Tag: GameStop

GameStop trading mania comes to a screeching halt; the stock tanks 42% in a day

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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GameStop shares tanked over 42 percent Thursday as the Reddit-fueled frenzy began cooling. The price drop came even as Robinhood and other brokers reversed their trading limits on the stock.

GameStop has lost over 80 percent of its rally this week as the investors dropped the stock for their current favourites, pharma stocks.

GameStop stock had soared over 1600 percent in January, in what was an eye-popping rally, despite its shaky financials. The rally began when a group of Reddit upstarts joined forces against institutional hedge fund managers who were betting on a decline. But the social media campaign initiated a short squeeze, sending the managers scurrying to cover their positions.

These things may last longer than people expect, but when they unwind, they can unwind pretty fast, said Ross Mayfield, investment strategist at Baird. When its complete speculation mania and gambling, someone is going to be left holding the bag.

However, even this attention-grabbing rally did not send the shoppers back to GameStop stores. The offline video game retailer logged a decline in customer traffic in January. GameStop’s new board member Ryan Cohen, the founder of online pet store Chewy, did raise hopes of a turnaround, but it’s still going to be an uphill battle.

However, the wild swings in the stock have drawn the attention of financial regulators. Newly-elected US Treasury Secretary, Janet Yellen has called a meeting of top officials from the Securities and Exchange Commission and the Federal Reserve, to discuss the ongoing market volatility.

With inputs from agencies

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Global equities rally as more US stimulus looms, silver slumps

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global stock markets surged for a second day on Tuesday, spurred by increased optimism about more US stimulus and recovery, while retail investors retreated from GameStop and their fleeting interest in silver, causing their prices to tumble.

The party for the trading frenzy mob that pushed GameStop’s stock up five-fold in a week appeared over as its shares plunged 46.20 percent to $121.06. GameStop closed on Friday at $325 a share after hitting $483 earlier in the session.

Silver prices also fell on Tuesday, sliding -7.52 percent to $26.80, after exchange operator CME Group Inc raised margins on its COMEX 5000 Silver Futures contract by 17.9 percent to their highest since October 2020.

CME’s move on silver took the air out GameStop too, with short interest declining to 53 percent of the stock’s available shares to trade, from 140 percent, said Tom Hayes, founder and chairman of hedge fund Great Hill Capital LLC in New York.

“Everyone’s rushing for the same narrow exit and trying to get off margin, and you have a lot of weak sisters that are coming out of the stock,” Hayes said. “The squeeze is over.”

Equity markets rallied as investors saw improved prospects for President Joe Biden’s proposed $1.9 trillion COVID-19 relief package after he met with 10 Senate Republicans to discuss their scaled-back $618 billion plan.

Expectations for Alphabet’s Google and Amazon.com earnings after the bell are high, Hayes said. “Very few people want to be short going into that type of earnings report, he said.

The Dow Jones Industrial Average rose 1.99 percent, the S&P 500 gained 1.79 percent and the Nasdaq Composite added 1.58 percent.

Positive momentum overnight in Asia carried through to Europe, with the pan-European STOXX 600 climbing 1.33 percent.

Initial European Union estimates showed the euro zone economy contracted less than expected in the fourth quarter of 2020 but is heading for another, probably steeper decline, in the first quarter of 2021.

MSCI’s world equity index, which tracks shares in 49 countries, was up 1.50 percent after posting its strongest day in three months on Monday.

MSCI’s gauge of Asia-Pacific stocks outside Japan rose 1.4 percent. China’s benchmark CSI300 Index gained 1.5 percent, helped by easing concerns about tight liquidity and declining cases of new coronavirus infections. Japan’s Nikkei 225 added 1 percent.

The dollar rose to two-month highs against the euro on a perceived widening disparity between the strength of US and European economic recoveries from the coronavirus pandemic.

A sell-off in the euro after coronavirus lockdowns choked consumer spending in Germany and short-covering in over-crowded dollar-selling positions also strengthened the greenback.

The euro was last down 0.31% at $1.2022. The Japanese yen weakened 0.16 percent at 105.08 per dollar.

The Australian dollar pared gains after the country’s central bank said it would extend its quantitative easing program to buy an additional $100 billion of bonds. The Aussie last stood at $0.7602, off the day’s high of $0.7662.

With global market sentiment remaining upbeat about U.S. fiscal stimulus, core euro zone government bond yields edged up, with the benchmark German 10-year Bund yield around two basis points higher at -0.492 percent.

The 10-year U.S. Treasury note rose 2.4 basis points to 1.1031 percent.

Spot gold prices fell -1.21 GameStop to $1,837.74 an ounce.

Oil prices rose more than 2 percent, reaching their highest in nearly 12 months after major producers showed they were reining in output roughly in line with their commitments.

