The big short squeeze from $5 to $50? [217] Protesters also showed up outside Robinhood headquarters in Menlo Park, California, at the Securities and Exchange Commission headquarters in Washington, D.C., and the New York Stock Exchange. GME Short Interest. [174][175], On February 8, the U.S. Securities and Exchange Commission released a sample letter providing guidance to companies seeking to raise capital during periods of "extreme price volatility". Some of the more veteran players watched Andrew Left’s video and saw a guy betting that a stock would trade according to its fundamentals, and wondered if he was maybe acting more confident than he was, and might not have the mettle to stand pat if this thing went on a run. They just took out the $55s? The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated. [65], On February 1 and 2, the stock price for GameStop declined substantially, losing more than 80 percent of its value from its intraday peak price, recorded during the previous week. [46], By January 28, 2021, Melvin Capital, an investment fund that heavily shorted GameStop, had lost 30 percent of its value since the start of 2021, and by the end of January had suffered a loss of 53 percent of its investments. This is what a rigged system looks like, folks! [204], Several celebrities and influencers also criticized Robinhood. GME short squeeze explained. [94][223] Steve Cohen deleted his Twitter account after threats to his family. So today, I thought I’d clear up exactly how short selling works so that we can all be on the same page. [7], However, in September 2020, Ryan Cohen (the former CEO of online pet food retailer Chewy) revealed a significant investment in GameStop and joined the company's board, leading some to believe that the stock was undervalued. If GSE runs to $50.00, the trader can exercise the option and pay the lender back with the stock received on exercise. Earlier in the week, we talked about how the GameStop Corp. (NYSE: GME) short squeeze that swept up other stocks like AMC Entertainment Holdings Inc. (NYSE: AMC) and BlackBerry Ltd. (NYSE: BB) was not a “David and Goliath” story. [198][199][200] Similar sentiments sympathetic for the retail investors were expressed by billionaire investors Mark Cuban[201] and Chamath Palihapitiya. [34] A brief, sharp rise in the share price to over $200 followed Musk's tweet. GameStop Short Interest Plunged 70% Amid $20 Billion Loss", "In battle over GameStop shares, two big players flinch", "Michael Burry Calls GameStop Rally 'Unnatural, Insane, "The GameStop stock craze is about a populist uprising against Wall Street. It’s best to start at the beginning, which isn’t complicated at all. Approximately 140 percent of GameStop's public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even farther. [202] Palihapitiya, who passed on early investment opportunities in Robinhood, opined that the founding co-CEOs, Baiju Bhatt and Vladimir Tenev, lacked integrity and urged his followers to "#DeleteRobinhood". [29], Later analysis by a cyber security company of social media posts suggested that thousands of automated bots may have hyped GameStop stock, Dogecoin, and other stocks, on social media. Apart from GameStop, many other heavily shorted securities (as well as securities with low short interest) saw increases in their prices: a Prices may be higher during extended-hours trading. Since we’re most interested in explaining the concept in a way that gets it across our readers whose brains haven’t been warped by trading desks, we left lot-size out of the description to keep it simple. Nice post mate! [196], In a CNBC interview, Reddit co-founder Alexis Ohanian compared the rally to Occupy Wall Street, saying that "it's a chance for Joe and Jane America—the retail buyers of stock—to flex back and push back on these hedge funds. Shortly after this short squeeze was forced, Melvin Capital incurred a 53% loss for the month of January, and was forced to, allegedly, close out their short position in GME after it surged 1600%. This is in contrast with taking a long position (simply owning the stock), where the investor's loss is limited to the cost of their initial investment. [101] Similarly, an analysis by investment bank JP Morgan Chase suggested that institutional investors were heavily involved in the trading activity related to the short squeeze. [161][162][163] Representative Brad Sherman accused Griffin of trying to evade his questions. [230] Separately, Metro-Goldwyn-Mayer (MGM) acquired the rights to make its own movie based on Ben Mezrich's book proposal The Antisocial Network, aimed at chronicling the recent events on Wall Street. Curaleaf Holdings (CSE: CURA) announced that they will be reporting their fourth quarter and year-end financials post-market on March 9th. [36] In pre-market trading hours the same day, it briefly hit over $500, up from $17.25 at the start of the month. [215] Google deleted at least 100,000 such reviews, calling them "coordinated or inorganic". [135][additional citation(s) needed] Robinhood then began limiting the trading on Dogecoin. [207] Late night host Jimmy Kimmel criticized Stewart for his tweet, sarcastically asking him "RealDonaldTrump? The price of many other heavily shorted securities also increased. Within, Citron Research Founder and Executive Editor Andrew Left