In the past five days GameStop has gone from $39.23 to about $372 (almost 10x increase.) AMC and Blackberry have had similar fates and you may have heard that it’s a bunch of wild Redditors working on gaming the system to crash a hedge fund. Here’s a quick rundown of what I can gather along with what is happening.
You need to know the following (which may be wrong, I’m a computer tech and just read this)
Hedge fund: lots of money in from lots of sources, person in charge makes various bets on the stock market. Pays investors or reinvests. Hedging bets.
Short Selling: The promise of a promise of handing over a stock next week, month, a certain date for a fixed price paid to you today. You sell it today, and then you purchase and transfer the stock on that date.
This is you betting the stock will be worth less on that date. EG: I short sell a $20 stock in January for $15 due in May. In may the stock is worth $2. In May I buy the $2 stock and hand it over. I have made $18.
Closing a position: Let’s say you sell GameStop in the future for 20. You pre-sold it for 30 yesterday. It’s now worth 372 and it looks like all of the world is buying just to screw you over. You can purchase the stock now at $372 and close the position. You’ve lost $352 per share.
Elon Musk: Quite possibly Cobra Commander. Pointed the world toward a Reddit thread about gaming the system to take down a hedge fund / GameStop short sellers.
Melvin Capital: The hedge fund that’s the target of this. Who supposedly closed their positions (purchased the stock for handover) after taking a huge loss this morning.
Melvin v Musk
Going purely by some threads I can find but it appears Musk doesn’t like Melvin capital’s publicly short selling Tesla in the past, so this may be a billionaire revenge scheme.
From what I can tell from various news sources the plot was simple – Musk didn’t like Melvin Capital, Reddit users didn’t either, with a Twitter account and using some tactics that will most likely by in front of Congress faster than a relief bill a bunch of plucky investors drove stock prices up to the point where MC lost some money.
That said, I’m sure there’s more to it than this, but that’s the basics of the operation. At the point the stock prices for the companies being purchased fall back to normal, the billions in losses that the hedge fund suffered today will be spread out to all the investors who worked at gaming the system.
Purely opining here on probably not enough inside information, but it appears all investors at this point are pawns in a billionaire’s game. Or maybe not.