Why Did Reddit Trigger a GameStop Stock Surge?

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Gamestop's stock price skyrocketed from $20 to $350 in a matter of weeks, largely due to a coordinated buying effort by Reddit users who aimed to counteract bearish hedge fund positions. This surge has resulted in significant losses for hedge funds while generating paper profits for retail investors. Despite the excitement, concerns remain about the long-term viability of Gamestop as a company, which continues to struggle financially. The situation has sparked discussions about market manipulation, with some arguing that the actions of Reddit traders could be seen as a form of "outsider trading" against traditional hedge fund practices. Overall, the episode highlights the tension between retail investors and institutional players in the stock market.
  • #301
Vanadium 50 said:
Isn't that the same thing? The net value is the value of the assets less the value of the liabilities, so you get a max value by zeroing the liabilities.

not necessarily, to maximize the option value at t0, at a high enough vol the value of the call will get arbitrarily close to $2.8B with the debt in place

At t>0, the value of the assets could appreciate more than the value of the liabilities - and the liabilities arent going away - the value in the equity is participating in appreciation of asset value above the value of the liabilities without taking any responsibility for them if the asset value drops and the company becomes insolvent, hence the call option valuation
 
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  • #302
I'm a bit confused. Can't you have revenue without assets? Like is your business model is you have a website where people buy things from it and you just drop ship it off Amazon for a profit, you have no assets but a positive market cap, right?
 
  • #303
Office_Shredder said:
I'm a bit confused. Can't you have revenue without assets? Like is your business model is you have a website where people buy things from it and you just drop ship it off Amazon for a profit, you have no assets but a positive market cap, right?

yes, using GAAP assets as a proxy, but the real asset value is the PV of future cash flows - stuff like factories or desks only has value to the extent that they can generate revenue
 
  • #304
Vanadium 50 said:
Look at my 28% analysis in #280. 28% is a huge number - if you could achieve 1% at MCD or KO you'd be hailed as the next Jack Welch. But there are millions of people that, by purchasing GME, apparently think 28% is what's going to happen. Given that, is 29% all that much crazier than 28%? 30%?
Sure, but nobody actually believes that, do they? I mean...these guys do actually know how to spell "stock", don't they?
The other way is this - they are not investing in GME the company. They are investing in an unbacked asset (like Bitcoin) that they believe will appreciate. If you knew for certain GME would be at $700 tomorrow, wouldn't you buy it at $250 today?
Sure. The "without justification" argument @jbunniii made requires ignoring the available information about the company and assuming it's Ethereum. I believe you guys are correct, I was just pointing out that it there's a difference between betting on something for which fundamentals don't exist and betting while ignoring the fundamentals that do.

I don't disagree with you guys here*. This is the video game I was referring to. It's not real/requires ignoring reality is the same thing. These guys evidently think the stonk is going to go up tomorrow because if our Call of Duty wallstreetbets team plays a tenacious and well coordinated game, of course it will. And maybe they're right about tomorrow. But this game doesn't have a Final Boss and eventually even if they play well, the servers might get shut off and they could lose all the money they paid to play the game. It's like COD except more expensive.

*One caveat: You said if *I* believe it is going to $700 tomorrow, wouldn't I buy at $250 today. Of course. Because I'd sell at $700. But if we're to believe the wallstreetbets crowd (and on this I do), there is no selling, only Zuul buying.

...and in many cases it's rational to act on these beliefs in buying the stock - not because you think the underlying company is undervalued, but because you believe the stock price will increase.
Well, that's a philosophy question that hurts my brain; does it still count as rational to act rationally based on an irrational premise? Does it matter if the irrational premise is yours or someone else's?
 
  • #305
russ_watters said:
there is no selling

Then it doesn't matter what the stocks do, does it? You only make money when you sell. If you buy a stock and it goes down 50% and then sell, you've lost half your money. If you buy a stock and never sell, you've lost all your money. Even if the stock zooms up. (Ignoring dividends, but GME hasn't paid one in years, and from the looks of things won't any time soon.)
 
