How WallStreetBets Pushed GameStop Shares to the Moon
bloomberg.com
bloomberg.com
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.
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.
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".
Every single strike price on Friday was in the money on expiration. It’s hard to overstate how ludicrous that is.
"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.
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.
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.