While Russia was struggling with rising prices for “economy class” cucumbers, a drama broke out in the US market boiling with cheap money, which will go down in history for 228 years of American stock trading.
Amateur investors with only a laptop and several thousand dollars in their account, united on the Reddit platform in other social networks, went against the “sharks” of Wall Street. And we won.
The battleground was the shares of GameStop, a loss-making chain of gaming stores that sells video game movie discs and other declining goods.
Having lost 40% of sales in 10 years, the company became a favorite target of hedge funds, which massively opened bets on its fall
… After GameStop became the leader in terms of open positions, the Wall Street Bets community on Reddit accused stubborn boomers from hedge fund Melvin Capital of trying to bankrupt the company. Users were outraged and began buying up GameStop shares to “take money” from the fund. Explosive growth has propelled quotes up 1700% YTD and more than 400% last week. The volume of options related to the company increased from 0.5 million to 2.3 million, and at some point the daily trading volume of Gamestop securities reached a world maximum – about $ 2 billion.
GameStop shares hit a record 380 on Wednesday, bringing the close-to-bankruptcy retailer to a $ 26.5 billion market cap, surpassing Delta Air Lines.
Melvin Capital, which led the shortstop attack on the dying network, lost 30% of its assets, or $ 4.6 billion, and announced surrender on Wednesday.
The GameStop short has been closed, said founder Gabe Plotkin. The titans of the hedge fund industry – billionaires Ken Griffin and Steve Cohen – poured $ 2.75 billion into the fund to keep it afloat, Bloomberg writes.
Another fund that played against GameStop – Citron Capital by Andrew Left – announced a 100% loss in positions. He advised the victorious “couch investors” from Reddit not to forget to pay taxes and not to rush to spend the money earned.
The Bears, mostly funds that only short GameStop, have lost $ 23.6 billion YTD, according to financial data provider S3 Partners. Of that amount, $ 14.3 billion came in losses on Wednesday, when the company’s share price soared 135% to a record $ 347. The daily growth in percentage was the highest in the history of the retailer.
“This is a good example of what a horde of investors and retail in the United States are capable of, which accounts for about 40% of the free-float market and another 30% through the largest pension funds. In such conditions, any game against private investors and retail will turn into disastrous consequences, ”analysts at ITI Capital write.
Data from the nonprofit Harvard College Consulting Group, which surveyed more than 230 investors under the age of 24 this month, shows that 31% of young investors are looking for “quick money”, and 30% of young investors use the social network Reddit.
Fed chief Jerome Powell declined to comment on what was happening with GameStop at a press conference on Wednesday. Although the US Securities and Exchange Commission (SEC) and the White House drew attention to what is happening, the mania has not yet been abandoned. In pre-trading on Thursday, GameStop shares soared another 40%.
In response, Robinhood, Charles Schwab Corp.’s TD Ameritrade, IB – the primary brokers for Reddit traders – announced that they are banning purchases of hot stocks, including GameStop and AMC. The latter rose 400% over the week and surpassed Apple in trading volume.
Surprisingly, at what speed the quotes flew into space: over the past two days, more than 170 million GameStop shares have changed hands, despite the fact that there are about 70 million in total, says Wedbush analyst Michael Patcher. This is 200% freefloat, while for Apple or Facebook, the daily turnover does not exceed 1-2%.
It is essentially a pyramid scheme, says Patcher, who admits that his forecasts on the company’s fundamental price have long been of no interest to anyone: “The market operates on the theory that there will always be an even bigger fool. Guys who buy at 300 hope that the next fool will buy at 400, and so far such fools are in abundance. “