

                No. I am not using a "model" -- I am simply providing facts. The fact is that there is no solid correlation between moves in the stock market and moves in the economy, except when the economy takes a huge downturn.

                By the way, here is a chart that shows the S&P 500 overlaid with the US GDP from around 1960 to 2020:
                https://www.isabelnet.com/u-s-gdp-and-sp-500/ [isabelnet.com]

                Here is an article from 2015 that gives a 45.9% correlation between the S&P 500 and the GDP (from 1958 to 2015):
                https://seekingalpha.com/article/3053626-u-s-real-gdp-and-s-and-p-500-price-performance [seekingalpha.com]

                A 45.9% correlation means the the S&P 500 and the GDP move together less than 50% of the time.

                But there's no reason to expect a simple one-way correlation (positive or negative) between economic activity and stock price.

                Exactly my point! The stock market and the economy are two different, independent entities!