Brent crude futures rose $1.35 to $57.7 a barrel. U.S. crude futures gained $1.38 to $54.93 a barrel.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Silver’s Reddit-style rally: White metal surges 15% since January 28

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Silver rose more than 4 percent on Friday following a near 5 percent gain on Thursday that came after messages on Reddit urged retail investors to pile into the market in an attempt to push prices higher.

On MCX, silver futures surged over 6 percent on February 1, extending three-day gains to Rs 7,500 in domestic markets. Silver futures were up over 3 percent on January 29.

On Thursday (January 28) posts began circulating on Reddit, wherein investors urged each other to buy silver stocks, to initiate another GameStop-style squeeze.

As a result, some mining stocks and iShares Silver Trust (ETF) rose sharply. An exchange-traded fund (ETF) is a basket of securities that trade on an exchange, just like a stock. Buying an ETF boosts silver prices by increasing the number of shares in the fund, making its operator buy more metal to back them. Sustained buying of silver ETFs could lift the prices by making its operator buy more metal to back its shares.

The rally was further buoyed by the retreat in equities as the battle between hedge fund managers and retail investors continued. The volatility in European countries over COVID-19 vaccine supply also helped the white metal extend its 15 percent rally since Thursday.

But most analysts think the surge in retail interest will have a little long-term impact. More so, since the rally is not backed by any fresh triggers, questioning its sustainability.

“We are confident that the influence of retail investors on silver will not last all that long, and that ultimately industrial and institutional demand will be the key factor in the longer term,” Commerzbank analyst Eugen Weinberg told Reuters.

Retail investors are targeting these high-beta, high-shortage products to try and initiate a short-squeeze to thrust prices higher. But Weinberg said that demand for silver and gold would anyway remain strong as investors sheltered from risks including turmoil on financial markets by buying the metals typically seen as safe stores of value.

On the other hand, some silver traders were trying to cover short positions to avoid being caught by rising prices.

With inputs from agencies.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

When there is excessive speculation, retail investors usually lose: Zerodha’s Kamath

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Something like the fantastic surge in shares of GameStop on Wall Street, following a short squeeze, is unlikely to happen in India, said Nithin Kamath, founder of India’s largest discount broking firm Zerodha, in an interview to CNBC-TV18.

“There is a cap on how much open interest is allowed in a stock in the futures and options (F&O) segment, and how much you can short sell using borrowed shares. Both caps are based on the free float (non-promoter holding) of the stock,” Kamath said.

Elaborating on the F&O limit, Kamath said that if the free float of a company was 100 shares, only a maximum of 20 shares can be shorted. So even if there was a short squeeze, it would be only to the extent of a small portion of the free float.

Also read: Explained: Can GameStop-like scenario happen in Indian market?

“What we are seeing in the US is shorts being allowed more than the free float of the company…I don’t know how…in the case of GameStop, the short positions were 140-150 percent of the free float. In such a scenario, the short squeeze can get exacerbated once the price starts to move up,” he said.

Then there were the intra-day circuit breakers as well.

“…so a stock can’t just go up 300-400 percent…of course, if it is part of derivatives list, there are no circuit breakers, but for non-derivative stocks, the circuit breakers will slow down the momentum automatically,” he said.

Kamath said that there were no online trading communities in India as large as WallStreetBets, the Reddit sub-group which has over a million members.
In India, trading communities are mostly on Twitter, and here too, the groups are much smaller and spread out.

Also read: Class-action lawsuit filed against Robinhood over outrage on GameStop trading restriction

Kamath said that it was natural for retail investors to celebrate the victory of small traders over hedge funds which lost a fortune shorting GameStop, but warned that whenever there was excess speculation, it was usually the retail investors who ended up on the losing side.

“Once this rush is over, maybe retail investors will lose money on GameStop as well,” he said.

“I think it is best to stay away when there is excessive speculation. I don’t think retail investors can handle the kind of volatility seen in stocks like GameStop,” he said.

He said that retail investors should certainly not be taking concentrated bets.

Also read: A bunch of Reddit traders sent a gaming stock up 670%… because they could

“Don’t bet more than you can afford to lose,” he said, adding that investors should spread their bets such that they don’t lose more than 1-2 percent of their portfolio on a single trade. Stocks with too much speculative activity were best avoided, but if a retail investor still felt like taking a punt, the amount risked should be very small, compared to the overall size of his or her portfolio.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Class-action lawsuit filed against Robinhood over outrage on GameStop trading restriction

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A Robinhood customer filed a class-action lawsuit against the stock-trading app Thursday after it barred traders from buying the shares of GameStop.