outlines the various reasons he’s short GME, prefacing it with an emphatic pronouncement that there is NOT a short squeeze in GME, so you can forget about it being a short squeeze, because a short squeeze isn’t what this is. [203] SpaceX and Tesla CEO Elon Musk also criticized the general practice of stock shorting, calling it a "scam legal only for vestigial reasons"[204] A number of major hedge funds had previously shorted Tesla, incurring losses of more than $40 billion as the stock rose considerably. [93] According to the New York Times, the viability of short selling as an investment strategy has been called in question as a result of the short squeeze. His investigation has extended to 13 entities, including Discord, Robinhood, the trading platforms Interactive Brokers and TD Ameritrade, and Citadel Financial. In which case my initial reaction is that it's awesome Reddit users and others are sticking it to hedge funds. [176][177][178], The White House said that it was open to studying the impacts of a financial transaction tax, which would meet opposition from Wall Street and trading firms. [45] The stock was worth market value was $33.7 billion for that day and it was the highest valued stock on the Russell 2000 index. firms. Cohen was given three board seats on January 11th by a board of directors that seemed like it didn’t really know what it was going to do in the first place, and was happy to shirk responsibility to someone who seemed like he cared. Dissimilar to Volkswagen's 2008 escapade, the modern-day short squeeze was more dramatic. [49] Trading platforms such as UK-based Trading212 and Israel-based eToro blocked buys of GameStop and other stock while continuing to allow sales. These shares were worth $44 million on December 31, but reached $1.1 billion when GameStop's stock reached $469, briefly making him a billionaire, before the value of his stock dropped to $901 million on January 29. You have successfully joined our subscriber list. Thanks. [38] However, users quickly formed similar servers on the application,[38] and Discord reversed its decision the next day, attempting to help the community moderate its server instead. What does a short squeeze mean in the stock market? [64] However, on January 31, Robinhood announced it had removed several of these restrictions and would only limit the sale of eight securities. Short Squeeze: When a rising stock price forces people who had sold the stock short to buy back those shares, driving stock prices higher. Basics of Short Selling. Always do additional research and consult a professional before purchasing a security. [159][160] On February 18, the House Financial Services Committee, chaired by Representative Maxine Waters, held a remote hearing titled Game Stopped? 02/02/2021. Great question, Yannich! [142][143][144][145], On January 27, 2021, White House press secretary Jen Psaki said that Treasury Secretary Janet Yellen and others in the Biden administration were monitoring the situation. U.S. House Committee on Financial Services, Economic impact of the COVID-19 pandemic in the United States, settle a member's outstanding transactions, Keith Patrick Gill's Opening Statement Before the U.S. House Committee on Financial Services, United States District Court for the Southern District of New York, Massachusetts Secretary of the Commonwealth, "How you could lose everything by short-selling stocks, whether it's betting against GameStop or Tesla", "GameStop: how Reddit amateurs took aim at Wall Street's short-sellers", "Meme Stock Saga Officially Over? For the first time in financial history all GME call options are in the money (ITM) because the highest call strike price set by the CBOE for Januaray 29, 2021 is $60. You could also touch on the protests from a decade ago that brought up that the stock markets are tools for moneyed folks to make more. [75][77][78] The jump came a day after GameStop announced its chief financial officer Jim Bell would resign to help 'accelerate Gamestop's transformation'. [218] Menlo Park police reported ten separate incidents related to protests at Robinhood headquarters from January 28 to February 9, including a man throwing animal feces at the building's front door. [69] The short squeezed securities' prices continued to decline during the week. But we’re getting ahead of ourselves. That means that some shlub on a market making desk somewhere in Chicago who put up 1000 GME call options at $39, then saw them get cleaned out with Gamestop on its way to $50 had to get his hands on 1000 shares of GME in case these ended up being exercised but… woah! Keith Gill, known by the Reddit username "DeepFuckingValue" and the YouTube and Twitter alias "Roaring Kitty",[13][14][15] purchased around $53,000 in call options on GameStop's stock in 2019 and saw his position rise to a value of $48 million by January 27, 2021. [168][169][170] Similarly, a man in Colorado filed a federal lawsuit against Robinhood as well as Citadel, Charles Schwab, Interactive Brokers, Open to the Public Investing, TD Ameritrade, and Webull, alleging he "was forced into a situation by which he was essentially forced to sale his equities at a drastically reduced position given the new market condition set by these supposedly neutral brokerage houses, taking significant losses and being incapable of trading in