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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Julius Wong who wrote (167621)	1/27/2021 7:22:21 AM
From: Julius Wong	1 Recommendation Recommended By marcher Read Replies (1) \| Respond to of 217774

Short interest and gamma squeezes: How GameStop’s breakneck rally arose Jan. 27, 2021 6:15 AM ET GameStop Corp. (GME) By: Kim Khan, SA News Editor 8 Comments GameStop’s ( GME, +127%) breathtaking run continues. The stock nearly doubled yesterday, up 93%, and is adding another 100% in premarket trading today. The share moves have dominated headlines as the gaming retailer has gone from being considered past its time in the e-commerce world to one of the hottest on Wall Street. Here’s a breakdown of how GameStop got to more than $300 in a couple of weeks. Chewy influence GameStop struck a deal on Jan. 11 with RC Ventures to refresh its board of directors. At the time, the stock was trading around $19.94/share. Although it only budged by a penny that day, bullish sentiment rose, with special attention on the company getting three veterans from Chewy.com on the board, which suggested an acceleration of the company's digital transformation plan (store closures, enhanced e-commerce and other digital features). Wall Street approved. Baird noted that while games are not the same as dog food, it continues to see opportunities to add commerce and community features to " GameStop as a platform." Short Squeeze By Jan. 13, GME shares had risen nearly 60% to $31.40. While there was a fundamental reason for buying, the move was exacerbated by the high short interest in the stock (currently at nearly 152%). A bet on a stock going down, when an investor shorts a stock they borrow shares sand sell them, hoping to buy them later at a lower price and pocket the difference. When an unexpected big move higher arrives, they can get caught in what’s known as a short squeeze. Short squeezes happen when investors who are short must scramble to buy shares in a rising stock and cover their positions to limit losses. When you are short a stock the downside can technically be limitless as a stock can keep on rising (as opposed to falling to zero). So, GameStop not only had those believing in a turnaround for GameStop bidding shares up, there was also demand from the short crowd. The short squeeze intensified on a report that Sohpos Capital, the world's second-largest hedge fund dedicated to short selling, was scaling down its positions. Looking at Google stats, interest in short selling has been higher, but those searching for "short squeeze" is at an all-time high. Reddit vs. Citron As GME continued to rise it had come to the attention of users on Reddit, particularly the subreddit r/wallstreetbets, dedicated to "making money and being amused while doing it." The group has often made market-moving decisions, with users jumping into a stock at the same time. On Jan. 21, noted short seller Andrew Left and his outfit, Citron Research, outlined their bearish case for GameStop, calling for the shares to drop back to $20 from around $43. The Reddit users took this as a challenge and moved to bid the stock higher. It closed at $65 the next day. Gamma Squeeze The practice of retail investors using options led to a further run in shares, and the huge moves like the doubling seen yesterday. Investors betting on a stock’s rise can buy a call option, paying a premium to buy a stock at a fixed price. Reddit users were buying calls are much higher prices than where shares were trading, also known as deep out of the money, which have very low premiums. Those selling, or writing, the call are hoping the price will decline, but like shorting, the downside can technically be limitless. Investors who sell calls buy shares of the stock to hedge their position. This double dose of demand for shares can results in what is known as a gamma squeeze. Bob Iaccino, co-portfolio manager of The Stock, recently discussed the gamma squeeze on the Alpha Talks podcast, calling the coordinated practice of buying these deep-out-of-the-money calls a “ form of pump and dump.” “Anyone who lived through the 2000 tech crash … you saw exactly things like this,” Iaccino said. He said gamma squeezes often mark a top and can results in overly onerous regulation. GameStop's rally has already claimed some victims. Short-selling fund Melvin Capital needed a cash injection, facing losses of around 30% so far this year. Citron's Left said he is sticking to his short position.