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Markets still falling like whoa


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You beautiful bastard.
Last week I got in the shares at $38, then dipped at $34 by the stop-loss limit order.
BUT along the way ripped some profits from selling puts on it , and also have exposure with some calls
By the way every single strike of last week's calls ALL expired ITM which is insane
117k+ of those were still open at the close. That's 11.7 million shares. 20% of the real float. Anyone who sold those calls naked and didn't start to cover last week have until Tuesday to do it.

And the 115s were immediately ITM at the premarket open when it touched $130 briefly. Today and tomorrow are going to be a wild ride.
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Just now, Hank_Hill said:

Sheeesshhh. Those call premiums are going to be spendy

As well as the put premiums. When this madness ends, you will still be left with a company whose revenue is in a free fall, and no compelling path forward. It was probably closer to fair value in the single digits. 

With no position, I'll have to sit this one out, point/laugh, and hope people start buying up other highly shorted stocks hoping for a repeat (looking at you, LGND). 

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25 minutes ago, Blotto said:

As well as the put premiums. When this madness ends, you will still be left with a company whose revenue is in a free fall, and no compelling path forward. It was probably closer to fair value in the single digits. 

With no position, I'll have to sit this one out, point/laugh, and hope people start buying up other highly shorted stocks hoping for a repeat (looking at you, LGND). 

I've been watching all of this from the sideline, and have missed out on making money on the run-up. But I agree with your take on the fall after the squeeze, so I'll ask how quickly does it unwind, is it the 1/22 calls that forces shorts to cover, or can they continue to short and pay even higher premiums? 
I'd look at buying some puts - but are the 1/29 or 2/5 better plays into the fall back to reality?

Asking for a friend, who stonks.
 

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4 minutes ago, Wally Fairway said:

I've been watching all of this from the sideline, and have missed out on making money on the run-up. But I agree with your take on the fall after the squeeze, so I'll ask how quickly does it unwind, is it the 1/22 calls that forces shorts to cover, or can they continue to short and pay even higher premiums? 
I'd look at buying some puts - but are the 1/29 or 2/5 better plays into the fall back to reality?

Asking for a friend, who stonks.
 

I have no idea and I'm not particularly inclined to throw money at it trying to figure it out. Same thing is happening with EXPR this morning. Up 120% premarket on the same phenomenon. 

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10 hours ago, DonkeyCigars said:

 

The value in Netflix, from what I read last week, is that while they throw a ton of money at original content and only some of it sticks, what does stick is so  profitable (Bridgerton? Tiger Guy, Cobra, Ugly Chess Girl and Stranger Things to name a few) that their ultimately going to win by being the last man standing. 

That is why the big news from their earnings was they now had free cash flow (the big case for them being low growth or a bear stock was their working capital was always horrible) they are in the catbird seat compared to their rivals. 

And the pandemic obviously helped Netflix greatly as their marketing costs and customer acquisition cost plummeted to the floor, helping with profit and cash flow as new users swarmed to streaming in 2020.

Netflix’s rising margins are evidence that the service is increasingly dominated by Netflix’s own content, not licensed shows; that Netflix chooses not to pay for everything isn’t a sign of weakness, but rather strategic capital allocation towards content it controls. The company will be able to license anything it wants in a few years when most of its competitors throw in the towel.

Great post. It’s exactly their strategy and it’s a good one. The only hiccup they potentially face is that Amazon’s content portal shows Netflix along with dozens of other content portals, in an attempt to own the eyeballs at the beginning of a consumers search for content. That is a great strategy too. It’s the same strategy they used to dominate retail.
 

These two should be the dominant ones left, with Disney a nice niche business, because people will always spend for their kids. What I’m not clear about is how Roku fits in all this. Some claim they will be the winner, but I haven’t researched them. 

 

Losers are HBOMax. Not sure about Apple TV. 

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10 hours ago, Hank_Hill said:

Hey!.....you’d fuck chess girl and you know it.