these publicly held equities that he had performed significant due diligence and research on, and relied upon over the course of his job as a day trader. Sometimes, the activist investor pushes his fight for the hearts and minds of his fellow shareholders all the way to a proxy fight at the annual general meeting, but Gamestop didn’t put up much of a fight. This video explains how a short squeeze can occur in very simple terms - This is visually very easy to follow This past August, as Gamestop the stock failed to keep up with a broader equities market that was heating up, former CEO of pet food e-retailer Chewy Inc. (NYSE: CHWY) and generic venture capital type guy Ryan Cohen started accumulating shares until he owned 12.9% of Gamestop. [212][additional citation(s) needed], However, investor Michael Burry, who had acquired a 3.3-percent stake in GameStop in 2019, criticized the short squeeze, stating that "there should be legal and regulatory repercussions", and adding "this is unnatural, insane, and dangerous". [53] Some users alleged that Robinhood was selling shares without consent; Robinhood denied these allegations. [9][10], The subreddit r/wallstreetbets is an online community on Reddit, a social news website. It could be >100% of the float because some shares have been loaned out more than once by the brokerage houses, because shares OUTSIDE of the float have also been loaned out, or just because the data isn’t very good. You meant 10 GME call options. Purchasing the stock to cover their short positions raises the price of the shorted stock, thus triggering more short sellers to cover their positions by buying the stock. Optimize for integrity whenever possible because integrity compounds and assholes will fuck you. [55][224][225] Bloomberg News had previously reported that 40 percent of Robinhood's revenue was derived from selling customer orders to market-making firms including Citadel Securities and Two Sigma Securities, in a practice known as payment for order flow. How can short interest of a company exceed 100 %? [163], A Robinhood customer filed a class-action lawsuit against the company on January 28 for halting trading on GameStop. There’s more about this in yesterday’s “Squeeze Play or Kayfabe” post. Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide. being halted at least once as the price fell by double-digit percentages. She stated that the large investors and hedge funds who were criticizing the rally "have treated the stock market like their own personal casino while everyone else pays the price". [37][36], The r/wallstreetbets Discord server was banned on January 27 for violating the company's restrictions on hate speech. Restricting who can buy and sell is using a hammer on free markets", "It took less than a day for big tech, big government and the corporate media to spring into action and begin colluding to protect their hedge fund buddies on Wall Street. Dude everyone thinks I'm crazy, and I think everyone else is crazy. Citadel and Point72, two other prominent hedge funds, bailed out Melvin Capital by lending almost $3 billion to the now struggling hedge fund. There’s no simple reason that Gamestop (NYSE: GME) became the subject of the most high-profile short squeeze anyone can remember. BUT you also included speculation for motivations. Welcome to The Deep Dive, where we focus on providing investors of Canadian junior stock markets the knowledge they need to make smart investment decisions. [219], The Wall Street Journal reported that short seller and Citron Research editor Andrew Left was being targeted online, including an incident where Left's social media accounts were hacked to text his children "threatening, profane and personal language". Stock Market Schism: Is The Information Ecosystem Changing? Due to some shares being borrowed more than once, short interest can be bigger than the float — or even the shares outstanding. Need some freelance work done? I'll post the update tomorrow as I always do after data readouts. This was speculated to have been due to a joke or mistake, as the ASX symbol was the same as GameStop's NYSE ticker symbol (GME). [91] Due to the enormous losses, Left stated that Citron Research would discontinue offering short-sell analysis after 20 years of service, and instead focus on "long side multibagger opportunities for individual investors". All of those years of High Frequency Traders front running retail traders,now speed and density of information and retail trading is giving the little guy an edge. [71][72][73], On February 24, GameStop share prices doubled in heavy volume in the final 90 minutes of trading, with the company's stock halting twice, shortly before closing at $91.70, a 104% gain. The GME Short Squeeze Explained Anyone that has an Instagram account (please follow ours) or watches the news has likely heard by now about the great Gamestop Short squeeze this week. Citadel Securities stated that they did not instruct any brokerage to suspend or otherwise limit trading, and Robinhood denied that it had been pressured by Citadel. [161] Witnesses at the hearing included Reddit user and investor Keith Gill, Citadel CEO Ken Griffin, Reddit CEO Steve Huffman, Melvin Capital CEO Gabriel Plotkin, Cato Institute financial regulation expert Jennifer J. Schulp, and Robinhood CEO Vladimir Tenev. Shorts