The GameStop short squeeze

Thread Starter

nsaspook

Joined Aug 27, 2009
8,382
SO much for free markets. One of my kids has been playing around with a few dead-end stocks but I've got nothing in the game other than a good laugh.

https://fortune.com/2021/01/27/game...ort-squeeze-reddit-sp-500-spx-dow-jones-djia/
It's full-on hysteria in some corners of the stock market.

GameStop has so far been pumped up an astounding 1,556% in the past month (as of Wednesday's close) after being touted on message boards like Reddit. (It also has the highest short interest of any stock, per data from financial data firm S3 Partners.)
Taking it in the 'Shorts'.
https://fortune.com/2021/01/28/gamestop-hedge-fund-losses-steven-cohen-dan-sundheim/
For once, Main Street is beating Wall Street.

In a matter of weeks, two hedge-fund legends -- Steve Cohen and Dan Sundheim -- have suffered bruising losses as amateur traders banded together to take on some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin ended up rushing to the aid of a third, Gabe Plotkin, whose firm was getting beaten down.

Driven by the frenzied trading in GameStop Corp. and other stocks that hedge funds have bet against, the losses suffered over the past few days would rank among the worst in some of these money managers’ storied careers. Cohen’s Point72 Asset Management has declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s top-performing funds, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% through Friday.
Now they want to change the rules in the middle of the game calling it manipulation. :D:D:D:D
https://qz.com/1965494/are-wallstreetbets-reddit-traders-manipulating-gamestop-shares/
Does that sound like a coordinated effort to manipulate stock prices? Coffee at Columbia Law School doesn’t necessarily think it’s as sophisticated as that—he likens what is happening to a “mob of uninformed, unsophisticated retail traders” unleashed by trading apps. But even if there is a cynical manipulator pumping up a stock while knowing it will come crashing down later, which could violate Section 9 of the Securities Exchange Act of 1934, he says it would be extremely difficult to make it hold up in court.

“There is no theory of liability under the federal securities laws that is harder to prove than manipulation,” he wrote in an email. “You are looking for the evil needle in the huge haystack of uninformed, deluded fools. As for ‘squeezing the shorts’ (which is also manipulative), that too is possible, but it is easier to make money by just riding the roller coaster up and seeking to sell at the top.”
Is this manipulation of free markets?

https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-trading-in-gamestop-s.html

Retail brokerages restricted trading on Thursday in GameStop and other stocks caught in a frenzy that has captivated Wall Street and caused big losses for hedge funds.

Free-stock trading pioneer Robinhood and Interactive Brokers said that in some cases, investors would be able to sell only their positions and not open new ones. Both brokerages raised margin requirements on certain securities.

Robinhood told clients in a blog post that it would close out some positions automatically if the client was at risk of not having the necessary collateral. The Menlo-Park, CA based said it plans to allow limited buys of these securities on Friday.

After the announcement, shares of GameStop initially reversed their gains, sliding quickly into negative territory. The stock, which traded above $500 at one point in premarket trading, closed down 44% on Thursday.
Robinhood customers took to Twitter to express their outrage surrounding the decision. Robinhood has made a name for itself through its mission to democratize investing for everyone. The Silicon-Valley start-up with more than 13 million users pioneered free trading, forcing the entire brokerage industry to drop commissions in late 2019.

“Either #Robinhood allows people to trade freely in the market or they will lose millions of users
...
“Robinhood canceled stock orders on #gme #amc #NOK etc.... There should be a class action lawsuit. I thought we had a free market. So Wall Street is OK with me losing hundreds of dollars, so that rich investors can’t be called out on their risks....
 
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jgessling

Joined Jul 31, 2009
82
Having worked in the trading business for a couple different brokerages let me share something that I learned: the little guy loses. These reddit whiners are learning that now. Too bad for them. I wonder who is stupid enough to think that Robinhood is going to get you rich? That was a fantasy story, but I guess every generation needs to learn for themselves. They will find little help from the established Wall Street crowd.
 
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wayneh

Joined Sep 9, 2010
17,152
Having worked in the trading business for a couple different brokerages let me share something that I learned: the little guy loses. These reddit whiners are learning that now. Too bad for them. I wonder who is stupid enough to think that Robinhood is going to get you rich? That was a fantasy story, but I guess every generation needs to learn for themselves. They will find little help from the established Wall Street crowd.
Well they’re still gloating for now. The reckoning is still to come.
 

Thread Starter

nsaspook

Joined Aug 27, 2009
8,382
https://www.npr.org/2021/01/29/9620...unds-as-sec-warns-against-market-manipulation
The GameStop stock-market roller coaster continued Friday as the video game retailer's shares shot up, the online broker Robinhood struggled for cash and securities regulators issued a stern warning for anyone trying to game the market.

Catapulted by seemingly unrelenting enthusiasm on Reddit, GameStop stock soared nearly 68%.
...
The SEC also issued a warning: "We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity."
When all of the shorts crash (brokers taking their losses) out of the market these stocks will have no support when they go south.
 

402DF855

Joined Feb 9, 2013
271
I'm no expert on this but looks like Gamestop has estimated earnings next quarter of about $5/year. With a typical PE of 10-20 that puts the stock at $50-$100, although that seems high from a historical perspective. Unless they're planning to infiltrate the lucrative Chinese market or something, seems unlikely they can keep the share price in the $200-$500 range.
 

