SoylentNews is people
SoylentNews
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 By the time you read this, that number may be horribly outdated, as the stock continues to bounce up and down with extreme volatility hour by hour (it dipped down as low as $61 and peaked as high as $159 on Friday).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: 2) by quietus on Thursday January 28 2021, @08:43PM (6 children)
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)
Could someone explain? Thanks.
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
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)
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)
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
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.
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
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.