Those investors have to buy the stock back at a higher price to return it to the original investor. And that’s the back story with GameStop. Retail investors drove up the price right before hedge funds had to make good on those shorts. Now the hedge funds have to buy back stock at a higher price.
Should I Buy GameStop stock?
Mar 31, 2021 · The true story behind the Gamestop stock controversy Recently, the nation became enthralled with an underdog story of ordinary people pushing Gamestop’s stock way past its value to stick it to greedy traders only to be stopped by the power of Wall Street…
Who is buying GameStop stock?
Feb 12, 2021 · Probably. There probably isn’t much money to be gained by shorting the stock as low as the price got, but GameStop isn’t a terrible company. The stock price started rising with the prospect of a new console sales cycle and a trio of e-commerce vets from Chewy.com joining the board and then later the announcement of a lead engineering hire from AWS.
Why did the price of GameStop stocks jump so suddenly?
Jan 29, 2021 · What's going on with GameStop's stock doesn't make sense to a lot of people. Video. The struggling video game retailer's stock has been making stupefying moves this month, wild enough to raise ...
How to Buy GameStop stock?
Jan 30, 2021 · It feels like an opportunity to get rich quick. For regular people, the GameStop hype looked like an opportunity to break past barriers that exist in the way of making money. Some people perceive ...
What is the controversy about GameStop stock?
What caused GameStop shares to go up?
Why did everybody buy GameStop stocks?
How overvalued is GameStop?
Who bought GameStop shares?
How did GameStop stock soar?
Is GameStop a good buy?
Is GameStop still a short squeeze?
What we had with GameStop?
What we had with GameStop was a story that was far more nuanced than just a simple David vs. Goliath. You needed many complex things happening at the right time. You needed a small (er) stock where a large group of individuals could potentially move the stock price. You needed that stock to be legitimately undervalued or at least not as bad as conventional wisdom so your initial idea of buying the stock doesn’t seem crazy. You also needed a lot of people or funds to be short the stock, some with very dangerous risk management practices. You need a catalyst to start shares moving upwards like new board members and executives with successful e-commerce backgrounds. You then needed a reason for people to keep piling in whether that was individual investors on Reddit seeing it as a Main St. vs Wall St. battle or firms front running investors’ orders. After all, what self-respecting fund or trader wouldn’t also want to get their share of the Melvin Capital carcass too?
How is GameStop different from Blockbuster?
Now, I’ll expand on that difference to include other retailers that were dying before, and more retailers since, COVID. Unlike Blockbuster, department stores and apparel retailers, GameStop has tiny stores with few staff. Therefore, their fixed expenses are much lower. Additionally, GameStop’s tiny stores are packed with mostly small, expensive merchandise ($60 AAA video games). On the other hand, Blockbuster had enormous stores filled with cheap (a couple bucks) rentals. Apparel retailers also face another risk, fashion trends. If they buy the wrong designs or too much of one trend and the clothing doesn’t sell, then they are left with two equally bad choices. They must heavily discount the merchandise (perhaps damaging brand cachet) before the season ends, or be left with piles of unsold inventory to store and try to resell next year when it’s probably going to be even more out of style.
How does shorting a stock work?
Let’s say the stock of ABC Company is at $20 a share. The short seller borrows a share of stock for an existing stockholder and agrees to return it at a later date, betting they will be able to buy it back later (say, three months) for less. The short seller sells that borrowed share of ABC Co in the market at $20. Three months go by, and the stock price has declined to $10. They were correct. They buy a share at $10 and return that share to the original shareholder from whom they borrowed it, as promised. Sold at $20, bought back at $10, and so they earned a tidy $10 profit or a 50% return.
What happens when you sell out of the money options?
When dealers sell deep out-of- the -money options on a skyrocketing stock, the dealers are forced to buy more of the underlying stock as a hedge. The actual math that goes into this and how the hedges are done is infinitely more complex than this simplistic example, but the basic idea is the same. In certain circumstances, dealers hedging options can put upward pressure on a stock price.
Is GameStop a dead or dying retailer?