  • #306
Vanadium 50 said:
Then it doesn't matter what the stocks do, does it? You only make money when you sell. If you buy a stock and it goes down 50% and then sell, you've lost half your money. If you buy a stock and never sell, you've lost all your money.
Right; They're just feeding quarters into the arcade game. The High Score is just a number on the screen that doesn't really mean anything. But it's fun!

I check in occasionally to see what they say they're thinking. I see a lot of:
>Ugh. Bought at $350 and down 85%. Might as well ride it out now.

But I've never seen:
>HeyHay - I sold at $350! Thanks, bro!

I'm pretty sure that guy would get trolled into oblivion.
 
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  • #307
Vanadium 50 said:
Then it doesn't matter what the stocks do, does it?

It does when you are buying on margin or with call options
 
  • #308
That's true.
 
  • #309
russ_watters said:
But I've never seen:
>HeyHay - I sold at $350! Thanks, bro!

Well, to quote Andre the Giant, that doesn't sound very sportsmanlike. It's one thing to lose money to "the market". It's another to lose it to an individual.

Also, if someone is selling while they are telling others to buy, it is probably not in their interest to advertise the fact.

In the now-deleted messages, I thought you made a comment about bitcoin and the stonks. Am I mistaken? If not, could you repeat it? (Surely on-topic content is fine)
 
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  • #310
GME announces earnings tomorrow.

My prediction? If they miss their target by a mile, the stock will soar.
 
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  • #311
Vanadium 50 said:
GME announces earnings tomorrow.

My prediction? If they miss their target by a mile, the stock will soar.
That would certainly be in keeping w/ what's been going on
 
  • #312
They missed their targets, and the stock did go up, but it's fallen since. Down 20% to $147.
 
  • #313
And now $120. GME's 10-K indicates that they can issue modest amounts of new stock, and Reddit is all outraged at this dilution of value.

Now they are worried about fundamentals? Now?
 
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  • #314
And now it's $180+. These fluctuations are just nuts but we already knew that.
Image9.jpg
 
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  • #315
Today GameStop announced they plan to issue up to 3.5M shares. They have 70M outstanding, so in a rational world, this would cause the stock to fall 5%. However, the S&P is up 1.44% today, so the net loss should be 3.56%. It's actually down 2.35%.

Is this the first step on the road to rationality?
 
  • #316
Vanadium 50 said:
Today GameStop announced they plan to issue up to 3.5M shares. They have 70M outstanding, so in a rational world, this would cause the stock to fall 5%. However, the S&P is up 1.44% today, so the net loss should be 3.56%. It's actually down 2.35%.

Is this the first step on the road to rationality?
Actually, it dropped 15% after hours yesterday (presumably on the news) and then came almost all the way back up by the end of the day today, so I'd say ... no.
 
  • #317
I hate it when you burst my bubble by making sense.
 
  • #318
Bailey Lipschultz, Bloomberg
Mon, April 12, 2021, 4:27 PM
(Bloomberg) -- GameStop Corp. fell on Monday, wrapping up its longest losing streak in a year, amid growing skepticism over its long-term potential despite activist Ryan Cohen’s latest efforts to revitalize the company.

Shares fell 11% in New York to close at $141.09, their lowest level in more than two weeks, as Reuters reported the video-game retailer is seeking a replacement for the current Chief Executive Officer George Sherman, without naming sources.
 
  • #319
Yesterday
Ascendiant Capital downgraded GameStop from Hold to Sell and lowered the price target from $12 to $10
 
  • #320
Gme is trading for 141 dollars, why would they even bother adjusting the price target like that 🤣
 
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  • #321
Office_Shredder said:
Gme is trading for 141 dollars, why would they even bother adjusting the price target like that 🤣
Perhaps to serve as a warning to their customers that despite the irrational behavior of the Reddit crowd, this is a $10 stock. Personally, I think it's probably worth maybe $30 but the true adage is that it's worth whatever people will pay for it.
 