in a squeeze grab the offer, driving the price up and compounding the problem and, if it’s a stock with a lot of visibility… well… buying gets buying. Analysts, Starting off the trading week for the Daily Dive is Ian Slater, CEO of AUX Resources (TSXV: AUX). [4][5][6], GameStop, an American chain of brick-and-mortar video game stores, had struggled in recent years due to competition from digital distribution services, as well as the economic effects of the COVID-19 pandemic, which reduced the number of people who shopped in-person. Trading saw $609 million in losses from short sellers. Now that he is a private citizen, who should preside over the trial? We aren’t aware of Citron Research having published a formal research report on Gamestop. [55] Clearing houses must have enough collateral on hand to settle a member's outstanding transactions in the event any particular member firm fails—to prevent cascading failures of other members—and can demand additional collateral (i.e., margin calls) from members if market volatility starts to increase. However, I understand your article was an attempt to explain the basics of the mechanics. We aren’t aware of Citron Research having published a formal research report on Gamestop. [20], Suggested factors included anger of some investors towards Wall Street hedge funds for their role in the financial crisis of 2007 and 2008,[21][16][22] or the general democratization of the stock market coupled with the ability of retail traders to communicate instantaneously through social media. GameStop shares lost 60 percent of their value on February 2, closing below $100 for the first time in a week. Thank you for this, I thought I was nuts when the math didn’t add up. Braden Maccke is a writer from British Columbia, the lone member of The Deep Dive‘s West Coast Contingent. Call and put options are created by market makers, who are ultimately responsible for delivery of the underlying securities should the option to purchase be exercised. [138] On February 1, the price of silver hit an eight-year high as GameStop shares continued their volatile tendency, with trading[which?] For example, someone who has borrowed 1000 shares of GME and sold it short at $39.00 may also buy the OPTION to purchase 1000 shares of GME at $39.00 for $3/contract. [22][90] In an interview, he claimed that the company had covered the majority of its short positions in the range of $90 per share at a loss of 100 percent, retaining a small, manageable position. Top Glove, Hartalega and Supermax respectively recorded increases in shares as high as 15 percent, 10 percent and 9.2 percent during intraday trading on January 29, before closing with respective increases of 8.5 percent, 5.4 percent and 3.7 percent. [9] In a CNBC interview, billionaire investor and hedge fund manager Leon Cooperman angrily criticized the Reddit users' market behavior, calling it a result of the federal response to the pandemic and stating that it would "end in tears" for the retail investors. [85] On January 26, it was reported that short sellers lost a total of $6 billion due to the squeeze. A gunslinger who thinks GME has some momentum and is going to go from $39 to the MOON can buy the call in hopes that the shares of GME that they have purchased the right to buy will be worth a lot more than $39 before the contract’s expiry date, and that he will be able to sell them for a profit. [70][71] As the stock prices continued to decline, some of the recent investors held on to their shares, and suffered significant losses. The company hired a syndicate of banks this past December 8th to raise $100 million in an at-the-market offering, literally selling shares out of the company treasury into the market. [166][167], A second class-action was filed in the Northern District of Illinois claiming that Robinhood's decision to halt trades of BlackBerry, Nokia and AMC was made "to protect institutional investment at the detriment of retail customers". [127][128], Amateur traders in Malaysia were inspired by the GameStop short squeeze to target shares for Malaysian latex glove makers on Bursa Malaysia as a countermove against the devaluation of the sector by institutional investors following the lifting of a ban on short selling in the country earlier in January 2021. [70], Despite the decline, some r/wallstreetbets users rallied to convince other users to hold on to the shares, arguing either that they would increase in value or that such an action would send a political message. A short squeeze is a phenomenon where the rise in an asset's price prompts short sellers to cover their positions by buying the asset. Short Squeeze Effect of GameStop Stock. The /r/WallStreetBets Reddit forum is currently 4.7 million members strong at the time of writing, up from 1.8 million on January 18, according to internet archive WayBackMachine. [161][162], In February 2021, Deadline Hollywood reported on Netflix's plans to develop a movie based on the events, with Mark Boal in negotiations to write and Noah Centineo set to star in the film. [227][228] As Robinhood restricted trading of GameStop shares, thereby limiting the growth of the stock's value, users alleged that Citadel Securities directed Robinhood to do so. I've dealt in deep value stocks for years but have never endured bearish sentiment this heavy. At