GameStop

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I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market Reddit. You can intimidate everybody.

—James Carville, 1993 (updated by the JC, 2021)

In which the experts in the market got properly schooled by a bunch of daytraders. Acres have been spilled on this elsewhere, but the JC’s own hot takes are these:

• Everyone knows shorting gives you unlimited upside risk. But there is still this basic supposition that, okay, it’s theoretically unlimited, but practically? — c’mon. There are rational bounds to which no stock can go. Well, we know that not to be the case.
• Secondly, shorting a stock that is at the bottom of its range is a way more risky proposition than shorting a stock that is at the top. GameStop closed at $3.96 on 17 July last year. Imagine shorting a million shares then. Cost? $3,960,000. Maximum return? $3,960,000. Maximum loss, at peak Jan 28? 469,420,000. That’s the thick end of half a billion dollars. Now, consider the same investment at 36
• Practical limit to how far you can ride it: as far as you have cash on hand. The moment you have to raise new capital, you dilute your existing investors into oblivion