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  • #323
https://finance.yahoo.com/news/game...own-roaringkitty-doubles-stake-140609509.html
GameStop (GME) shares surged Monday by as much as 10% in early trading following news that the video game retailer's CEO George Sherman is stepping down by July 31 after just two years on the job. The stock was still up 6.26% as of market close on Monday.

The news also follows moves by investor Keith Gill, who goes by "RoaringKitty" and "DeepF—ingValue" online, in which he exercised 500 call options on GameStop's stock at $12 giving him 50,000 additional shares, https://finance.yahoo.com/news/roaring-kitty-boosts-gamestop-bet-183916867.html.

Gill also bought up another 50,000 shares of the company, bringing his total stake to 200,000 shares, or more than $33 million.
GME closed Monday at $164.37.

Irrational exhubrance? on steroids?
 
  • #324
Astronuc said:
https://finance.yahoo.com/news/game...own-roaringkitty-doubles-stake-140609509.html

GME closed Monday at $164.37.

Irrational exhubrance? on steroids?
It has gone beyond steroids. It peaked overnight at 266 and looks like it will open above 250.

What's WAY more to the point today is that AMC has surged with an overnight peak of 33 and it looks ready to open around 30. That is 50% higher than the peak of 20 in January when the madness started.

I just watched a business show with the guy on saying that AMC is basically a worthless stock. They don't make money and given their operating expenses and income model they CAN'T make money AND they are mired in debt. They HAVE raised some cash recently by issuing new stock and selling it to the reddit idiots at these inflated prices. The business guy says it's going to go into bankruptcy soon. His valuation for the stock? 1 cent.

Also, he pointed out that this is not in any way a short squeeze and all the smart money got out when it was around 10
 
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  • #325
phinds said:
What's WAY more to the point today is that AMC has surged with an overnight peak of 33 and it looks ready to open around 30. That is 50% higher than the peak of 20 in January when the madness started.

I just watched a business show with the guy on saying that AMC is basically a worthless stock. They don't make money and given their operating expenses and income model they CAN'T make money AND they are mired in debt. They HAVE raised some cash recently by issuing new stock and selling it to the reddit idiots at these inflated prices. The business guy says it's going to go into bankruptcy soon. His valuation for the stock? 1 cent.
I was reading some financial new yesterday, but only saw a brief comment about short sellers losing something like $ 740 million on AMC and maybe another stock. This morning I read,

"Shares of movie-chain operator AMC Entertainment climbed 20% in premarket trading, after jumping 36% on Thursday, and more than doubled over the last four days. On Twitter, financial analytics group Ortex said new losses generated for short sellers of the meme stock were "up to $500 million in the pre-market alone. Total losses in $AMC this week are $1.75 bilion so far." - MarketWatch, May 28, 2021

And - "Shares of AMC Entertainment (AMC) surged over 45% in afternoon trading Thursday, pushing the market capitalization of the country's largest theater chain past $12 billion amid a boost from retail investors." Yahoo Finance
https://finance.yahoo.com/news/amc-surges-reddit-trade-wall-street-bets-201933578.html

It seems like pumping the stock, but is it criminal, and how would one prove it?
 
  • #326
Well, it DOES appear that that guy I listened to was wrong about the short squeeze.

Pump and dump is illegal, but yeah, how do you prove it. In fact, when it's a BUNCH of people (the reddit crowd) I'm not sure you can even classify it as pump and dump since I think that's viewed as a single person, or small group conspiring, doing the pumping. The reddit crowd is a bunch of retail investors.
 
  • #327
Astronuc said:
It seems like pumping the stock, but is it criminal, and how would one prove it?

Who is pumping the stock? The financial press or the redditors? The former doesn't look like anything but reporting. The latter, well, you only make money once you sell. If they are selling at the same time they are telling others to buy, well, there will be trouble ahead.
 
  • #328
(Bloomberg) -- AMC Entertainment Holdings Inc. and GameStop Corp.’s stock rallies Tuesday hammered short sellers to the tune of $848 million.
 
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  • #330
Astronuc said:
That is just nuts.
Yep
 

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