GameStop is traditionally compared to Blockbuster or some other dead or dying retailer. Short-sellers have described it as “a melting ice cube.” That might be an apt description, if modified to “ The World’s Slowest Melting Ice Cube.” GameStop isn’t a terrible company, but it isn’t great either.
What subreddit helped trigger the GameStop surge?
Some users of WallStreetBets (the subreddit community that helped trigger the GameStop surge) describe the pain that they and their families endured during the 2008 financial crisis and highlight how professional investors were never punished, Shue says.
What is the Reddit crew?
The Reddit crew are essentially “play ing the metagame” — a term used in role-play video games when players strategize outside of the rules of the game, says Joost van Dreunen, who teaches the business of video games at the NYU Stern School of Business. “Retail investors do the same thing,” van Dreunen says.
What does Gamestop hype look like?
For regular people, the GameStop hype looked like an opportunity to break past barriers that exist in the way of making money. Some people perceive it like winning the lottery, Newcomb says.
Is GameStop a brick and mortar company?
GameStop is a brick-and-mortar retailer that many young people grew up with, but that had been declining in recent years. “GameStop is sort of written off” as something that can’t compete with Amazon, van Dreunen says. (Other stocks that were targeted include BlackBerry, Blockbuster and Nokia.)
Can you save a GameStop?
You can’t save a GameStop, you can’t probably save Blockbuster, but what you could do is kind of play around with it before it expires.”. That kind of nostalgia is appealing: Research has shown that nostalgia can combat loneliness, because it reminds us that we have social support and counteract feelings of boredom.
How much did GameStop lose in 2018?
At the start of the next year, GameStop reported a huge net loss of $673 million for the first time in its history. Even the year before, the company had turned a profit.
What is deep value investing?
Deep-valuation is a longstanding approach to investing pioneered by Benjamin Graham which rests on the observation that a lot of stocks become undervalued when cyclic lows are interpreted as problematic by big investors. Given stocks’ tendency to self-correct to a more authentic market valuation over a longish period of time, the deep-value investor seeks out cheap stocks that they believe in, trusting that they will improve.
What episode of A Little Bit Human is about liberals and conservatives?
A Little Bit Human: Episode 8 – Do Liberals and Conservatives Have Different Brains?
What is put option?
Similaer to a bond, options are derivative financial securities whose prices depend upon the underlying stock. “Call options” allow the buyer to purchase a stock at a fixed price within a limited timeframe, and “put options” allow the buyer to sell owned stock in a similar way. Huge market-making funds sell options at heavy premiums and, as trading increases, they purchase proportional amounts of stock in the market to keep it in their supply. This establishes a positive-feedback loop that keeps driving the price higher and higher. They typically choose put options to minimize their risk if they have to sell (hedging). The extraordinary amount of put volume during these dates (compared to stable call volume) points to the tactics that big investors and market-makers were employing.
When did GameStop buy EB Games?
During the next 15 years, GameStop acquired many other video games retailers, including EB Games in 2005 for $1.44 billion. The $GME stock price rose steadily from under $10 to as high as $61.45 on December 27th 2007. Those were the good times.
Did Maplelane close its short positions?
Hedge funds Melvin Capital, Citron Research, and Maplelane finally closed their short positions by January 25th, incurring billions in losses. The prices at $65.00 and $76.79 were simply too high for them to afford the collateral money that share-lending institutions demand to insure the loan (collateral and the interest rates that go along with it hike up with the stock price). Regardless, short-sellers were still shorting the stock during this time.
When was Reddit founded?
The subreddit was founded in 2012 by Jamie Rogozinski to share and discuss information about stocks and trading. When Robinhood opened its digital doors for zero-commissions trading to encourage “investing for everyone”, it became easy to apply the discussion points. Much ado has been made about Reddit and Roaring Kitty driving up the stock price, but back then, the stock price remained firmly under $5 right up until the activist supporters came back into prominence.
Who owns GameStop stock?
Despite GameStop’s bleak outlook, last year a well-known investor named Ryan Cohen increased his holdings of GameStop stock to more than 10% of the company, with hopes of transforming the mainly physical retailer into more of an online player.
