Why Did Reddit Trigger a GameStop Stock Surge?

[BWV]

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

 

[Office_Shredder]

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?

 

[BWV]

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

 

[russ_watters]

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?

 

[Vanadium 50]

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.)

 

[russ_watters]

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.

 

[BWV]

Then it doesn't matter what the stocks do, does it?

It does when you are buying on margin or with call options

 

[Vanadium 50]

That's true.

 

[Vanadium 50]

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)

 

[Vanadium 50]

GME announces earnings tomorrow.

My prediction? If they miss their target by a mile, the stock will soar.

 

[phinds]

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

 

[Vanadium 50]

They missed their targets, and the stock did go up, but it's fallen since. Down 20% to $147.

 

[Vanadium 50]

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?

 

[phinds]

And now it's $180+. These fluctuations are just nuts but we already knew that.

 

[Vanadium 50]

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?

 

[phinds]

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.

 

[Vanadium 50]

I hate it when you burst my bubble by making sense.

 

[Astronuc]

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.

 

[phinds]

Yesterday

Ascendiant Capital downgraded GameStop from Hold to Sell and lowered the price target from $12 to $10

 

[Office_Shredder]

Gme is trading for 141 dollars, why would they even bother adjusting the price target like that

 

[phinds]

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.

 

[russ_watters]

Well, tomorrow is 4/20 and we all know what that means:
https://www.usatoday.com/story/mone...-420-to-lift-cryptocurrency-price/7282496002/

Meanwhile, GME's CEO is stepping down as one of the greatest CEOs in history:
https://www.cnn.com/2021/04/19/investing/gamestop-ceo-george-sherman-ryan-cohen/index.html

 

[Astronuc]

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?

 

[phinds]

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

 

[Astronuc]

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?

 

[phinds]

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.

 

[Vanadium 50]

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.

 

[Astronuc]

(Bloomberg) -- AMC Entertainment Holdings Inc. and GameStop Corp.’s stock rallies Tuesday hammered short sellers to the tune of $848 million.

 

[Astronuc]

Shares of AMC Entertainment Holdings (AMC) rallied again on Wednesday, with shares more than doubling in value as investors on Reddit and other social media platforms piled into the meme stock.
https://finance.yahoo.com/news/amc-...arket-cap-overtakes-game-stops-172225445.html

That is just nuts.

 

[phinds]

That is just nuts.

Yep

 

[Astronuc]

At the end of today:

Symbol	Last Price, $	Change, $	% Change
GME GameStop Corp.	220.39	-82.17	-27.16%
CLNE Clean Energy Fuels Corp.	10.99	-2.03	-15.59%
CLOV Clover Health Investments, Corp.	14.34	-2.58	-15.25%
CELH Celsius Holdings, Inc.	61.75	-10.98	-15.10%
AMC AMC Entertainment Holdings, Inc.	42.81	-6.53	-13.23%

 

[phinds]

Yesterday GME was 320, today 220. The see-saw continues. I skimmed reddit today and saw at least one guy thinking that CLOV was going to 25 today.

 

[kyphysics]

A number of states have ended enhanced unemployment insurance (that federally assisted $300/week on top of regular state unemployment). . . . . eventually, all states (notwithstanding a new stimulus renewal, which I doubt, given nothing in the talks) will end that on September 2021.

How much longer can the casual, stimulus money-supported retail meme stock traders continue to buy (whether call options or actual shares) these stocks going forward? I know a lot of institutional investors have attributed to the meme stock mania too (if not the bulk), but a lot of the stimulus that's let people stay home and trade stocks in their PJs has started to end.

Will be interesting to see what happens later in the year.

 

[Vanadium 50]

casual, stimulus money-supported retail meme stock traders

What evidence do you have that this is "stimulus-money supported"?

 

[kyphysics]

Both anecdotal stories + surveys...e.g.,
https://www.cnbc.com/2021/03/08/how-the-young-plan-to-spend-stimulus-checks-deutsche-bank.html

• An online survey of 430 investors who use online broker platforms found that half of respondents between 25 and 34 years old plan to spend 50% of their stimulus payments on stocks.
• Meanwhile, 18- to 24-year-old retail investors involved in the survey planned to use 40% of any stimulus checks on stocks.
• And 35- to 54-year-old retail investors surveyed planned to use 37% of their checks on stock market investment.

The Tik Tok Investors' Twitter page became a sort of hit last year in chronicling crazy investor advice found on Tik Tok in 2020:
https://twitter.com/TikTokInvestors
Sampling of what they're saying:

 

[kyphysics]

Of course, there's this too:

 

[kyphysics]

Sort of tangentially related.

 

[phinds]

These folks are nuts. SOME of them do make money but most lose and a lot of them are going to lose big (or already have).

 

[Vanadium 50]

The plural of anecdote is not data. Neither is the plural of tweet.

 

[kyphysics]

*self-deleted*

 

[Vanadium 50]

If you want to challenge what I said in some other thread, have at it. In that thread.

 

[kyphysics]

https://www.nytimes.com/2021/03/21/business/stimulus-check-stock-market.html
This was interesting (dated, though):

Abraham Sanchez knew exactly how he wanted to spend his stimulus check.

