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YouTuber ‘Roaring Kitty’ has been one of the key cheerleaders of the GameStock rally
Users of a Reddit group led by a YouTube financial guru known as ‘Roaring Kitty’ sent shares in GameStop up another 120 percent on Wednesday, in a campaign that is rattling Wall Street and prompting concern from regulators.
Shares of GameStop, which runs a struggling chain of video game retail stores, are up 1,700 percent since the beginning of the month, and the company’s three largest individual investors have gained more than $3 billion in net worth during the stock’s staggering rally.
The Reddit group WallStreetBets has been inflating GameStop’s share price in a battle against several traditional hedge funds, which had taken out massive short positions on the assumption that GameStop’s stock would go down.
The Securities and Exchange Commission hasn’t yet commented on the developments but the Biden administration has said they are ‘monitoring’ the flurry of trading action and a growing number of state regulators are calling it dangerous.
Millions of Redditors have pursued a strategy known as a ‘short squeeze’, in which a price rally forces short sellers to buy up more shares. The GameStop surge has inspired copycats to pursue the strategy with heavily shorted theater chain AMC, which saw share prices soar 260 percent on Wednesday.
Professional Wall Street investors are shaken by the bizarre speculative rallies, warning that the bubble that could collapse at any moment, wiping out the gains of the biggest shareholders and small investors alike.
GameStop shares rose another 120 percent on Wednesday extending the rally fueled by the Reddit group WallStreetBets, which urged a buying campaign
GameStop’s largest individual shareholder, Ryan Cohen, has seen his 13% stake increase in value by more than $2 billion over the past two weeks, or more than $6 million an hour
Investor Donald Foss (left), the former CEO of a subprime auto lender, has seen his 5 percent stake in GameStop increase by about $800 million, and GameStop CEO George Sherman’s (right) 3.4 percent stake is up about $500 million
Users of the Reddit forum WallStreetBets have been urging each other to buy and hold GameStop stock, driving the price higher, as seen above on Wednesday
GameStop’s largest individual shareholder, Ryan Cohen, has seen his 13 percent stake increase in value by more than $2 billion over the past two weeks. The Chewy co-founder, who joined GameStop’s board this month, originally paid about $76 million for the stake and has seen his net worth increase by about $6 million per hour over the past two weeks.
Meanwhile, investor Donald Foss, the former CEO of a subprime auto lender, has seen his 5 percent stake increase by about $800 million, and GameStop CEO George Sherman’s 3.4 percent stake is up about $500 million.
In addition to the individual stakeholders, BlackRock, the world’s largest asset manager, could have made gains of about $2.4 billion on its investment in GameStop.
The asset manager owned about 9.2 million shares, or a roughly 13 percent stake, in GameStop as of December 31, 2020, a regulatory filing showed on Tuesday.
Assuming no change in BlackRock’s position, the value of its stake would be worth $2.6 billion now, compared with $173.6 million as of December.
On the losing end of the recent price action have been a number of hedge funds, who had heavily shorted GameStop stock, betting that the share price would fall.
Hedge funds Citron and Melvin Capital said on Wednesday that they had closed out their short positions after suffering undisclosed losses, likely totaling in the billions.
Short selling is a way of making money off a stock if the share price goes down, and GameStop had been one of the most shorted stocks on the market when the Reddit group targeted it.
Citron founder Andrew Left has called the Reddit cheerleaders of GameStop an ‘angry mob’, and recently stopped covering the stock in his research letter, saying he had been harassed by the forum users.
Melvin Capital, the $12.5 billion hedge fund founded by Gabriel Plotkin, was one of the main targets of the Reddit campaign, after an SEC filing revealed that the fund had a large short position in GameStop.
‘By the end of the week (Or even the end of the day), Plotkin is going to have less than a college student 50k in debt who works part time at starbucks,’ one Reddit user wrote on Wednesday morning.
Hedge funders Andrew Left (left) of Citron and Gabriel Plotkin (right) of Melvin Capital were on the losing end of the price action, pulling out of their positions after likely losing billions
As the price surge continued on Wednesday, TD Ameritrade issued an alert to its users saying that it had ‘put in place several restrictions on some transactions’ in shares of GameStop and theater chain AMC, another heavily shorted stock that skyrocketed overnight.
