GameStop

Discussion in 'Business & Economics' started by Saint, Jan 30, 2021.

  1. Saint Valued Senior Member

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    4,180
    I don't understand very much about what happened, I know that some Funds short sold the stock to drive down the stock price and caused the company's share to plunge.

    So, now the coalition of grassroot buyers are able to fight back?
     
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  3. Seattle Valued Senior Member

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    Forgetting the "perfect storm" aspect of this case, short selling doesn't drive a stocks price down any more than going long drives the price up. Generally speaking the fundamentals of the business controls whether the stock goes up or down.

    It is possible to manipulate the stock price and that's generally illegal. If the stock is lightly traded or has few shares outstanding a fund with a lot of money could influence the price but most ways that you could do that are illegal.

    Of course just buying stocks does tend to provide support for a stock and a lot of selling does lower that support but what is happening now (whether illegal or not) is manipulating the stock and isn't based on fundamentals.

    The underlying business would suggest a stock closer to $20 than to $200 or $400.

    In a word, the market needs short selling just as it need going long to try to accurately reflect a businesses fundamentals in it's stock price.
     
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  5. sculptor Valued Senior Member

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    at one point, GME was short over 200% of the float
    that should not happen
    and
    amazingly
    today GME was still trading well over 10 x it's max value
    a lot of people are gonna loose
     
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  7. Seattle Valued Senior Member

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    It's not a problem for short interest to be more than 100% if you understand how the process works.
     
  8. James R Just this guy, you know? Staff Member

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    It has to do with futures trading.
     
  9. Seattle Valued Senior Member

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    6,958
    No, it doesn't.
     
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  10. geordief Valued Senior Member

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    1,519
    But is what has happened that a large group of small players has been able to play the stock market by coordinating their move in unison?

    Is this a bit like a class action in the courts?

    Is it also a bit similar to file-sharing?
     
  11. River Ape Valued Senior Member

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    1,148
    There’s nothing new about a bear squeeze and plenty of places on the internet that offer a good explanation. There’s often been a degree of coordination between the squeezers, if only borne out of like-minded opinion. This kind of coordinated squeeze is new -- a foreseeable sign of the technological times.

    However, it is no accident that the biggest ever squeeze has been applied at a time when the markets are more in the hands of speculators than at any time since 1929. The chances are that (after the clever buggers have made big profits) a lot of know-nothing joiners-in will lose money on GME and AMC.
     
    Last edited: Jan 30, 2021
  12. Sarkus Hippomonstrosesquippedalo phobe Valued Senior Member

    Messages:
    8,989
    I don't think that this is correct. It has to do with hedge-funds short selling the stock, and amateur traders buying the stock in the hope of driving the share-price up in what I believe was a deliberate effort to upset those hedge-funds who had shorted the stock.

    Basically, short-selling is when you borrow an asset, sell it to someone at today's price in the belief that the price will drop. By the time you need to return the asset to the person you borrowed it from you must therefore repurchase the asset. If, as you hope, the price drops from the time you sell it to the time you buy it, you gain (sell for 100, then rebuy it at 60, so you gain 40). However, if the price only goes up after you have sold it then you will need to rebuy at a higher price, and thus lose out (sell for 100 and then have to rebuy at 140, so you lose 40).
    The hedge-funds have, I understand, been short-selling the Gamestop stock, and some will lose quite a bit if the price doesn't drop back soon, as they will need to rebuy the stock soon.

    This is different to futures trading. A futures contract is an obligation to buy or sell an asset at an agreed future date for a set price. There is no buying or selling of that asset until the date the futures contract stipulates. The purchase / sale is also done so at the price in the contract, not at the prevailing price of the asset at the time.

    Just to confuse things further, an options contract gives someone the right but not the obligation to purchase something at a set price at a future date.

    Or at least that is my understanding of it.
     
    Last edited: Jan 30, 2021
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  13. sculptor Valued Senior Member

    Messages:
    7,548
    There's the rub
    the asset was not borrowed if the short positions were greater than the float

    ergo
    my above
    "that should not happen"

    unless some traders are playing by a different set of rules?
     
  14. sculptor Valued Senior Member

    Messages:
    7,548
    ok---my knowledge on this subject is limited
    that being "said"

    I think what was happening to these stocks was
    "naked short selling"
    What Is Naked Shorting
    Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. So naked shorting refers to short pressure on a stock that may be larger than the tradable shares in the market. Despite being made illegal after the 2008–09 financial crisis, naked shorting continues to happen because of loopholes in rules and discrepancies between paper and electronic trading systems.

    from:
    https://www.investopedia.com/terms/n/nakedshorting.asp
     
  15. Sarkus Hippomonstrosesquippedalo phobe Valued Senior Member

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    8,989
    I'm not sure that's correct, even without naked shorting.

    Imagine a company has just 1 share.
    Person A holds this share: they lend it to B who sells it to C. Standard short-selling. B must later repurchase the share to return to A - but for now the position remains open.

