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GameStop: Difference between revisions
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'''First''': everyone knows [[shorting]] gives you unlimited upside risk. But there is still this basic supposition that, okay, it’s ''theoretically'' unlimited, but ''practically''? — c’m''on''. There are rational bounds to which no stock can go. Well, we now know this not to be quite so obviously the case. The internet can stay irrational a lot longer than you can stay solvent. | '''First''': everyone knows [[shorting]] gives you unlimited upside risk. But there is still this basic supposition that, okay, it’s ''theoretically'' unlimited, but ''practically''? — c’m''on''. There are rational bounds to which no stock can go. Well, we now know this not to be quite so obviously the case. The internet can stay irrational a lot longer than you can stay solvent. | ||
'''Second''': Shorting a stock that is at the bottom of its range is riskier than shorting one that is at the top. GameStop traded at $4 in July last year. Almost a dead duck — business model fundamentally in the toilet. It looked like things could only go one way — the way of all flesh, and high-street retailers — but ''they didn’t have to go too far the other way to make a mess of your pretty [[Hedge fund|hedge-fund]] face''. This would have been different were the stock higher in its range. If the cash you have available for margin is limited — it is; see below — and you put on a $5,000,000 short at different prices, the potential downside payoffs are wildly different. Say you have a billion dollars cash on hand (hey — you’re a hedge fund. This is chicken feed). | '''Second''': Shorting a stock that is at the [[bottom of its range]] is riskier than shorting one that is at the top. GameStop traded at $4 in July last year. Almost a dead duck — business model fundamentally in the toilet. It looked like things could only go one way — the way of all flesh, and high-street retailers — but ''they didn’t have to go too far the other way to make a mess of your pretty [[Hedge fund|hedge-fund]] face''. This would have been different were the stock higher in its range. If the cash you have available for margin is limited — it is; see below — and you put on a $5,000,000 short at different prices, the potential downside payoffs are wildly different. Say you have a billion dollars cash on hand (hey — you’re a hedge fund. This is chicken feed). | ||
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