Like millions of Americans, he had begun dabbling in the stock market during the pandemic. So, soon after $1,400 from the federal government landed in his bank account last week, Mr. Sanchez, a 28-year-old trumpet player in Sacramento, moved all but $200 of it into his Robinhood online trading account. He then used most of it to buy 80 shares of AMC Entertainment, the struggling movie theater chain. . .

For Victoria Brown, a 25-year-old in Wilmington, Del., with a secure job in government, the $1,400 stimulus check is more of an opportunity than a lifeline. She has already moved the money into her Robinhood account and plans to use some of it to buy the stock of Zomedica, a pet health company she owns 1,000 shares of. Ms. Brown said her approach to the stimulus was: “How can we take this $1,400 or the $1,600 last year and do something to make more money with it?”

In a recent note to clients, market analysts with JPMorgan found that the intensity of retail trading in the stock and options markets “has exhibited correlation with previous rounds of U.S. stimulus checks.”

September sees the end of $300/weekly enhanced UI, PUA and PEUC benefits, student loan payment pauses, etc. Most American Rescue Plan stimulus "payments" will be gone by then, except the Child Tax Credits (which just began in July). HOPEFULLY, no one is taking their child tax credit money and buying stocks with THAT!

 

[kyphysics]

If you want to challenge what I said in some other thread, have at it. In that thread.

Was suspended/banned from that thread, V50. Maybe you can petition to bring me back into the COVID main thread? Or, just PM me and we can chat that way.

 

[phinds]

Not sure what this is referring to...

? It is a very clear comment on the moronic attitude taken by the people YOU posted about. In fact, it seems to me to be an agreement w/ the sentiment behind your having made those posts. Unless you were praising those nut cases.

 

[kyphysics]

? It is a very clear comment on the moronic attitude taken by the people YOU posted about. In fact, it seems to me to be an agreement w/ the sentiment behind your having made those posts. Unless you were praising those nut cases.

I have relatively low IQ, I think, so I'm sorry if I'm not following. I was under the impression V50 was possibly referring to my earlier posts (not the taking on debt to buy stocks one) about Tik Tok investors using their "stimmies" to buy stocks. But, I wasn't sure.

I'm not sure how the common witty social scientific saying of "the plural of anecdote is not data" applied to my tweet repost about people taking on debt to buy stocks, though, and thought generally V50 was suggesting that I was making some kind of an unsupported claim or sorts. But, again, I'm not sure.

To that end, I wanted to clarify that that tweet repost (re; debt) was just some random thing I saw today related to stocks and thought I'd post in this thread rather than start a new one. It wasn't related to any "point" or "argument position" I had re: meme stock trading and gamma and short squeezes ($GME, $AMC, etc.). Sorry if it seemed that way. Was busy and just posted that randomly w/o thinking of how it might be interpreted. Mostly, I just see this thread as a "broad" stock discussion/news thread, so I've posted broadly sometimes.

 

[kyphysics]

Should we have a "general" stock and/or economy thread in addition to this one?

Sometimes, I just "lazily" post stuff on that in here, b/c I don't want to start a separate one(s).

 

[kyphysics]

moronic attitude

What do you say to those who would argue that retail investors taking on debt to buy stocks is no different than hedge funds and other wealthy investors leveraging up in potentially dangerous ways (that often backfire...seems like there are stories every year of some big hedge fund blowing up from stupid highly levered bets)?

If wealthy investors can try to make money this way, why should we criticize retail/individual investors? Not saying I have a position one way or the other, but just posing the question.

 

[phinds]

... no different than hedge funds and other wealthy investors leveraging up in potentially dangerous ways (that often backfire.

They do indeed sometimes backfire but you are talking about folks who generally know what they are doing, and take risks, vs the Reddit crowd most of whom haven't a clue what they are doing, and take risks that they do not understand? Have you READ any of the comments on Reddit? They're nuts.

 

[kyphysics]

They do indeed sometimes backfire but you are talking about folks who generally know what they are doing, and take risks, vs the Reddit crowd most of whom haven't a clue what they are doing, and take risks that they do not understand? Have you READ any of the comments on Reddit? They're nuts.

Yeah, some may not be very knowledgeable and using that borrowed money unwisely.

I do recall legendary investor, Sir John Templeton, having borrowed a lot of money to buys stocks during a major crash (can't remember which war or recession it was) and having come out a huge winner. He had just graduated and didn't have much money to his own name yet, so had to borrow to invest.

Buying some hugely beaten down stocks last March on credit perhaps isn't the worst idea. Although, I feel a lot of investors "got lucky" to a degree as well, as the Fed didn't have to bail out the corporate bond market. Had they not done so, we could have had a financial crisis worse than 2008 and a much lower bottom to markets. I feel we got "lucky" with highly effective COVID vaccines as well that have given us a path to return to some sense of economic normalcy.

Borrowing money to invest at these current crazy valuations is a different story. I can understand doing it last March, but much less so this March/year (if buying at the top of this market).

 

[Astronuc]

Epilogue: Most key Reddit stocks crater from AMC Entertainment's June 2 high

https://www.investors.com/etfs-and-...illion-gone-meme-stock-crash-wipes-out-gains/

Investors piling into 15 select hotly traded stocks discussed online, such as AMC Entertainment (AMC) and GameStop (GME), lost nearly half their remarkable score this year. These 15 stocks soared on chatter on Reddit. But they've dropped $25.6 billion in market value since AMC Entertainment peaked on June 2, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. June 2 is now seen as the day the meme furor peaked.