I have not seen the show, but was referencing the LitFic Twitter was upset that the show was "pretty washed" as the chess girl was supposed to be really ugly in the book and that was the source of the conflict and power of the story. I don't know, I don't watch Netflix prestige TV.

11 hours ago, Celery Man said:

Almost like they are smart, organizationally competent, good at strategy, and effective at implementing it. I should buy some Netflix.

Go for it! Their whole Netflix slide deck dogma that people love I find really unsettling. I did like the fact that the lady who curated that deck got fired under it's principles though and she wrote an Op-ed justifying it and calling herself washed.

But I'm reminded of the TV the Good Place and maybe the greatest character to ever be written on TV: Brent "I then inherited the family business and in just 18 years, I grew Norwalk Materials from a $90 million company to a $94 million company" Norwalk:

 "It makes sense I made it to the Good Place. I'm smart, I bought Netflix stock at $38...I guess now my deadbeat son gets it"

Edited by DonkeyCigars
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1 hour ago, Eastwood said:
1 hour ago, Storm the Field said:
GME at 9:10 $88.60
9:50 $144.42
10:10 $88.09
What in the hell was that all about?

I'll post a recap of everything when the dust settles on this. It's been an interesting ride and it has caused me some concerns over cantagion in the broader market.

Based on the overall market dip intraday, it worried a lot of people. They will blame on something else, but it seemed to be a little motivation to sell.

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In 2011, GameStop reported net income of $408 million on revenue of $9.5 billion; in the last 12 months, it had a net loss of $275 million on revenue of $5.2 billion. GameStop’s stock traded as high as $62.11 per share in 2007; it got as low as $3.50 in March 2020. It closed at $18.84 on Dec. 31, 2020, for an equity market capitalization of about $1.3 billion.

 

Since the start of 2021, the stock is up 245%. It closed on Friday at $65.01 (a $4.5 billion market cap), up 51% in a single day. The rapid rise seems to have been fueled by small-time retail investors, who learned about GameStop online, principally on Reddit’s r/wallstreetbets forum, and who have been convinced of its enormous potential. Here is an actual stock analyst:

GameStop became a “cult stock because of Ryan Cohen’s success with Chewy” and retail investors “appear confident that he can implement omnichannel initiatives that will materially grow their earnings,” Wedbush analyst Michael Pachter said in an email.

Here is a technical story. It has two parts. First, a lot of people are short a lot of GameStop stock. (Notoriously, they are short more than GameStop’s entire float; Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding.[3]) They are short for the fundamental reasons we talked about above: dying mall retailer with huge valuation, etc. When you short a stock, you borrow shares and sell them, promising to return them later. You have to pay a fee to borrow shares, you have to post collateral based on the value of the borrowed shares, and you (generally) have to return the shares you borrowed if the lender asks for them back. When the stock goes up a lot, short sellers start feeling “squeezed”: Their borrow costs go up, they have to post more collateral, and lenders might asking for their stock back. Some short sellers might have to capitulate, and they will close their positions by buying back stock. There is a feedback loop: The stock goes up, short sellers give up, they buy stock to surrender, and their buying pushes the stock up more.

Second, a lot of people (on Reddit) who like GameStop don’t buy stock; they buy call options. If you are a retail trader looking to gamble on a stock, you can buy call options to get leveraged exposure to the stock.  For instance, last Tuesday (Jan. 19), you could have bought a $50-strike call option on 100 shares of GameStop stock expiring this coming Friday (Jan. 29). Bloomberg tells me this option would have cost you about $3.35 per share, or about $335 for a 100-share option contract; the stock closed that day at $39.36. If you sold the options on Friday (Jan. 22), when the stock closed at $65.01, they were worth $18.16 per share.[4] You put in $335 and got back $1,816; you made a 442% return in four days. If you had just bought 100 shares of stock instead, you would have had to put in $3,936 to get back $6,501, a 65% return. Of course if the stock had stayed flat instead of going up to $65.01, you’d have lost 0% by buying shares and 100% by buying the options. So options are great if you have a relatively small amount of money and want to take a lot of risk with it. If, for instance, you are a retail trader on WallStreetBets.

Edited by DonkeyCigars
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Sorry for three posts in a row; was trying to edit:

 

 

Here is a YOLO story, a story of utter nihilism. You know this story. This story is perhaps best told with a series of rocket emojis, but let’s try words instead. The people on the WallStreetBets subreddit sometimes all get into a stock at once. This is fun, a nice social outing in an age of social distancing, a risky but potentially lucrative collective entertainment. Recently they decided to do GameStop. Because, I don’t know, they’re gamers, or because it’s a little comical to pump the stock of a chain of mall video-game stores during a pandemic, or because a lot of professional investors are short GameStop and they thought it’d be funny to mess with them. Or, especially, because their friends on Reddit were buying GameStop and they figured they’d join in the fun. Or all of those things in different combinations. Take one person who’s long for fundamental reasons, add 100 people who are long for personal-amusement reasons like “lol gaming” or “let’s mess with the shorts,” and then add thousands more who are long because they see everyone else long, and the stock moves:

“It was a meme stock that really blew up,” said WallStreetBets moderator Bawse1. “The massive short contributed more toward the meme stock.” GameStop seemed so utterly doomed that the current situation was actually sort of funny to the subreddit’s denizens. Banded together, WallStreetBets members bought in big enough to move the stock. …

“The traditional Wall Street view is that markets are driven by some tie to fundamental value,” said Hoffstein. “What we’re seeing is an influx of speculative retail traders who don’t have any philosophy about valuation.” He quotes a phrase from Bloomberg’s Tracy Alloway: “Flows before pros.” The market will be driven by a flow of capital rather than fundamentals. ...

“I think the subreddit brings a new factor into stocks that wasn’t as prevalent as before,” says Bawse1. “It’s called hype.”

Meanwhile, calls of “BUY” alongside emoji rocket ships flooded the WallStreetBets Discord Friday, where over 25,000 onlookers watched chat fill with diamonds, rocket emojis, and obscenities. GameStop’s stock had just hit $60, a great leap from the $20 it was worth just last week. On Friday, 194 million shares were traded, over 12 times its average trading volume. In the Discord’s voice channel, where hundreds participated in the “gme-rocket,” yelling, humming, and intermittent announcements coalesced into something like a Gregorian chant.

Here is a seven-hour YouTube video from Friday in which a guy called “Roaring Kitty” dips a chicken tender in champagne to celebrate his GameStop wins. “This is the thing, overbought can stay overbought, remain overbought, even get more overbought,” he says, which is as good a summary of the situation as anything else.

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1 hour ago, Continental Op said:

Is there really enough cash among the Robinhood/wallstreetbet kid crowd to go toe to toe with institutional investors? 

They didn't need to out-cash the institutions.  The institutions out-cash'ed themselves by shorting more shares than were available to float.

 

Instead of needing to buy, they just needed to coordinate not-selling the shares and wait for the short squeeze to ignite and drive the price spiralling up.

Secondarily, they did load up on short-dated calls, which triggered further buying pressure (from market makers buying shares to cover/hedge the calls).  That helped.

(Friday night every single call expired in-the-money, so surely there was additional share buying from naked call sellers to deliver.)

Lastly, with both of those scenarios in place, im sure institutional money got in the game as well on the long side to take action

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At some point some regulation will be introduced to curb this me behavior of companies like GameStop and Hertz this summer taking advantage of either a) premeditated market manipulation by groups of people online and/or b) stupid people sitting at home with Robinhood buying into hype and following suit.

Something about fiduciary duty to shareholders or something will be the excuse.

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14 minutes ago, DonkeyCigars said:

At some point some regulation will be introduced to curb this me behavior of companies like GameStop and Hertz this summer taking advantage of either a) premeditated market manipulation by groups of people online and/or b) stupid people sitting at home with Robinhood buying into hype and following suit.

Something about fiduciary duty to shareholders or something will be the excuse.

Hertz tried to take advantage by issuing shares, I'm not sure GameStop did anything - the regulation needs to be on naked shorts and naked options sellers (naked calls specifically) it was market makers and people trying to short GME. I haven't read anything that management did to force the squeeze, the shortage of PS5 helped the business at exactly the right/wrong time as the squeeze was on from /reddit

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10 minutes ago, Wally Fairway said:

Hertz tried to take advantage by issuing shares, I'm not sure GameStop did anything - the regulation needs to be on naked shorts and naked options sellers (naked calls specifically) it was market makers and people trying to short GME. I haven't read anything that management did to force the squeeze, the shortage of PS5 helped the business at exactly the right/wrong time as the squeeze was on from /reddit

Yep, and once a few institutions jumped in the game because they knew which Hedge Funds were short, it just exacerbated the action.  As annoying as Cramer is, there is a chapter in his book "Confessions of a Street Addict" that encapsulates what happens when the word gets out about a massive short position a hedge fund has taken.  It's exactly what happened to Ackman's position in Herbalife, courtesy of Carl Icahn, and garnered the best 30ish minutes of CNBC television ever...  8 years ago today to be exact!!!! 

https://youtu.be/hCZRk1lL90Q

Edited by Trey3216
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The argument goes like this:

"If you sell a bunch of stock at the absolute peak on the back of somewhat inexplicable Reddit demand, and then the Redditors get bored and the stock falls back to, say, where it was three weeks ago (the high teens), then the people who bought the stock from you will have complaints. They bought stock high, from you, and immediately lost their shirts. Their complaints will have the basic form: Look, you have fiduciary duties to your shareholders; you are supposed to deal honestly with us. You sold us stock that you knew was ridiculously overvalued. Yes right sure we happily bought it, yes right sure we also knew it was ridiculously overvalued—this is not a secret!—but, you know, still. It’s a bit rude.

These complaints are not fundamentally about “securities fraud,” but one could express them that way. (“The risk factors in the prospectus did not adequately warn about the risk that your omnichannel initiatives wouldn’t work, or the risk that Redditors would stop frantically buying call options,” etc.) You might get sued. You might not; again, I think there is no real fraud here. (Not legal advice!) But it would leave sort of a bad taste in everyone’s mouth.

We have talked about this sort of thing a few times. Most notably, last June, Hertz Global Holdings Inc.’s stock was soaring on weird retail demand, so Hertz decided to sell some stock into that demand. Hertz was actually in bankruptcy, so it asked a bankruptcy court for permission to do this. The bankruptcy court was like “uh sure I guess, that’s weird, but good for creditors.” Hertz went and did it. The Securities and Exchange Commission quickly shut it down (though Hertz was quicker, and sold $29 million of stock before the SEC stepped in). The SEC didn’t give a reason, but presumably its reasoning was along the lines I laid out above; not quite fraud but fraud-ish. “Fraud in plain sight,” someone called it."

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My takeaway is that boomers created a stupid game that they thought only they knew how to win, and now they’re all big mad that someone else figured out how to win by playing “the wrong way”.

Retards (their word, not mine) on Reddit forcing some Goldman Sachs types to eat shit is awesome and hilarious. I find the whole thing really refreshing.

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4 minutes ago, tokamak said:

My takeaway is that boomers created a stupid game that they thought only they knew how to win, and now they’re all big mad that someone else figured out how to win by playing “the wrong way”.

Retards (their word, not mine) on Reddit forcing some Goldman Sachs types to eat shit is awesome and hilarious. I find the whole thing really refreshing.

 

 

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1 hour ago, tokamak said:

My takeaway is that boomers created a stupid game that they thought only they knew how to win, and now they’re all big mad that someone else figured out how to win by playing “the wrong way”.

Retards (their word, not mine) on Reddit forcing some Goldman Sachs types to eat shit is awesome and hilarious. I find the whole thing really refreshing.

They fucked around for a long time.  Now comes finding out.

 

I agree there is a certain satisfaction in seeing them squirm.

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22 minutes ago, Eastwood said:

 

I'm not a financial advisor. This is not financial advise. I don't work in finance. I do not have a degree in finance. Actually, I have a BA and I'm bad at math past Cal I. I won't apologize for the length because this post is me spiking the football and other than banter about the moves GME makes in the future, this is the last time I ever dig into the fundamentals of the GME trade.

What we saw today was covering either due to what is called a gamma squeeze or a short squeeze. Maybe a mix of both. We won't really know until later, possibly at the end of close Wednesday when brokerages like TD update their short interest. A gamma squeeze occurs as the price moves up, crossing the thresholds of strike prices of calls that will soon be expiring. Market Makers use the Delta of an option to determine how many shares of a stock they should purchase in preparation of possibly covering the calls when they are exercised, either by the buyer of the call or upon expiring in the money. As the share price goes up, combined with the days getting closer to expiry, up goes the Delta, up goes the amount of shares the MMs buy. Last Friday, every call on the board for GME was in the money at expiry. I'll repeat: EVERY CALL ON THE BOARD WAS ITM AT EXPIRY. I don't know if that's ever happened in the history of the market. That means that if every call was exercised, 11.7 million shares would need to be transferred over to the new owners today and tomorrow. Now, as the Delta on a lot of the lower strikes were already at 1 and the shares already (hopefully for the call seller) purchased, it shouldn't be a big deal. However, the big pop happened ON Friday, not before. That caused a mad scramble in the after hours Friday, today, and possibly tomorrow for those who are gambling on the price decreasing further before they fill those calls. So, that's a gamma squeeze. Price creeps up, MMs who sell calls end up buying shares to cover, causing the price to climb higher, and then creating essentially a feedback loop spiking the price when combined with buying from retail or pops on positive news.

What is happening, and may continue to happen, is the result of hedge funds and possibly Bank of America rampantly shorting GME over the course of a year hoping that it goes zero and they then get to pocket everything and give nothing back. The short float on December 31st was 140% and the institutional ownership was 117%. But how is such a thing possible? They borrowed shares to either 1.) sell, never intending to buy them back and return them because they were hell bent on bankrupting GME, or 2.) lent out those already borrowed shares that they never intended to give back anyway to collect the premium, creating a borrowed share of a borrowed share. They would also buy dips incrementally, amassing large positions, sell calls and buy puts with a quick expiry, then dump all of the shares they accumulated at once while simultaneously shorting to tank the price and pocket the premiums on the options they bought and sold. Then, when that wasn't enough, they sold naked shorts. They sold shares they didn't even have or even exist. They injected "synthetic shares" into the market. Synthetic, fugazi, fogazi. It's a wazi, it's a woozi. They're fairy dust. They don't exist. They're not fucking real.

ispWN9.gif

But the people and institutional investors they sold them to bought the right to own the shares. And those banks and hedge funds are obligated to deliver them. But now there aren't enough shares to go around. There's an infinite demand for shares, but a finite supply. In a total share recall event, the lenders of the shorted shares could recall every share on borrow and still be 21 MILLION shares short of demand. The banks and hedge funds that created that SHOULD be on the hook. It SHOULD be illegal. Think of how depressed the price was because of it. Think of the loss of market cap, which led to lowered credit ratings, which led to higher interest rates and less borrowing power, and the layoffs and store closures that followed. Awful. The price should go to infinity because the demand the banks and hedge funds created will become infinity.

Boomers can bitch and moan about RH and college kids dumping their stimmy into GME all they want, but the reality is that a bunch of boomer bankers and hedge funds created a situation that should be legally, economically, and financially impossible. Boomers want to call what retail investors are doing "market manipulation." However, anyone who dug into the situation enough saw the writing on the wall. Honest to goodness due diligence combined with simple supply/demand economics combined with paying attention to the new market trend of retail investors told anyone interested all they needed to know.

This was me back in September:

The price hadn't even hit $10, yet, when I said that. The house of cards had already been built. A fan had been placed in front of it. And everyone told me that I was crazy for thinking the house of cards would fall over. It wasn't a secret. It was in plain fucking sight. And we are finding out it is everywhere. Wall Street and old guys in banking and finance can harumph all they want about how a bunch of dumb wage earners are gaming their system to make a buck, but I think the reality is that the curtain has started getting pulled back on Old Man Oz. Take me, for example. I've given a detailed breakdown and have proof in this very thread that I had produced this investment thesis MONTHS before it was mainstream and materialized. I gave my credentials above. Want to know how long I've been actively investing? Since March. Same as all the Robinhood punks. All it takes for a large chunk of the population to be competent in anything is 1. Time 2. Education/training, and 3. Financial resources. In March, there was a perfect the perfect storm of 1. COVID lockdowns, 2. The internet and educational resources on the various trading platforms, and 3. Stimulus - The ultimate Other People's Money. Millions of $3k hedge funds popped up all over the nation and had the time, education, and money to be just dangerous enough. I traded in a paper account on Think Or Swim for 30 days and was then off to the races. I developed a momentum trading strategy where I combined candlestick patterns, moving average patterns, the RSI, and the Elliot Wave. Not only that, I also voraciously consumed anything I could get my hands on about market history, valuations, and trends. I bought and sold stocks, bought options, and sold covered calls and generated a 10% return over the course of about a month. Then I stumbled on GME, halted all active trading, liquidated any outstanding options, sat on my KO, XOM, and PFE (which was my worst trade) shares and positioned myself into GME. My return is now over 1000%. Either I'm some kind of wonder boy who picked all this up quickly because I'm a high functioning autistic person...

SparklingOfficialAtlasmoth-max-1mb.gif

Or maybe this shit just ain't as hard as Wall Street wants us to think it is. And maybe Wall Street was so habitually comfortable with how little people knew about their industry in the past that they didn't even bother concealing their moves because they didn't think retail investors would know how to play the other side. Well, the secret's out. This new batch of retail investors spent the last decade learning how to min/max various economic systems in video games. They are accustomed to dumping hours of time learning how to maximize returns on digital assets. They went from watching hours of YouTube videos on how to mine diamonds and make a Fortune 3 pick axe in Minecraft to watching hours of how to turn a couple grand into 5 figures. In some cases, 6 or 7 figures.

As I stated earlier, I sold half of my position in GME today, but I still firmly believe in the trade I executed. I am now concerned about two things, one being specific to GME. I think the invisible hand of the free market is about to get absolutely doomfisted by either the government or big banks. I think a lot of institutions out there are shook. When GME hit $150 and other short squeezes were popping, a huge market sell-off occurred. I think funds were liquidating to cover their losses because margin calls were going out. In GME alone today, short sellers lost $1.6 billion according to Business Insider. Melvin Capital, supposedly the biggest short seller of GME out there, is down a whopping 30% for 2021, so far. They manage billions. We learned in 2008 that these banks and funds actually interweave into a structural support for the entire financial system. If a multi-billion dollar part of that support structure fails, it increases the strain on the others, and then another fails, and then we have a cascade failure. I think GME and the big shorts come together and negotiate a share purchase of newly issued shares under the condition that they are immediately transferred to the rightful owners to get the short float below 100%. This is actually extremely bullish for GME. They erase their remaining debt, buy out of all of their bad leases, and increase their cash long enough for the turn around. That's why I only sold half of my position. I'm long GME. In Ryan Cohen I trust. But I also think the government steps in and does something to try to fix the rest of the market. As history has shown us, this doesn't mean punishing the banks who created the situation in the first place. No, they're going to increase the regulations on the retail investors. That could also have grave, unintended consequences when retail cashes out all at once.

So, I feel really good about today, but there may be grave consequences in future. I'll end with the cringiest thing possible: be a retail trader who uses a scene from The Big Short in one of his posts.

 

This is an incredibly interesting post.  How old are you? Just curious.

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15 minutes ago, Dbeasy said:

This is an incredibly interesting post.  How old are you? Just curious.

I'm actually a very unimpressive 35 years old. Jim Cramer types like to keep running with the scenario that the new retail investors are all early 20s punks living at home, so I don't mind letting them keep thinking that.

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