    However, to C the share they bought is a standard share. They don't care that it has been lent to B prior to them purchasing it. C, who owns the share legitimately, decides to lend it to D who sells to E (another standard short sell) and D must later repurchase the share to return to C.

    You now have a situation where the one share has been lent out twice, and neither short position has been closed out, so the short interest is 200% (one share in the float, two short positions not yet closed out).
     
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  16. sculptor Valued Senior Member

    Messages:
    7,548
    Float percentage of total shares outstanding is the percentage of float shares relative to the total shares outstanding. As of today, GameStop's float shares is 27.29 Mil. GameStop's total shares outstanding is 69.75 Mil. GameStop's float percentage of total shares outstanding is 39.12%.

    Insider Ownership is the percentage of shares that are owned by company insiders relative to the total shares outstanding. As of today, GameStop's Insider Ownership is 13.58%.

    Institutional Ownership is the percentage of shares that are owned by institutions out of the total shares outstanding. As of today, GameStop's Institutional Ownership is 64.44%.

    Short Percentage of Float is the percentage of shares shorted compared to the float. As of today, GameStop's Short Percentage of Float is 292.53%.

    from:
    https://www.gurufocus.com/term/Floa...age-Of-Total-Shares-Outstanding/GameStop-Corp

    ...............................
    on another site
    there is a claim that the short sellers ain't covering
    This seems to be turning into a game of "chicken"
    now
    If
    much of the buying was done on margin,
    then
    margin calls will be happening soon
    and...............................................................................?
     
  17. Seattle Valued Senior Member

    Messages:
    6,958
    An options contract gives someone the right but not the obligation to purchase something at any time up to the time it expires. It's a leverage "bet". For example one options contract controls 100 underlying shares.

    Futures contracts are usually used for commodities. When it's currency being referred to it's called a "forward" contract but it's still a futures contract.

    These are usually used as a hedge. Traders use them to speculate but their main purpose is to hedge.

    Hershey's Chocolate company makes chocolate candy bars. They enter into contracts for the next year to supply Walmart (for example) with 100,000 candy bars at $1/bar. Lets say sugar is the largest ingredient and lets say it's a volatile ingredient (sugar prices move around a lot) so they don't really care how much sugar costs but they need to know the price in advance before they set prices with Walmart.

    They enter into a sugar futures contract to provide 5 tones of sugar over the next year. Sugar starts out at $100/ton but ends up at $200/ton. They make $100/ton. If sugar drops to $50/ton, they still have to pay $100/ton.

    Therefore they give up the possible opportunity to profit if sugar prices go down but are protected if sugar prices go up. Stability of price is more important to their business model.

    It's the same with forward contracts (currency). Boeing sells airplanes to Japan. They build in a certain profit margin. If the Japanese pay in Yen and the value of Yen goes up, Boeing would also profit just from the currency translation. If Yen goes down vis a vis the Dollar, Boeing would lose from the currency translation. They can eliminate that risk with a futures contract.
     
    Last edited by a moderator: Jan 31, 2021
  18. James R Just this guy, you know? Staff Member

    Messages:
    35,782
    Thanks for your help, Sarkus.

    I guess I was confused because of the borrowing of the stock and having to re-purchase it at a later date.
     
  19. Sarkus Hippomonstrosesquippedalo phobe Valued Senior Member

    Messages:
    8,989
    I've read conflicting reports about the short interest on Gamestop, with some saying it is now c.50-80% - indicating that many shorters have closed their positions.
    If that is the case, those investing in GME now are possibly in for a rude awakening. The price dropped from USD 325 to 225 yesterday, and I suspect further drops to come. I also wouldn't be surprised if this actually leads to more shorting, and perhaps the hedge-funds who recently suffered losses can ultimately recoup their losses (and more) due to the very type of action that the Redditers are trying to upset.
    Will be interesting.
     
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  20. sculptor Valued Senior Member

    Messages:
    7,548
    so far, today a low of $74.22---now 103(and climbing)

    If i had a desire to gamble
    ..............................................
     
  21. Sarkus Hippomonstrosesquippedalo phobe Valued Senior Member

    Messages:
    8,989
    Eek... hoefully the HODLers bought lower, but I suspect there are some worried people out there, even if individual losses might be low; do they cut losses now and hasten the decline, or wait to see if the price eventually increases, even if all indications are that it will drop back to the c.40 range it held prior to this activity.

    AMC Entertainment, one of the other shares subejct to the squeeze, is following the same trend... yesterday's close was USD 13.30, bottomed at 6.30 or so, and currently 8.05... not faring quite so bad, but then I don't think it caught on to quite the same extent.
     
  22. Seattle Valued Senior Member

    Messages:
    6,958
    I think that it will probably be back at $40 or by the end of the week.
     
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  23. sculptor Valued Senior Member

    Messages:
    7,548
    and
    down to $4 or $6?
     

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