The lawsuit claimed it deprived retail investors of potential gains they could have made by buying the stock when it was low and selling when its price rose. It states: “Robinhood’s actions were done purposefully and knowingly to manipulate the market for the benefit of people and financial institutions who were not Robinhood’s customers.”

Robinhood and other retail brokerages had taken steps to tamp down the speculative frenzy surrounding companies such as GameStop. But the actions sparked more volatility and an outcry from users of the platforms and some members of Congress that small investors are being treated unfairly.

Robinhood said Thursday investors would only be able to sell their positions and not open new ones in some cases, and Robinhood will try to slow the amount of trading using borrowed money. However, after the outcry, it took back its decision.

GameStop stock has rocketed from below $20 earlier to close around $350 Wednesday as a volunteer army of investors on social media challenged big institutions who had placed market bets that the stock would fall. The action was even wilder Thursday: The stock swung between $112 and $483. At midday it was down 27 percent at $255.

However, the shares rebounded in after-hours trading, resuming their advances after Robinhood Markets Inc and Interactive Brokers said they planned to lift the restrictions on Friday.

Retail investors, celebrities and policymakers had denounced Thursday’s restrictions and participants in online forums seethed, accusing the trading platforms of seeking to protect Wall Street’s interests at the expense of smaller investors.

“Robin Hood: a parable about stealing from the rich to give to the poor. Robinhood: an app about protecting the rich from being short squeezed by the poor,” Jake Chervinsky, a lawyer for fintech company Compound, wrote on Twitter.

Robinhood reversed course by the end of the day and said limited buying in the stocks would resume on Friday.

Charles Schwab and TD Ameritrade took similar steps to restrict trading on their platforms Wednesday.

Also Read: Explained: Can GameStop-like scenario happen in Indian market?

Robinhood’s stated goal is to democratize investing and to bring more regular people into investing. The company has forced huge, ground-shaking changes for the brokerage industry, such as its decision to charge zero commissions for customers trading stocks and exchange-traded funds. That’s why some users took Thursday’s actions as an affront.

Robinhood investor Carlos Amaya said the app’s action Thursday was a disappointment to users like him who prided themselves on being a different breed of investors.

The recent surge in GameStop has been the product of a tug-of-war between small investors and some big institutions. Citron Research and Melvin Capital had placed bets that GameStop shares would fall as the company tries to transform itself from a brick- and-mortar retailer to a seller of online video games.

But smaller investors rallied to the stock. By sending GameStop shares soaring higher, they forced the big players to cover their bets by buying the stock, increasing the stock even further. But there is some concern that small investors could face significant losses when and if stocks like GameStop plummet.

The Securities and Exchange Commission said Wednesday that it is monitoring the stock and options markets. Protecting investors is one of the jobs of the SEC, but it’s not clear what the agency can do in a case like GameStop, said Chester Spatt, a former chief economist at the SEC and a finance professor at Carnegie Mellon University.

There’s not necessarily the obvious coordination here that one thinks of in a case of manipulation, Spatt said. But regulators may view this as a mechanism for manipulation.

With inputs from agencies

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GameStop’s wild swings: Stock gives up premarket gains, turns negative

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The much talked about GameStop stock on NYSE has given up its premarket gains and turned negative falling as much as 14 percent.

In premarket, the stock touched  $500 briefly. It is noteworthy that the stock was worth $40 a piece only a couple of weeks ago. The stock has rallied 130 percent on Wednesday pushing its week-to-date gains to 466 percent.

GameStop is a videogame hardware and software company and was doing badly on the stock exchanges before the pandemic and did disastrously through 2020.

Explained: Can GameStop-like scenario happen in Indian market?

So why the rally? Well, a section of retail day traders who frequently populate Reddit boards, decided so. This was because a couple of hedge funds revealed they were short on the stock to the tune of $55 million: that is they would profit from a fall in its price.

The rally in these shares—as much as 800 percent in the case of GameStop—has resulted in severe financial losses to many reputed money managers, who short-sold the stocks thinking they were overpriced.

Trading in GameStop stock was halted for volatility nine times on Monday and five times on Tuesday.

One of the two major investors that surrendered, Citron Research, acknowledged Wednesday in a YouTube video that it unwound the majority of its bet that GameStop stock would fall. Andrew Left, who runs Citron, said it took “a loss, 100%” to do so, but that does not change his view that GameStop is a loser.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Explained: Can GameStop-like scenario happen in Indian market?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The spectacular rally in shares of companies like GameStop, AMC Entertainment and Blackberry on Wall Street has led to talk about a shift in the power equation, with small investors turning the screws on professional short-sellers.

The rally in these shares—as much as 800 percent in the case of GameStop—has resulted in severe financial losses to many reputed money managers, who short-sold the stocks thinking they were overpriced.

