Amateur investors showed more uptick in niche stocks on Tuesday, sending professional short sellers to cover losing bets, skyrocketing Gammontop for the fourth straight day, thanks in part to Elon Musk.
GameStop increased by 50% and Musk added “Gamestonk !!” to the trade. Tweeted, along with a link to Reddit’s WallstreetBeats Stock Trading Discussion Group, where supporters lovingly called Tesla’s CEO “Papa Musk”. “Stonks” is a tongue-in-cheek term for shares widely used on social media.
Gametop’s hour-long surge was up 93 percent during Tuesday’s roller coaster trading session, in which the videogame retailer’s stock was offered by traders on WallstreetBets, many of whom bought volatile call options.
The stock spikes of the past few days have been raising questions from the US Securities and Exchange Commission about a possible regulatory clampdown.
“Such volatile business opinions, where little corporate activity appears to justify the price movement, are what the SEC investigation is made of,” securities enforcement for law firm Dickinson Wright and former SEC enforcement counsel Said practice chairman Jacob Frenkel. The SEC declined comment.
Flocks of amateur investors have long been supporters of Tesla and other hyper-volatile stocks on Reddit, and their influence appears to be growing.
John Patrick Lee, VanEck’s ETF manager, said, “I don’t think it’s a fad. It’s a generational change in how people invest their money.”
“A retail trader wouldn’t be leaning on Wall Street to manage his money and I certainly now see an antagonistic relationship between the old guard (Wall Street) and the individual traders who are growing up.”
GameStop, along with BlackBerry, also favored Wallstreetbets, up 4.9 percent and up 185% this year. An earlier tweet from Musk sent AT to about 9 percent before reversing its gains.
The boom in recent times – GameTop has increased more than sevenfold to $ 147.98 (about Rs 10,800) since January 12 (almost Rs 12,400) – raising concerns over a bubble in stocks that have raised funds and other speculative players. The players had bets. Price will fall.
Trading in GameStop’s stock halted nine times on Monday and five times on Tuesday.
For some stock market professionals, recent moves look symbolic of a stock market that may be overvalued at the end of a year dominated by a flood of fiscal and monetary stimulus to ease the coronavirus crisis.
The benchmark S&P 500 gained more than 70 percent due to the coronovirus epidemic last March.
“This is hardly an environment where informed investors are transacting to find the price,” said Mike O’Rourke, chief market strategist at Jonstreading.
Venture capital investor Chamath Palihapatia said in a tweet that he bought $ 115 (about Rs 8,400) of call options on GameStop on Tuesday morning after an exchange with Reddit founder Alexis Ohanian.
GameTop’s short sellers are down $ 5 billion (about Rs 36,400 crore) on a mark-to-market, net-of-financing basis in 2021, with a loss of $ 876 million (about Rs 6,400 crore) as of early Tuesday. Analytics firm S3 Partners.
“GME Shorts and Long are in a knockout battle being waged in the stock market as well as social media platforms,” wrote Ihor Dusaniwsky, managing director of S3’s Predictive Analytics.
Another stock popular with reddit investors, Virgin Galactic Holdings, has gained 17 percent, and is now 77 percent year over year.
A bad ending
Recent action among Reddit traders has mostly resulted in stocks that have been “shortchanged” by other market players – an area traditionally dominated by hedge funds.
Shares in Evotec dropped 8 percent on Tuesday to inform three traders that hedge fund Melvin Capital Management was closing its short positions after losses on some bets.
According to filings with the German regulator, Melvin had previously placed a 6.2 percent short bet against Evotec. Nidhi did not respond to requests for comment.
Short sellers usually bet against shares of companies they view as outdated or otherwise overvalued in their business model.
Renowned short seller Andrew Left is as usual convinced that GameStop is a dying business and its share price will decline sharply. Left shortened the company’s stock when it held a share of $ 40 (about Rs 2,900) and publicly estimated it to be a share of $ 20 (about Rs 1,500). He said on Tuesday that he still had short stock.
“Will it end badly? Certainly we don’t know when,” said Thomas Hayes, managing member of Great Hill Capital in New York.
© Thomson Reuters 2021