Institutional hedge funds got greedy and they're getting punched in the gut by retail investors; personally i think it's nice to see.
A few comments on the price action:
1) true short interest is unclear; remaining short-sellers will likely be forced to "buy to cover" over the next few days, potentially driving the price even higher.
2) WSB users invested heavily in call options; "exercising a call" option can also drive price action higher if they were sold a "naked call".
Robinhood has gotten a lot of flak recently for the power they've given inexperienced traders, but without them this wouldn't have happened. They're really living up to their name.
Exactly - people underestimate the wisdom (and the power) of organized crowds. Governments can be topped by crowds, which is why they try very hard to not become too unpopular.
Institutional finance is just a percentage of what some people put in the market.
And like governments, they may start realizing they must not do things that will make too many people angry, as the scale does not work in their favor now that new tools have made greater cooperation possible.
I’ve been following this for a few months and it’s really interesting to me that retail investors could actually have this sort of influence on a non penny stock. Given the high volume of trading, it doesn’t seem like there would be enough buyers to drive the price up this high, and institutional buyers I would think are staying away from something that seems to move so far away from its fundamentals. This is very different from the run up in Signal Advance caused by Musk’s tweet or people buying the wrong Zoom stock. There is very real volume here.
What’s the actual long GME hypothesis? From WSB, I’ve read 3 things
1. Ryan Cohen joins board. Ok, I like chewy.com but having this one dude on the board is really worth 20x in the company’s value?
2. They plan to sell PC parts. Again, really? And right before a bunch of new consoles are released?
3. People have some vague idea that they might start a Steam competitor. Does GameStop have any expertise, talent, or IP to do this? The only thing they bring to the table is their trademark, and it’s not really a great one.
I haven't redefined anything; your definition of "long means that they're holding shares or call options" is completely in agreement with my statement that "long just means not short." The parent seems to be conflating having a long position and believing in the long-term performance of the company. They're asking about long-term changes in GameStop's business when the person he's asking about this could very well be planning on being long in GME for the duration of this squeeze (or the most extreme parts of it) and bailing in the next 1-4 weeks after it has played out.
That's true, but I think it's a very fair assumption that the parent of my initial comment realizes that the grandparent has a position, considering that they're asking why they took that position.
The 20x value doesn't come from Ryan Cohen, it comes from short-sellers being in too deep. Short-sellers have to buy in order to close their short, and that's guaranteed, and from what I understand, very inelastic demand. That's the real path to profit here: short-sellers having no option but to buy ridiculously overpriced shares in order to settle their shorts.
It isn't just retail investors. Rational buyers (including institutions and algorithms) would purchase this stock if they believe there are people they can unload it onto at a higher price. Now think about the second order consequences of that — the buying frenzy will continue until the bubble bursts.
"Markets can remain irrational longer than you can remain solvent."
Not that the GME stock is necessarily being traded on an irrational basis at the moment - I haven't done any research on it - but I think people need to remember that a lot of the inexperienced robinhood traders are just engaging in speculative gambling, and knowingly or not, pump and dump schemes.
For context one short seller (Citron Research) published this video explaining their belief that GME is a $20 stock.[1]
The way I see it, Citron believes this fiasco is irrational thought about the future of Gamestop and its value.
I think this is actually about the common retail trader manipulating the 'market manipulators'. In other words, let Citron taste their own medicine.
I think Citron failed to realize in the beginning that they were playing a different game than retail traders. Citron believes this is about value investing. WallStreetBets thinks this is a David vs Goliath situation, regardless of the stock they are fighting over.
I wonder if the recent hunger for the new PS5/XboxSeriesX, namely the lack of supply, scalping, and massive web traffic trying to secure online orders, contributed to a short-term distorted view on the stock.
The new console cycle definitely contributed. I think it more had to do with Ryan Cohen, founder of CHEWY, buying 13% of gamestop shares and joining the board with two other CHEWY executives. The assumption is he will play a large role in GameStop's future and buying GameStop stock is a bet on his ability to pivot GameStop into new revenue generating gaming verticals.
Volume for the day is currently at 134m. Even at $80 average trade price, that is over $10 billion worth traded today. Average volume was 20 million for a whole day, and at $20 was about $400m trading hands.
Do the wsb retail investors really control enough money to be buying up the stock this much? If they do, that means they could do this to many stocks...
They're not managing this by having a huge amount of capital; what's happening here only works under some really specific circumstances. Recent-ish short interest data had GME at ludicrous levels (over 100% of issued stock was shorted due to market maker activity). Good news on a large investment from a big name who then joins the board spurs optimistic pricing, which puts the top end of call options (which are normally pie in the sky lottery tickets) within range. Some really questionable bull decision making (WSB's forte) gets retail investors interested, price keeps going up, and eventually all calls are in-the-money. Large market makers selling what _used_ to be absurd calls are now going to have to make good on them and start buying up stock to cover them. Stock price is going up, retail bulls are pepped up, and anybody short on GME (and there were some people that were outrageously short) is now looking down the barrel of huge losses. Short sellers need to start considering getting their hands on this stock to make good, which applies upward pressure, making other short sellers consider doing the same. This all looks good for bulls, so they're simultaneously applying upward pressure. Market makers who didn't learn their lesson have written more call options for strike prices that are now in range.
This is a perfect storm where very big players are incredibly overextended and don't know how to deal with irresponsible/rash decision makers. It's not impossible for it to happen again, but these are not conditions WSB or similar peanut galleries can reliably recreate.
