We live in amazing times! A time when stock prices go crazy and retail investors who have not read a single book on economics are stripping naked the financial tycoons who have dominated Wall Street for decades.
Who would have thought that sellers shouting the phrase “Free Cash” at McDonald’s, now can not only make big money on the stock exchange, but also establish new rules of the game.
And this is not an unfounded statement – an epic that unfolded around the company GameStop (GME), did a great job of showing how a crowd of retail investors can punish a major hedge fund manager who shorts a stock.
Were the analysts right when they predicted a decline in the shares of this unprofitable company? Of course, because financial statements indicated a drop in quotations. But! The crowd, who don’t care about boring numbers, decided otherwise.
In the course of a perfectly conducted PR campaign and the subsequent hype, GME shares began to methodically buy up and as a result, over the past half month, they rose in price by 1650% !!!
The fat point in all this action was put by the idol of millions – Elon Musk (where can we go without him?), Having written one single word on his Twitter:
As a result, at the premarket, the promoted share rose by another 136%, reaching a price of $ 350, which no one could even dream of just a month ago.
Why did GameStop (GME) shares go up?
In fact, it is not that difficult to propump a share of a small-cap company (by the standards of the American stock market). This will require a large number of shorts (preferably some hedge fund) and uncovered calls.
In the promoted group, war is declared against the financial tycoons who drink the blood of the working people, a stir is created, and shares and long-distance calls are being systematically bought up to an unnecessary company. The price rises to the first large stops or margin calls, and then everything goes like clockwork. Sellers begin to liquidate their losing positions by buying stocks at inflated prices, sellers of calls do the same and linear growth becomes exponential as the number of buyers dominates over the sellers.
At whose expense is the banquet?
This time the main blow fell on the investment fund Melvin Capital Management LP, which held a short position.
Who is the winner?
In order to answer this question, I will give some screenshots with messages from traders in reddit (auto-translation) who bought GME shares.