A spokeswoman for TD Ameritrade did not immediately respond to a request for more information from DailyMail.com on Wednesday.
Overall, the main stock indexes were down on Wednesday, with some market watchers blaming the speculative frenzy for shaking investor confidence.
White House Press Secretary Jen Psaki said on Wednesday that President Joe Biden’s team is ‘monitoring the situation’ with GameStop.
The top securities regulator in Massachusetts believes trading in GameStop stock suggests there is something ‘systemically wrong’ with the options trading around the stock.
Others say that the trades are up to the investors who make them, at the end of the day.
‘That’s the sentiment, the public doing what they feel has been done to them by institutions,’ Reddit co-founder Alexis Ohanian said in a tweet on Wednesday.
TD Ameritrade issued an alert to its users saying that it had ‘put in place several restrictions on some transactions’ in shares of GameStop and theater chain AMC
GameStop shares are up 1,700 percent since the beginning of the month in a staggering rally
GameStop shares were boosted on Tuesday by Elon Musk, who 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 small investors on Reddit, many using free trading apps such as Robinhood, have been buying GameStop stock at high volumes to drive the price up, and forcing panicked hedge funds with short positions to buy shares of their own to cover their short positions, further fueling the surge.
It is a risky strategy that could collapse at any time, but posters on the Reddit forum indicated on Wednesday morning that their buying campaign would continue.
Many of the comments indicated that the Reddit users participating in the campaign reveled at the prospect of destroying hedge funds that had bet against GameStop, as well as the prospect of making ‘gains’ if the share price continues to rise.
GameStop’s extraordinary price action has been the talk of Wall Street this week, and is raising questions about potential regulatory clampdowns from the US Securities and Exchange Commission (SEC).
GameStop’s shares skyrocketed for a fourth straight day, thanks in part to Elon Musk’s Tuesday afternoon tweet
The company surged 50 per cent in extended trade Tuesday after Musk tweeted ‘Gamestonk!!’ ‘Stonks’ is a tongue-in-cheek term for stocks widely used on social media
With commentators and lawyers calling for scrutiny of the moves, Nasdaq chief Adena Friedman said exchanges and regulators needed to pay attention to the potential for ‘pump and dump’ schemes driven by chatter on social media.
‘If we see a significant rise in the chatter on social media … and we also match that up against unusual trading activity, we will potentially halt that stock to allow ourselves to investigate the situation,’ Friedman said, asked on CNBC about the issue after the exchange’s annual financial results.
‘If we do think or contemplate that there may be some manipulation, we then engage with FINRA and the SEC to evaluate and investigate that.’
The Securities and Exchange Commission (SEC) declined to comment. Gamestop and AMC are both listed on the New York Stock Exchange.
Mainstream commentators have questioned the justification of moves in several Reddit-hyped stocks in recent days, at a time when some on Wall Street are wondering if months of stellar overall gains have driven shares more generally into bubble territory.
The surge in recent days – GameStop (file image) has increased more than seven-fold to $147.98 from $19 since January 12 – has spurred concerns over bubbles in stocks that hedge funds and other speculative players had bet would fall in value
‘These are not normal times and while the (Reddit) … thing is fascinating to watch, I can’t help but think that this is unlikely to end well for someone,’ Deutsche Bank strategist Jim Reid said.
Easy access apps like Robinhood, which allow ordinary Americans to make stock market trades at almost no initial cost, have spurred a boom in direct investment over the past year as trillions of dollars in official stimulus drove markets higher.
On GameStop, the retail army have pitched themselves against some of the institutional short-sellers – a traditional area for hedge funds – who promote and bet on falls in companies they judge as weak.
The 20 small-cap Russell 2000 index companies with the biggest bearish bets against them have risen 60 percent on average so far this year, easily outperforming the rest of the market, a Reuters analysis of Refinitiv data shows.
Early on Tuesday, short sellers in GameStop were down $5 billion on a mark-to-market, net-of-financing basis in 2021, according to analytics firm S3 Partners.
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