Redditors and day traders pushed the stock from just a few dollars a share to more than $400 at one point. The problem, as DeDad puts it, is that they can’t both make money at once. More: Why did shares of GameStop and AMC soar? New PlayStation and Xbox gaming consoles were coming out, a large investor had bought in, and the redditors thought the hedge funds were wrong. Short sellers, who are mostly hedge fund managers and big-time investors, thought GameStop's stock would continue to plummet.īut as early as last year, day traders on a subreddit called WallStreetBets thought GameStop could do well. GameStop was already hurting as a company before COVID-19, DeDad said. Here’s what you need to know about GameStop, short selling, squeezes and your 401(k): How did GameStop get here? He holds a doctorate in economics and said he doesn't own any shares of any of the affected stocks. 'This is going to end badly': GameStop gamers battle risk in fight against Wall Street Not only is it highly debated in the classes he’s teaching, but it could also influence new regulations going forward. Michael DeDad, a University of Akron professor, is watching the situation closely. If you’re trying to watch the stock market, news and social media to find out what’s going on, you might get whiplash.Īnd your biggest question might be “What does this do to my 401(k)?” There’s a tug of war happening between hedge fund managers and day trader crusaders on Reddit.Īnd stocks like GameStop and cryptocurrencies like Dogecoin are the rope. Burry, however, seems to have been investing on valuation and fundamentals, instead of a squeeze organized on social media by an army of investors with “diamond hands.Watch Video: GameStop-Robinhood 'Wall Street bets' frenzy explained Had Burry held onto his maximum holding of 3.4 million shares, they’d have been worth over $1.5 billion at GameStop’s Reddit-inspired 2,000%-plus surge in 2021. He spent about $15 million in total, according to Forbes calculations. At its peak, Burry’s position Burry’s in GameStop amounted to 3.4 million shares or 5.3% of the ailing video game retailer, purchased at prices between $2 and $4.20 a share. It turns out Burry was entirely out of GameStop by then.įilings show he sold his remaining 1.7 million share holding of GameStop in the fourth quarter. In a Jan 26 tweet, Burry called the squeeze “unnatural, insane and dangerous.” He added, there should be legal and regulatory repercussions from the trading. But as it was occurring, Burry was warning about the trading. The surge cost Wall Street investors almost $20 billion in mark-to-market losses, according to data from S3 Partners, at the worst of the squeeze.įor Burry, the squeeze could have made him over $1 billion at certain points of January. Other big funds were hit hard, including Cohen’s Point72, which shed double digits in January. In January, Melvin required a $2.75 billion infusion from Cohen’s Point72 Asset Management and Citadel, owned by billionaire Ken Griffin, due to its losses. Cohen of Point72, was the biggest victim, dropping 53% in January according to the Wall Street Journal, in part due to a short position in GameStop. A hedge fund named Melvin Capital, backed by Billionaire Steven A. The Redditors bought stock and options, trying to squeeze professional hedge fund investors who were short and it worked. As an army of traders piled in, at times GameStop was the most traded company in the world, with shares trading more volume than Apple AAPL or Amazon AMZN. In 2021, GameStop became a sensation on Reddit threads like r/WallStreetBets. The complacency was exploited by the Reddit army, to devastating effect. Moreover, the Federal Reserve has been flooding the market with liquidity and a second round of stimulus checks hit bank accounts at the end of the year, a risk hedge funds should have sidestepped. GameStop entered 2021 as one of the most shorted stocks in the world, though positive changes were afoot inside the company as online sales surged and customers lined up outside its stores to buy new PlayStation consoles. The GameStop play helped set off one of the wackiest and most out of control trades in financial history, which minted billions of dollars in paper profits for some investors, including many amateur speculators, and caused big losses for some of the world’s most sophisticated hedge funds.
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