![]() ![]() I had the same reaction this week, when an army of amateur traders derided – or celebrated – as “basement dwellers” or “trolls” drove the shares of GameStop Corp. Rich guys who live as tax exiles in the Bahamas generally do not garner our sympathy. One of the most amusing bits of the 2008 financial crisis, for me anyway, was seeing the US$1-billion-plus that British billionaire Joe Lewis had sunk into Bear Stearns, some of it just hours before the Wall Street firm collapsed, vaporize in seconds. The S&P 500 is down and the Dow is trading lower over 300 points while GameStop is up massively.Please log in to bookmark this story. This is because the entire stock market could go down as the big sell-off begins to gather cash and the stock price of one tiny company rises-exactly the situation that we are facing today. The underlying idea is that if hedge funds will have to sell their long positions to just cover their short position, which are based on speculations and massive leverage, we could really run into major trouble. At the end of every derivative debacle someone needs to pony up a cash plug - a liquidity event to cover the cost. GameStop’s event could be just a small symptom of a much bigger disease which could well run the stock market into a massive crash. We have seen one of the biggest reductions in leverage among hedge funds since Monday. Could the Stock Market Crash Due To GameStop? But winning that battle may not be that easy because the hedge fund managers who currently are waging the war against these Reddit traders in terms of positioning are ones like Steve Cohen. He certainly has a very rich history with dealing with the SEC. Hence, there may be less sense of core fraud here.ĭespite this, the SEC could still come after this story and determine that there is some sort of market manipulation going on here. The fact is that everyone is taking this matter of the price jump into the public domain and they are being very transparent on which side of the market they are placing their bets. But this may be challenging, as it is tricky to justify GameStop has more fundamental value than it actually does. What they will try to determine is if there is the intention of creating artificial prices through supply and demand dynamics that aren't legitimate. The SEC is quite likely to look at this case study through the lens of pump and dump. The SEC is very strict on pump and dump issues, and the institution mostly pursues these cases. There is a lot of debate on this topic and it will continue. We are now in unchartered territory, and a large part of this is a gray area. It is important to note that Michael Burry also was pro GameStop way back in 2019. He called this “unnatural, insane and dangerous.” He has since deleted this tweet. ![]() What Could Be The Take Of The SEC On GameStop?Įveryone who is looking at this battle between Wall Street and Reddit traders are asking one particular question, is it actually legal? The SEC is hearing from high profile people in the hedge fund space such as Michael Burry, Head of Scion Asset Management, who tweeted that the SEC needs to look at it and there should be legal and regulatory repercussions. Overall, the most popular short positions over the past few days have rallied 15%. For example, Evotec is one of the biggest short positions that Melvin Capital has in Europe and it has started to rally. Other hedge fund favorites to short have also moved higher as well. The current drama in the GameStop short has increased the pain for hedge funds. Could We See Other Short Positions Surging? Melvin’s short position price is not clear yet. Melvin Capital closed out its short position, according to a CNBC report earlier, and Citron’s short in GameStop is also closed in the $90 price bracket. ![]() Basically, this is like us (retail traders) going against the establishment (hedge fund) more or less. They are pointing out that more hedge funds have joined in short trade bets in the GameStop stock, pointing to a new fresh cash injection from Ken Griffin and Steve Cohen's hedge funds. It is written all over Reddit’s message forums. In this case it is easy to see where the pain is. Reddit day traders have taken on Wall Street's major hedge funds and created a big headache for hedge fund managers, specifically Melvin Capital. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |