Bottom of the range /ˈbɒtəm ɒv ðə reɪnʤ/ (n.) All other things being equal, a dangerous place to play. We have looked elsewhere at the travails of Melvin Capital Management LP when it tried to short GameStop, but this points to a general proposition: if your strategy involves prices staying low, or going lower, your arse is hanging out if you invest at the “bottom of the range” of plausible prices.
An equity cannot have a negative value — not even one as ropey as GME — so there is a natural limit to how much you can make by shorting it: your purchase price. The lower that price, the less, in absolute dollars, you can make by shorting a single share (but the more shares you can afford to buy!!!). This is where the significance of the range comes in: if the stock is already low against its historical range, and low in absolute terms — as, by 2019, was GME — there is only so much further it can go: if Melvin put on its short at $1.00, it stood to gain at most $1 per share. But it is hardly outlandish to suppose a stock could return to points higher in its range: after all, it has been there before. The stock might seem in terminal decline, but look: things can change. Even without the mendacious activities of the Reddit outside traders, it wasn’t crazy that GME could go back to $15.00 per share. Even this kind of move would be crippling: Unlike a “long” position, a short salerequires you to borrow — not a fixed amount of cash, but the prevailing value of security you are shorting. Since you don’t have that stock — you sold it short — if it rises, so will your margin obligation to your broker. You will have to fund that in cash. So a $1m investment in GME — promising a maximum $1m return — would require $15m of margin, if the stock rallied even to historical levels. This is scary gearing for an uncertain future.
By contrast, putting on a short position at $15 — a price at which GME had not exceeded in twenty years — gears things the other way. To lose just one times your investment, GME would need to go to $30. To lose 15 times, it would need to go to $225 — a seemingly outlandish price. Of course