Papabravo

Joined Feb 24, 2006
16,118
Having worked in the trading business for a couple different brokerages let me share something that I learned: the little guy loses. These reddit whiners are learning that now. Too bad for them. I wonder who is stupid enough to think that Robinhood is going to get you rich? That was a fantasy story, but I guess every generation needs to learn for themselves. They will find little help from the established Wall Street crowd.
It's every generation throws a hero up the pop charts

 

Thread Starter

nsaspook

Joined Aug 27, 2009
8,382
https://www.fool.com/investing/2021/01/31/the-worst-mistake-gamestop-investors-can-make-righ/
It's not a question of whether, but rather when
Short squeezes and gamma squeezes eventually run out of steam. Whether it's because of the mechanics of expiring options, the person at the eye of the storm deciding he has profited enough, or some other reason, the GameStop momentum will also run out.

Investors who are holding because they think they will really make money from the trend continuing risk being the poster children of falling victim to the greater-fool theory. They run the very risk of losing everything they've invested -- or even more, if margin is involved.

If you are an investor in GameStop stock or options, consider the very real and incredible risks you are facing and plan and act accordingly. This party is very likely to not end well, and those who are the most euphoric now may very well end up hurt the worst when it does end.
https://www.cnbc.com/2021/02/01/gamestop-shares-reddit-trader-frenzy-continues-into-february.html

GameStop shares lose nearly a third of their value on Monday following 400% short-squeeze spike last week
 

wayneh

Joined Sep 9, 2010
17,152
And it's only Monday... It's gonna feel like a lonnnnng week for those bright-eyed noobs. At least they're driving up one of the silver stocks I have.
 

djsfantasi

Joined Apr 11, 2010
7,689
You’re missing the whole point of the squeeze. I’m loathe to call then investors, because they fully expect to lose money on their purchases. Imagine 100,000 investors with $10 versus one investor with $1,000,000. The $10 investors are forcing the $1,000,000 investor to lose most of his money. Would you rather lose $10 or a million?
 

Thread Starter

nsaspook

Joined Aug 27, 2009
8,382
You’re missing the whole point of the squeeze. I’m loathe to call then investors, because they fully expect to lose money on their purchases. Imagine 100,000 investors with $10 versus one investor with $1,000,000. The $10 investors are forcing the $1,000,000 investor to lose most of his money. Would you rather lose $10 or a million?
Chasing some social Justice mantra with a wet noodle total investment is a game for fools.

Lots of these kids have their entire savings into this squeeze not $10.
These kids are likely to get burned and tossed like a used tissue at the end of this 'Pump and Dump' routine.
 

wayneh

Joined Sep 9, 2010
17,152
You’re missing the whole point of the squeeze. I’m loathe to call then investors, because they fully expect to lose money on their purchases. Imagine 100,000 investors with $10 versus one investor with $1,000,000. The $10 investors are forcing the $1,000,000 investor to lose most of his money. Would you rather lose $10 or a million?
I think a few of those 100,000 don't mind losing some, if not all of their money for their "cause". But I bet most of them will mind. It's a lesson every investor or gambler needs to learn. They may as well learn it early when the stakes are lower.

There's an old adage about the market: Bulls win, bears win, pigs get slaughtered.
 
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Thread Starter

nsaspook

Joined Aug 27, 2009
8,382
Looks like we will find out real soon if they don't mind.

https://www.cbsnews.com/news/gamestop-stock-gme-down-losses/
GameStop's stock price cratered on Tuesday, falling 60% to $90 a share. The drop signaled that the popular WallStreetBets Reddit stock market discussion board — a major force behind last week's spectacular rally in the troubled video game retailer's shares and others'— may be losing its magic to move the market.

The GameStop tumble followed a large reduction in short interest on the stock, which measures how many of the company's shares have been borrowed to sell. Many had pointed to that previously high short interest, and the fact that hedge funds and others betting against the video game retailer had been squeezed, as a reason GameStop's shares had soared.

"These things can last longer than people expect, but when they unwind, they can unwind pretty fast," said Ross Mayfield, investment strategist at Baird. "When it's complete speculation mania and gambling, someone is going to be left holding the bag."

https://www.cnbc.com/2021/02/02/red...llion-on-tuesday-but-is-still-holding-on.html

Reddit user who helped inspire GameStop mania says he lost $13 million on Tuesday, but is still holding on
 
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Thread Starter

nsaspook

Joined Aug 27, 2009
8,382
https://www.msn.com/en-us/money/com...renzy-benefited-wall-street-elite/ar-BB1dvfI7
But industry experts say the soaring stock price was almost certainly given a boost by the hidden hand of larger investors.

Benn Eifert, chief investment officer of San Francisco-based investment fund QVR Advisors, said the largest hedge funds probably knew about the GameStop buzz early because they are actively monitoring conversations on social media forums.

“You better believe the large sophisticated firms in the space have technology to tell them about what’s happening in the world in real time,” Eifert said. He declined to comment on whether QVR took a position in GameStop or specify what technology his firm uses to monitor social media.

Like GameStop, Bed Bath & Beyond has been reduced to a stock meme. But 42,000 people work there.
 
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