Who’s Next after GameStop?

This morning it is hard not to have a wry smile at the recent turn off events. If we start with the share price of GameStop it went as high as US $380 and as low as US $249. It was at US $290 after hours. If we return to my explanation of how the option market makers would have responded they either would have got some gamma in ( bought options), or they could revert to the age old solution for such a crisis. That is to go to the pub have a couple of drinks and hope the problem has gone away when they return.Of course it would have to be a virtual pub or bar as the real ones are shut. Sometimes you just cannot get a break! Amazingly enough I have seen the latter strategy work although this time around there is no sign of the perfect storm abating.

Still some have kept their sense of humour intact.

SINGAPORE (Reuters) – Shares in small Australian nickel and cobalt explorer GME Resources jumped as much as 53% on Thursday, apparently driven by the similarity of its stock ticker code to U.S. retail investor darling GameStop.

GME Resources stock closed up 13% at 8.5 Australian cents, or a gain of one cent on the day, giving up most of its gains of four cents in early trade, when it reached A$0.115 ($0.0878). It rose 14% on Wednesday.

There is something of an Elon Musk link because when he gave his approval to the Signal alternative to WhatsApp lots of people bought shares in a completely different company with the same name. What a time to be alive!

Meanwhile it would appear that the authorities are less pleased as we note another example of apparent regulatory capture.

We are aware of and actively monitoring the on-going market volatility in the options and equities markets and, consistent with our mission to protect investors and maintain fair, orderly, and efficient markets, we are working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants. ( US SEC )

It would appear that their mates at the big hedge funds are upset. But it is not so easy to explain why a set of bullies should be protected from a group who turned out to have more market power. The one issue here is though that the share price is by a factor of at least ten well over any reasonable value of GameStop.

On that subject if I was GameStop then I would be planning a fast issue of some shares. Then this episode could help keep a struggling company going. I see someone has kept their sense of humour.

*GAMESTONK ($GME) FILES WITH S.E.C. TO SELL 1,000,000,000 NEW SHARES AT $57 ON THE MARKET AT THE OPEN TODAY: SOURCES ( @Tr0llyTr0llface )

Oh and holders of the shares have another way of making money as this from Reuters shows.

Shares of GameStop carry a fee of 30.58% to short. That makes them more than 100 times more expensive to short than shares of electric car maker Tesla Inc, which has the largest short position, as measured in dollars, of any U.S. company, according to S3 Partners data.

Back in the day I was involved in an operation where we sold Japanese shares and bought warrants and we paid less than a tenth of that to borrow the shares. Also the US ten-year yield is 1% right now. So a technical issue but in ordinary times a nice little earner.

Perhaps Turkey wants in on the game.

*ERDOGAN SPEAKS WITH ELON MUSK BY PHONE: TURKISH PRESIDENCY ( @DeltaOne)

Who’s Next?

As our options market maker struggles with his or her hangover, which will not be helped by the daily margin report, they will note this.

$AMC trades over 1 billion shares. Yes, you read that right, 1 billion. total outstanding shares is 287 million with 56 million public float. So we’ve traded all the shares available to the public 20x over. ( @MisterCommodity)

What could go wrong? One group that ill be hoping that nothing does is the retail broking companies who I note were struggling at the open yesterday. The rumours that something was afoot were much more likely to be them being swamped by business.

If we return to AMC we see that its share price rose by 301% yesterday to US $19.90 and yes you did read that right.I also note the share volume ended up at 1.25 billion and that Investing.com think there are around 137 million shares but the principle remains.

All this was quite a turnaround for this cinema chain as the Wall Street Journal explains.

Burning cash at a rate of roughly $100 million a month, AMC last month began selling stock to the public with a bankruptcy warning attached, saying that a failure to raise enough capital could mean chapter 11.

It seems they got into the stock selling game too early.

AMC has since Monday sold a total of 63.3 million shares for a combined sum of $304.8 million, the company said

Although to be fair around US $5 must have seemed a good price at the time.Perhaps they noted the bearish Doji Star on the chart.

Remember BlackBerry? A blast from the phone past. Anyway its share price reached US $28 yesterday or a bit less than four times its price a fortnight ago. This makes it a hard time for analysts as this from TipRanks a month ago shows.

For RBC analyst Paul Treiber, Blackberry remains a “show me story.” Accordingly, Treiber rates the stock a Sector Perform (i.e. Hold) along with a $7.5 price target. This figure implies about 8% upside from current levels.

Let us now switch to the UK and the former owner of the Financial Times. It would be more amusing if it still did own it of course.

Shares of Pearson were up 12% and Petrofac 7% on Wednesday, though Sainsbury was barely higher. ( MarketWatch)

So a flicker in comparison to the US and we saw something similar in France

Shares of French real estate investment trust Klépierre  surged nearly 20%, leading the Stoxx Europe 600’s best performers on Wednesday. According to public-filing tracker website WhaleWisdom, Klépierre is one of the most shorted stocks in France.

Comment

Let us now take stock of what has happened. A meme has built up against short selling which is often ill conceived in my opinion. For example futures markets would not exist if you could not do it and indeed how could you sell a currency? But it is also true that some through market power have been able to effectively bully companies.Thus it is a bit rich for them to complain about a bigger bully which has turned out to be the supporters of WallStreetBets on Reddit.

At this point WallStreetBets look like heroes slaying the hedge fund dragon. But care is needed because how many can sell at US $19.90? Also who is buying at a price which on any sensible valuation is around four times or more what it is worth? Once the media circus and its reports of large profits for some moves on we will see losses for the many. We have seen this before if you recall the short squeeze for Volkswagen some years back.

Also one of the bad guys ( hedge fund) is doing well out of this and what if it used the information gained to get out of GameStop early? That is a very dark road.

While #wallstreetbets are piling onto hedge funds, gentle reminder that ~40% of all Robin Hood trades are executed through…Citadel Securities (sister firm to Citadel Hedge Fund) The firm *benefits* as retail trading volumes go up ( @CNBCJou )