The TL;DR is that r/WSB et al primarily trade in options, which provide significant leverage and force market makers to take increasingly large positions in the underlying to hedge.
r/WSB has held mostly shares of the company and a survey on the subreddit found that users own 8% of GME shares, that's if everyone was truthful, so no 8% isnt enough to move the market when everyone is buying shares and not options. The fact is GME pumped above all time highs due to retail investor hype and from click bait articles on all the financial news sites + specific scenarios of a gamma squeeze mentioned here....
You don’t need $10bn of capital to trade $10bn worth of a stock. For example, if you repeatedly buy and then sell a single share then you could, in theory, add billions of dollars of volume with only as much capital as the price of a single share.
Let's be real here, WallStreetBets thinks it's about getting 2000-20000% gains in xx months - "sticking it" to some boomer short seller (their words) just sweetens the deal. It's a culture that revolves around pure gambling.
I'm interested in how much volatility this could create for markets going forward, especially as society gets more and more unstable and people get more and more desperate. I have relatives who've recently gotten into trading thanks to all the spare time they would've spent commuting.
The hedge funds shorting this like Melvin entered into a very crowded trade where the risk / reward towards the end, when GameStop was trading in the $3-$4 was very questionable. Over 100% of shares were sold short. This was at a time when GameStop had a book value of around $10. There's a reason why certain individuals / value funds have been buying heavily into this stock with 5% ownerships being disclosed at one time or another: Michael Burry, Donald Foss, Must Asset Management, Senvest Capital, Ryan Cohen.
Hedge funds like Melvin have billions of dollars under management and they need to allocate a certain percentage of that pool to each idea they have to make sense financially and they poured too much money into this one short idea than would be appropriate from a risk management perspective. They didn't do their research properly and probably thought the company would go bankrupt. That wasn't the case. GameStop doesn't have much debt and they survived the pandemic. The shorts should have realized their mistake and started covering. What was going on for months this summer and fall seemed like the posterchild of an inefficient market. Instead the shorts doubled down and they've tried to break the momentum of people buying into the stock ever since September when it started rallying by heavily naked shorting and buying large blocks of short term puts. You can observe this by reading level 2 and seeing the entire tape being red and bid prices being rapidly sold off. Numerous articles were written weekly on various financial sites saying the stock rise doesn't make sense and some were even irresponsibly telling retail investors they should short, often lying through omission on important details like Ryan Cohen becoming an activist investor and the extremely high short float and the new console cycle and the new microsoft deal and huge ecommerce growth. I question how many of these authors had connections to the short funds and wrote articles for them.
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[ 22.0 ms ] story [ 1382 ms ] threadA few comments on the price action:
1) true short interest is unclear; remaining short-sellers will likely be forced to "buy to cover" over the next few days, potentially driving the price even higher.
2) WSB users invested heavily in call options; "exercising a call" option can also drive price action higher if they were sold a "naked call".
Every single strike price on Friday was in the money on expiration. It’s hard to overstate how ludicrous that is.
Institutional finance is just a percentage of what some people put in the market.
And like governments, they may start realizing they must not do things that will make too many people angry, as the scale does not work in their favor now that new tools have made greater cooperation possible.
Disclosure: Long GME.
1. Ryan Cohen joins board. Ok, I like chewy.com but having this one dude on the board is really worth 20x in the company’s value?
2. They plan to sell PC parts. Again, really? And right before a bunch of new consoles are released?
3. People have some vague idea that they might start a Steam competitor. Does GameStop have any expertise, talent, or IP to do this? The only thing they bring to the table is their trademark, and it’s not really a great one.
"Markets can remain irrational longer than you can remain solvent."
Not that the GME stock is necessarily being traded on an irrational basis at the moment - I haven't done any research on it - but I think people need to remember that a lot of the inexperienced robinhood traders are just engaging in speculative gambling, and knowingly or not, pump and dump schemes.
The way I see it, Citron believes this fiasco is irrational thought about the future of Gamestop and its value.
I think this is actually about the common retail trader manipulating the 'market manipulators'. In other words, let Citron taste their own medicine.
I think Citron failed to realize in the beginning that they were playing a different game than retail traders. Citron believes this is about value investing. WallStreetBets thinks this is a David vs Goliath situation, regardless of the stock they are fighting over.
[1] https://twitter.com/citronresearch/status/135234404324660838...
Do the wsb retail investors really control enough money to be buying up the stock this much? If they do, that means they could do this to many stocks...
This is a perfect storm where very big players are incredibly overextended and don't know how to deal with irresponsible/rash decision makers. It's not impossible for it to happen again, but these are not conditions WSB or similar peanut galleries can reliably recreate.
The TL;DR is that r/WSB et al primarily trade in options, which provide significant leverage and force market makers to take increasingly large positions in the underlying to hedge.
Hedge funds like Melvin have billions of dollars under management and they need to allocate a certain percentage of that pool to each idea they have to make sense financially and they poured too much money into this one short idea than would be appropriate from a risk management perspective. They didn't do their research properly and probably thought the company would go bankrupt. That wasn't the case. GameStop doesn't have much debt and they survived the pandemic. The shorts should have realized their mistake and started covering. What was going on for months this summer and fall seemed like the posterchild of an inefficient market. Instead the shorts doubled down and they've tried to break the momentum of people buying into the stock ever since September when it started rallying by heavily naked shorting and buying large blocks of short term puts. You can observe this by reading level 2 and seeing the entire tape being red and bid prices being rapidly sold off. Numerous articles were written weekly on various financial sites saying the stock rise doesn't make sense and some were even irresponsibly telling retail investors they should short, often lying through omission on important details like Ryan Cohen becoming an activist investor and the extremely high short float and the new console cycle and the new microsoft deal and huge ecommerce growth. I question how many of these authors had connections to the short funds and wrote articles for them.