How much is GameStop stock worth in 2021?
GameStop stock rose from $17.25 on the first trading day of 2021 to $347.51 earlier this week. That’s an increase of about 1,900%.
How much did GameStop lose in 2020?
The company had a net loss of $18.8 million, or 0.29 per share. As a result of results like that, GameStop stock had been drifting lower for years. It was around $56 a share in late 2013, but had fallen to under $4 by March of 2020. Of course, that was before the massive surge.
What hedge fund lost money on GameStop?
In fact, one hedge fund called Melvin Capital lost so much money on its GameStop short positions that it needed a capital infusion of nearly $3 billion to shore up its finances. And GameStop isn’t the only stock that has seen this kind of tug of war between retail investors and hedge funds lately. A few others include:
How many stores does GameStop have?
GameStop (NYSE: GME) is primarily a bricks-and-mortar video game retailer with more than 5,000 stores. But this business model is frowned upon by many in the investment community due to both long-term and short-term factors. Long-term, fewer and fewer gamers actually journey out to physical stores to purchase their games.
Is GameStop a small company?
In addition, GameStop is by all accounts a small company when you look at its sales and earnings numbers. The retailer of video games is also struggling financially. Sales are falling at a 30% annual rate.
Did hedge funds bet against GameStop?
Several major hedge funds looked at GameStop’s books and decided that the company was doomed to fail eventually. So they bet against GameStop stock by shorting it. That means they borrowed the stock and sold it, hoping to buy it back later (and return it to the stock lender) after the stock price fell.
Who drove up the price of stocks before hedge funds?
Retail investors drove up the price right before hedge funds had to make good on those shorts.
What to do if stock price is down?
If you were right and the stock price is down you buy it back at a cheaper price and pocket the difference.
What happens if a stock doesn't fall?
But if that stock doesn’t fall it’s called a short squeeze. Those investors have to buy the stock back at a higher price to return it to the original investor. And that’s the back story with GameStop.
What happens when you short a stock?
When you short a stock you borrow it for a set amount of time from someone who owns it then sell it to someone else for a premium. When it comes time to return the stock you borrowed you buy a replacement to return to the original investor.
Did GameStop get shorted?
This whole controversy started when individual investors on Reddit noticed that GameStop stock had been shorted by some big money hedge funds. Financial experts say those hedge funds essentially gambled, betting the stock price would go down.
How does shorting work?
It is done through short options, which allows people to wager if the stock will rise or fall. Shorting is mostly done by hedge fund investment companies since an individual retailer typically doesn’t invest in such high risk equities.
What is day trading?
Day trading refers to buying and selling stocks of a property multiple times during the day. By day trading, one aims to make small profits that add up as they trade. Day trading is often used to blindside amateur traders. Short selling is a way of profiting off the price of an asset which is falling.
What was GameStop's stock price in 2021?
On 26 January this year, the stock closed at $145.60, then increased to $345.00 the next day, peaking at $469.42 on 28 January. GameStop closed at $193.60 on the New York Stock Exchange on 29 January 2021. So, how did a company with a doomed, outdated business model, become the most talked about stock?
What is short selling?
Short selling is a way of profiting off the price of an asset which is falling. It is the process of betting on a stock that one knows is going to fall. Hedge funds are a group of investors that are supervised by a money manager. These hedge funds aim to make profits by short selling on failing stocks.
Is shorting a risk?
Shorting is very high risk as the investment amounts to infinite liability. For instance, if a company’s stock is trading at Rs 350 and one expects it to fall to Rs 250, a stock broker could sell it on the market before the price drop. Now, once the stock price drops to Rs 250, the broker buys it back at the reduced cost. Since, the share was initially sold at Rs 350 and later bought for Rs 250, a profit of Rs 100 has been made.
Is short selling illegal in hedge funds?
After hedge funds lost money, Wall Street demanded that short selling be made illegal even though it’s a practice commonly used by everyone.
Who raised the stock price by 1,700 per cent?
