GME and Melvin Cap
by tonibmensching | January 28, 2021 1:01 pm
I really want to hear from the experts in this community. What happened here with the reddit users and why everyoone is so angry/happy?
Source URL: https://www.stockgumshoe.com/2021/01/microblog-gme-and-melvin-cap/
Is anyone following this thing with GME, what exactly is going on, is it a legit short squeeze or something else? Just trying to learn a little.
It was a well-timed short that got the hedges scrambling but after that it became madness. It’s fascinating from the distance. That’s the only place to be, far away from it. They made a point, it served its purpose and now its pop culture with a lot of newbies expressing silly opinions.
Bad stock. Pump & dump scheme, artificially driving a stock way beyond what it is worth. When the freeze happened on buying, they started crying on social media: “Boo hoo, HELP US, we’re VICTIMS!!” Some people are gonna regret jumping on that bandwagon.
I did not type “#Cascal ( HOO )”, no idea where that came from.
Sorry, the system automatically tries to flag tickers.
Travis commented on this already here https://www.stockgumshoe.com/2020/04/microblog-paul-mampillys-100x-deal/#comment-5026825
under a guest article:
quoted
“Melvin Capital was short, which meant they had borrowed GME shares and sold them, with the intention of buying them back at some point in the future at a lower price so they could return those borrowed shares (lots of others were short, too, GME had among the highest short ratios because it has been a slowly dying business for years).
Speculators put on buying pressure, including through call options, to force the shares higher, which brings a margin call for those who are short, and when there’s a margin call the short seller has to buy to cover the short, which creates more buying pressure and what’s called a “short squeeze.” That comes because short sellers have an inherent problem — the person they borrowed from can demand the shares back at any time, and if the stock rises and the collateral the short seller has with his broker starts to look insufficient to the broker then the broker can also force the short seller to buy back the shares and/or put up more cash to cover the possible liability (since a short position has a theoretical risk that’s infinite, while a long position can only lose 100%).
In the most dramatic cases this really snowballs, as happened with GME this week. To some degree it sounds like it was the modern-day equivalent of a boiler room pump that drove the shares higher, just done by collaboration among traders on Twitter and Reddit instead of organized by a central figure, but then the short squeeze accelerated everything and momentum and day trading enthusiasm took over (and, of course, new shorts came on board as the price got more ludicrous, maybe fueling more squeezes if this keeps up). It’s ridiculous, and probably better to stand well back to avoid getting hit by shrapnel… but it’s hard not to watch.”
Thank you. I decided to purchase a few shares after all. Knowing full well it may be a total loss.
It looks like hedge funds have had some spectacular failures on their own, over the years. 1969-70, 73-74, and late 1990s into the early 2000s. An interesting article here:
https://www.investopedia.com/terms/h/hedgefund.asp