GameStop: Difference between revisions

GameStop (view source)

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 In which the experts in the market got properly schooled by a bunch of daytraders. Acres have been spilt on this elsewhere, but the JC’s own hot takes are these:
-'''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.
+'''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 a way more risky proposition than shorting one that is at the top. GameStop closed at $3.96 on 17 July last year. Almost a dead duck — business model fundamentally in the toilet. Yes: it looked like things could only go one way, but ''they didn’t have to go too far the other way to make a mess of your pretty face''. This would have been different if the stock was higher in its range. If you have a billion dollars in cash margin and you put on a $5,000,000 short at different prices, the potential downside payoffs are wildly different. {{centerflex|45}}
+'''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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 !style="width:10%; text-align:left"|Buy