The answer is r/wallstreetbets, a group of retail investors on an internet forum called Reddit who raised the stock price by 1,700 per cent.
Why is Dick metaphor apt?
Dick metaphors are apt because day-trading has always been a realm of bros, and herein lies another possible interpretation of events. In the old days the retail brokerage industry almost exclusively drew on macho imagery to send male traders off to fight the markets, but some platforms at the centre of the GameStop story are a little different.
Why is retail called retail?
They rely on retail firms – such as spreadbetting firms – to pen the day traders into closed ecosystems where they can fight each other, while retail firms harvest them for fees and interest before laying off the residual risk into the actual markets.
What is Robinhood trading?
Robinhood was one of the first “woke” trading apps geared towards millennials. It played into an emo version of the “bullshit jobs” narrative: your job is pointless. Stop working for the man and become the Man by seamlessly buying tiny slices of companies.
When was Robinhood protest?
A protest against Robinhood in New York on 28 January. ‘Robinhood played into an emo version of the narrative: stop working for the man and become the Man.’ Photograph: John Lamparski/SOPA Images/Rex/Shutterstock
What companies are involved in Robinhood lawsuit?
Robinhood was hit with a class-action lawsuit Thursday after announcing the trading restrictions on GameStop and other companies like American Airlines, BlackBerry, Nokia and Tootsie Roll.
Is GameStop working with the Securities and Exchange Commission?
The GameStop frenzy — which has pitted amateur investors against deep-pocketed hedge funds — prompted a rare statement from the Securities and Exchange Commission on Friday, which said the agency is working with regulators and US stock exchanges “to identify and pursue potential wrongdoing.”
Did Citron cover Gamestop shorts?
In a video this week, Left said Citron covered most of its shorts on Gamestop at a “100 percent” loss but didn’t provide details.
The Slide
Hedge Fund vs. Activist Investor
- The next phase was a tussle of opposing positions by two activist investors and run-of-the-mill institutional short-sellers. Dr. Michael J. Burry of The Big Short fame bought a stake in the company worth $7 million via his firm Scion Asset Management in late 2018. He was also the first to take note of the extraordinary shorting of GameStop’s stock at a time when, by August 2019, t…
Pandemic Woes and Deep-Valuation Perks
- GameStop was one of those companies with a poor pandemic response: not closing soon, and not giving employees any benefits or relief. There was also in disregard of orders and precautions at store locations around new game releases. Despite these misfires, not everything was on the decline. In May 2020, the Restore GameStop Presentation by Hestia (Permit Capital Enterprise F…
Enter Roaring Kitty and r/wallstreetbets
- In July 2020, Keith Gill, a certified financial analyst, started his YouTube channel “Roaring Kitty” with the disclaimer that the channel would simply share his personal investing strategy, but wasn’t meant to be taken as advice or stock recommendations. Compared to the bearish short-selling approach, bullish is going long and hoping to profit from price raises. Keith added outlined a mor…
Optimist Speculation and Price Uptick
- $GME finally began its climb above $5 in late August as news of Burry’s fresh investments came out. Stakes upwards of 3% and 5% gave the retail investors the vote of confidence to match the conclusions they had reached. Amidst the new console cycle, the stock price had reentered the $10-range by late September. Frustrated by the continued indifference of the board to public sen…
The First Price Jump and The Short Squeeze
- On January 10th 2021, GameStop appointed three new directors, all former Chewy management, to its board: the former CEO Ryan Cohen, Chief Marketing Officer Alan Attal, and Chief Financial Officer Jim Grube. This positive news led to the first price jump on January 13th to $31.40 from $19.95 the day before. Though some pundits interpreted it as a short squeeze, a seasoned analy…
The Final Price Hike, Celebrity Involvement, and The Gamma Squeeze
- By this time, these steep climbs had attracted the attention of Wall Street at large, and many institutional investors had jumped into the shark pool, such as private equity firms, tourist dollars, and of course, rival hedge funds. This was a prime situation for something called a “gamma squeeze”that involves options trading. Similaer to a bond, options are derivative financial securit…