various points during his initial testimony and questioning, Gill made references to memes. Hi Braden. The part about this “absolutely NOT…” being a short squeeze for reasons that amount to, “I know it isn’t and I know more than you do!” was compelling. Who knows, maybe it’ll write options on Warcraft gold and open up a trading floor. In January 2021, a short squeeze of the stock of the American video game retailer GameStop (NYSE: GME) and other securities took place, causing major financial consequences for certain hedge funds and large losses for short sellers. [151] Representative Byron Donalds called for Congress to launch "an immediate investigation into Citadel, L.L.C. Short selling is a finance practice in which an investor, known as the short-seller, borrows shares and immediately sells them, hoping to buy them back later ("covering") at a lower price, return the borrowed shares (plus interest) to the lender and profit off the difference. #RobinHood #WallStreet My full statement below:", "SEC reviewing recent trading volatility amid GameStop frenzy, vows to protect 'retail investors, "SEC vows to punish 'abusive activity' amid GameStop, Robinhood drama", "SEC Says It's Examining Market Mania for Potential Misconduct", "Robinhood to resume trading on GameStop, AMC stock amid volatility", "Robinhood Users Suing Over Trade Limits Face High Legal Bar", "The Texas attorney general will investigate brokers' decisions to limit GameStop trades", "Democrats in Congress will hold at least 2 hearings about Wall Street's practices following the GameStop short-squeeze", "Game Stopped? [18][79][80] Citadel LLC and firm partners then invested $2 billion into Melvin, while Point72 Asset Management's investment added $750 million, for a total investment of $2.75 billion,[81][82][83] before Melvin told CNBC that they covered (closed) their position on January 26, although the exact amount was not disclosed. The author holds no licenses. [39], On January 27, r/wallstreetbets triggered a short squeeze on AMC Theatres (ticker symbol: AMC), a company in a similar position to GameStop. [76], On March 8th, the stock saw continued rising of 41% to $194.50. The dice rollers down at r/wallstreetbets don’t have much use for hedges. "[b] along with a link to the r/wallstreetbets subreddit. ", "Nokia's stock soars toward a record gain on record volume, for no apparent reason", "Brokerage Firm Siebert Soars as Reddit Feed Targets Another Short Squeeze", "Reddit's GameStop gang pushes Tootsie Roll to record", "Caught in the GameStop frenzy, a different GME stock goes on a wild ride", "GameStop Mania Spreads Half a World Away to Target Glove Makers", "GameStop mania spreads as far as Malaysian glove makers", "GameStop frenzy takes cryptocurrency market over $1 trillion", "Reddit frenzy pumps up Dogecoin, a cryptocurrency started as a joke, by over 800%", "The GameStop stonk bubble has swallowed DogeCoin, Frankie Muniz", "Bitcoin spikes 20% after Elon Musk adds #bitcoin to his Twitter bio", "Robinhood restricts crypto trading as Dogecoin soars 300 percent", "Silver futures jump 7% as Reddit traders try their squeeze play with the metal", "Silver Is the Latest Market Hit by Reddit Day-Trader Frenzy", "Silver hits eight-year high, but who's behind the buying? [172][173], A lawsuit was filed in a court in Massachusetts by securities class action firm Hagens Berman Sobol Shapiro on behalf of an investor against Keith Gill. [40] The value of AMC Networks (ticker symbol: AMCX) also increased significantly, which was believed to have happened because of the stock's name being similar to AMC's. https://www.reddit.com/r/wallstreetbets/, After GameStop's stock closed up 92.7 percent on January 26, business magnate Elon Musk tweeted "Gamestonk!! Currently GME Short Interest is rumored to be above 100% [1]. At its height, on January 28, the short squeeze caused the retailer's stock price to reach a pre-market value of over US$500 per share, nearly 30 times the $17.25 valuation at the beginning of the month. If they’re wrong, and the stock goes up, they may have to buy stock to cover the loan at a higher price, and lose money. [67][68] Other assets affected by the short squeeze and put under company trading restrictions, such as AMC and Blackberry shares, also declined in value. Namely, there are no shares for GME shorts to cover, once the infinite squeeze occurs and MM forces them to balance their books. [161][162] Committee members also discussed increasing short-selling regulation. [15][16][17] Gill, a 34-year-old marketing professional and Chartered Financial Analyst (CFA) from Massachusetts, stated that he began investing in GameStop during the summer of 2019, after believing the stock to be undervalued. The right, but not the obligation, to buy a security at a predetermined price. GME has had the jet fuel of two of the market’s greatest disruptive forces combined all in one: a short squeeze, combined with a gamma squeeze. [213][214], Disgruntled users review-bombed the Robinhood app on the Google Play Store after it halted the trading of GameStop securities, pushing its ratings down to one star. Monday, with an even larger spotlight on the trade, GME blew its top at $159.18, eventually settling at $76.79. GME Short Interest. That said, the GameStop short squeeze was a highly risky way to make money.