In each of these cases, traders active on online-forums talked up the stocks, and surprisingly found plenty of takers, propelling the stocks to fantastic levels. Before we get into a discussion on whether such a scenario is possible in India, let us look at what caused the price of GameStop to flare up.

Bargain buying through out-of-money options

Many traders started buying out-of-money call options in GameStop. These options were available cheap, since the writers (or sellers) of such call options are betting that the stock price won’t rise much during the tenure of the contract. But more traders started buying out-of-money call options. Typically, writers of such contracts hedge their position by buying shares of the company from the open market. When too many call option writers start buying the shares, the share price starts rising. This sets off a cascading effect, because the momentum in the stock price attracts more buyers, causing a further rise in price, and thereby more buyers, resulting in a self-fulfilling prophecy.

Is a similar situation possible in stocks listed on the BSE and NSE?

In theory, yes. But market conditions in the US and India differ widely. For instance, Wall Street has a thriving market for lending and borrowing of shares. Short sellers can borrow shares for a fee, sell them if they feel the stock is overvalued. In India, the Securities Lending and Borrowing (SLB) window does not see much activity relative to the overall trading volumes. The reason for a shallow market for stock lending and borrowing is partly cultural as well, given that short-sellers have been traditionally viewed as destroyers of wealth, and hounded by regulators in the past.

How then do short sellers go after stocks perceived to be overvalued?

They can do that through the futures and options (F&O) route. They can either sell the futures, sell call options, or buy put options. However, given the stringent margin requirements, F&O is not a segment for retail investors. It is mainly for high networth traders and institutional investors.

Can a stock rise as much as 800 percent on the BSE or NSE within a month?

Not possible because of intra-day circuit filters, which limit the maximum fall or rise for stocks to 20 percent over the previous day’s close. If the stock continues to hit the upper end of the circuit filter for three or four days in a row, the stock exchanges keep progressively reducing the intra-day limit to 10 percent, 5 percent and 2 percent. The intra-day circuit filter is not applicable for stocks in which futures and options are allowed. But even here, there is a high probability that SEBI or the exchanges will intervene if the extreme price movement persists.

Can retail investors in India beat professional money managers at their game, like in the case of GameStop?

Theoretically, they can, but only for a brief period, and in select stocks. Sometimes stocks rise because of frenzied interest from retail investors even after fund managers have sold the shares, perceiving them to be fairly valued or expensive. But institutional investors have staying power, which retail investors lack. In large-cap stocks, it is next to impossible for retail investors to beat professional investors. In midcaps and small caps, there is only so much positions that can be taken up through the F&O route. Besides, promoters of many midcap companies dabble in their own stock, in collusion with market operators and at times, even with fund managers. It is hard for retail investors to win, if they are up against promoters and operators who work as a team.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

GameStop up another 80% as amateur interest shows no sign of abating

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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GameStop shares surged another 80 percent on Wednesday on Wall Street boosted by increased interest among amateur investors who have lifted the share price by over 700 percent in the past two weeks.

A pair of professional investment firms that placed big bets that money-losing video game retailer GameStop’s stock will crash have largely abandoned their positions. The victors: an army of smaller investors who have been rallying on Reddit and elsewhere online to support GameStop’s stock and beat back the professionals.

GameStop is a videogame hardware and software company and was doing badly on the stock exchanges before the pandemic and did disastrously through 2020. However, the stock has doubled in the last two days and has given whopping returns of over 700 percent just in the first month of 2021 and 50 percent in just the previous session.

Meanwhile, Elon Musk, CEO of Tesla, yesterday tweeted “Gamestonk!!”, along with a link to Reddit’s Wallstreetbets stock trading discussion group, where supporters affectionately refer to the Tesla CEO as “Papa Musk.” “Stonks” is a tongue-in-cheek term for stocks widely used on social media. The impact of Musk’s tweet is probably being seen today on Wall Street.

Explained: Why US-listed GameStop has risen over 700% in January 2021

Trading in GameStop stock was halted for volatility nine times on Monday and five times on Tuesday.

One of the two major investors that surrendered, Citron Research, acknowledged Wednesday in a YouTube video that it unwound the majority of its bet that GameStop stock would fall. Andrew Left, who runs Citron, said it took “a loss, 100%” to do so, but that does not change his view that GameStop is a loser.

“We move on. Nothing has changed with GameStop except the stock price,” Left said. He did acknowledge that Citron is taking a fresh look at how it bets against companies, in light of the GameStop campaign.

Melvin Capital is also exiting GameStop, with manager Gabe Plotkin telling CNBC that the hedge fund was taking a significant loss. He denied rumors that the hedge fund will fail.

(With inputs from Reuters and AP)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow