GameStop And AMC: Why Are Prices Going Up And How High Can They Go?
Retail traders have trounced Wall Street in just a few weeks, banding together on Reddit to shore up prices of some of the most hated stocks like GameStop GME , and AMC. As a result, hedge fund legends have suffered deep losses. The battle isn’t over yet, and there could be more pain to come for hedge funds and the broader stock market in general.
Why Is The Stock Market Crashing?
The Dow Jones Industrial Average had one of the biggest one-day sell-offs yesterday since October 2020. The below chart shows the one-day percentage change for the Dow Jones.
GameStop’s case study is incredible as Reddit trades have massively impacted hedge funds. On top of that, GameStop is creating a spillover effect on the broader market. Basically, when retail traders targeted the short bets, we started to see hedge funds’ long bets suffer as well. These hedge funds had to sell these bets to make money in order to sustain their short trades. Hence, the sell-off that we are seeing is chiefly the direct result of this.
How Much Are Hedge Funds Losing Because Of GameStop?
Big-name hedge funds have started to close their positions and their losses in the billions. Melvin Capital closed its short bet on GameStop stock, and Muddy Water’s Carson Block also confirmed that the hedge fund has “massively reduced” its short bet in recent days. The full damage of this is still fairly unknown but the following are some of the losses by big hedge funds
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SEC Needs To Get Its Act Together
Elizabeth Warren, the U.S. Senator, talked about the carnage created by GameStop shares yesterday. She said that she would wake the SEC up, which is watching the whole drama from the sidelines. She said “For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price.” Rep. Alexandria Ocasio-Cortez also made a statement on her twitter “Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino.”
Yesterday, the Federal Reserve Chair, Jerome Powell, also dodged the question on GameStop’s share price. And the White House confirmed that the U.S. Treasury Secretary is watching share price and market activity of GameStop and other heavily shorted companies.
The Game’s Not Over Yet
GameStop, AMC and several other stocks are once again rising today. GameStop’s share price touched the critical level of $500 earlier today, and the AMC share price surged over 300% yesterday. AMC was able to raise more money and now say they have enough funding to survive the next six weeks as the coronavirus keeps AMC theatres closed.
Companies like American Airlines AAL also saw their prices surge over 10% yesterday—and nearly every heavily shorted stock saw a massive pump in their share price.
The game isn’t over yet; the signal for this comes from the option’s call market. Call options are still very strong. Yesterday we saw a record number of calls traded. An increase in call options on a specific stock shows that traders hold a bullish outlook.
Why Is The GameStop Stock Going Up?
Retail traders and speculators on Reddit forums are not giving up. They are doubling down on their position as the mentality is that hedge funds have not closed their positions yet, and the information provided by the media is false. Doubling down on GameStop stock would increase the pain for hedge funds. It is important to note here that r/WallStreetBets has been locked down as an invite-only subreddit for the time being.
Big Numbers For GameStop and AMC
GameStop stock crossed above the $500 mark in the pre-market today. This price level was looking like a big number yesterday. The next big number for GameStop’s share price is $1,000. As for AMC, the next big number is at least $40, followed by $100 price level.