![]() ![]() This was now when the users of the Reddit website subgroup Wall Street Bets began buying shares. A similar trend was seen in AMC Entertainment, a movie theatre chain, where the share prices jumped ~300% on January 27, 2021, closing the same at $19.88. ![]() In around 10 trading days, a series of short squeezes occurred making the stock price jump over 15 times, eventually resulting in a stock price as high as $500. GameStop is an American video game and gaming merchandise retailer, the shares of which closed at under $20 per share on January 12, 2021. The play behind GameStop and AMC stock rise This phenomenon, where a short seller is buying stocks to cover his loss, is referred to as a short squeeze in stock markets. Several days later, if the stock price jumps to $120, the short seller would have to buy the stock at $120 and incur a loss. This increased buying causes the stock to keep going up forcing even more short-sellers to make similar choices, as above.įor example, if a short seller expects the stock price of company X to fall to $80 from $100, he might short the stock presently at $100, and close his position by buying the stock when the prices are less. Instead of sinking, the prices are climbing continuously.Īt this point, the investor should either buy replacement shares at a higher price or buy even more shares than the investor needs in the hope of selling them for profit and covering the losses. The investor realizes that he is unable to buy the stock back at a lower price. Instead, something happens (let’s say the company issues a favourable earnings report or there is some good news for its industry), and the stock price starts rising. ![]() With the anticipation of the prices to fall, he takes a short position. Suppose an investor identifies a stock which he believes is overvalued. Therefore, an unexpected price rise stimulates the short-sellers to act fast and limit their losses. But, if the reverse happens, they’re forced to buy at a higher price and bear a loss. If the price falls, they close their positions by buying the same stock at lower prices, thereby earning profits. This buying spree continues adding upward pressure on the stock price, ultimately squeezing the short-sellers out of the market.Ī short-seller sells the shares presently and expects the prices to drop in future. Protecting yourself against a short squeezeĪ short squeeze is a term used in stock markets to indicate a sharp rise in the stock price, forcing a trader who previously sold short, to buy it and close their positions, thereby avoiding greater losses.The play behind GameStop and AMC stock rise.But it could still have some traditional short positions that aren't required to be publicly disclosed. The fund closed out all of its public short positions, including GameStop and AMC, in the first three months of the year. The opposite of this is "going long," which reflects a belief the price will rise.Īlthough the value of Melvin's assets fell $4.5 billion in January from the end of 2020, they have since recovered to $11 billion as of June 1, the FT reported. Shorting a stock means an investor is betting a company's share price will fall. Total hedge fund losses from betting against this pack of stocks amount to $6 billion since the start of May, the FT said, citing data from Ortex Analytics.Īt the start of the year, a number of short-sellers lost over $5 billion as Reddit traders formed a snowballing momentum trade that caused GameStop shares to skyrocket. Meme stock short-sellers have continued to be squeezed as retail investors remain bullish on popular names like Bed Bath & Beyond, AMC, BlackBerry, and Clover Health. That brings its overall losses so far this year to about 45%. New York-based Melvin, which lost more than 50% in January over its short positions on GameStop, lost another 4% last month, the report said, citing sources. US hedge funds Melvin Capital and Light Street Capital, two short sellers hurt by the GameStop day-trader rebellion earlier this year, saw further declines in May, the Financial Times reported on Thursday.
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