The crowd’s fervor against Wall Street began during one of Benzinga’s live shows.
On January 21, Citron Research’s Andrew Left went live with Luke Jacobi and Jason Raznick from Benzinga on the daily program “Power Hour” to discuss their opinion on GameStop Corporation (NYSE: GME).
The show ended up being one of the most important events in history since Bill Ackman faced Carl Icahn live on TV. While Left was sharing his short thesis, members of WallStreetBets took over the discussion on Benzinga’s YouTube channel, posting thousands of messages defending GameStop’s growth prospects and board member, Chewy Inc (NYSE: CHWY) co-founder Ryan Cohen.
The stock hit a high of $ 76.76 the next day, before continuing a meteoric rise that left Citron no other option but to exit its bearish bets on the stock at a loss.
Benzinga’s Power Hour is where one of the best known short-sellers appeared, accompanied by the WallStreetBets community, and will now live in the annals of history as the “room where everything happened”.
After that interview, Benzinga also received a member of WallStreetBets alongside GMEDD.com co-owner Rod Alzman to discuss volatility and exchange ideas.
In the following text, Benzinga unzips the hype around GameStop, as well as the dynamics that govern the price and trading action in the following days.
See also: How to sell a stock
What happened: Left discussed his loss thesis on GameStop, an action prepared to rise by members of the Reddit forum.
In September 2019, a member of WallStreetBets posted about his optimistic call option position on GameStop set to expire in January 2021. Using the call option, which gives contract owners the right to buy GameStop at a predetermined price, the member has accumulated almost $ 3.1 million in profits going into the new year.
Other users noticed the member’s performance and followed suit.
Left, who was betting against the stock, drew criticism from WallStreetBets members after his company tweeted: “Tomorrow at 11:30 EST Citron will broadcast live the 5 reasons why GameStop $ GME buyers at these levels are the suckers in this poker game. Stock back to $ 20 quickly. We understand short interest better than you and will explain. Thanks to viewers for the pos feedback in the last live tweet. “
In the call with Benzinga, Left said that investors want to buy the shares without due diligence. According to him, the shopping center retailer faces failure.
“You must have loved the GME setup when it was $ 14, because of the high overdraft interest,” he said. “There is a great deal of overdraft for one reason, because their business is practically in decline.”
Watch the interview in the video below:
His commentary on Benzinga’s program aroused anger among listeners, with one user stating: “The video on the left today, worse quality and with a level of detail below 90% of the GME dd on the wsb man. Puts this man’s career on. “
Another user said: “I just came in and placed orders from GME. Everything in personal !!! “
On the same day, GameStop’s stock rose $ 44.75.
Accelerates GameStop Action: Citron, alongside large funds like Melvin Capital, maintained pessimistic selling positions, allowing the opportunity to sell GameStop at a predetermined price in the future.
Melvin, along with other funds, also shorted static stocks, lending and selling company stocks.
The shares of the heavily sold retailer soon rose exponentially after a mass of retail traders began to buy call options and shares with short dates.
The influx of out-of-cash purchases attracted the counterparty’s liquidity providers to hedge their short exposure by buying underlying shares, in turn exacerbating the volatility of the bullish movement and worsening losses for tight short positions.
At one point, the feedback loop for the call and stock options became so strong that short sellers had no option but to capitulate, buying to close the shares.
Citadel and Point72 Asset Management invested nearly $ 3 billion in Melvin Capital after the company’s short bets went wrong.
Full-Blown Mania: Robinhood, along with other retail brokers popularized for their part in gamifying financial markets, announced on Thursday that he would stop allowing new opening positions on GameStop, AMC Entertainment Holdings Inc (NYSE: AMC), and Koss Corporation (NASDAQ: KOSS).
The decision, which was wrongly considered as the result of brokers colluding with market makers like Citadel, mentioned earlier by its investment in Melvin, came after the volatility made it expensive to liquidate shares of popular names.
“[O]our clearing firm simply cannot afford to settle these deals, ”said Webull CEO Anthony Denier.
“We cannot use client funds to meet this cost due to regulation. Therefore, brokers or clearing firms have to get into their own pockets to do this. And they simply cannot afford the cost of this commercial release. “
As anger and requests for class actions increased, Robinhood, among other brokers, allowed “limited purchases” in volatile stocks.
“To protect the company and protect our customers, we had to limit the purchase of these shares,” said Robinhood CEO Vlad Tenev. Members of Congress, such as US representative Rashida Tlaib called for an audience on the actions of Robinhood and other brokers.
“This is beyond absurd. @FSCDems needs to be heard about Robinhood’s market manipulation. They are blocking the bargaining power to protect Wall St.’s hedge funds, stealing millions of dollars from their users to protect people who have used the stock market as a casino for decades. ”
The fall: During normal trading hours, GameStop shares reached a $ 483 high on January 28, before hitting the $ 112.25 low the same day, after brokers decided to limit volatile stock trading.
Since then, the stock has stabilized before the option expired on January 29, after which much of the purchased stock used to hedge against expiring positions will be liquidated.
Regardless of future price action, it is clear that events that have occurred in the past few weeks will go down in history by permanently changing the perspectives of all market participants and regulators. Large institutions will no longer disregard the power of retail investors who have massive assets as their weapon.
“This is obviously a challenge … if the stock is going to go up, it will go up,” Left told Benzinga about when to fight the momentum.
“The problem – forget about insider trading – eventually the company works against you because it has more than $ 1 billion in debt. So if you want to increase the stock and the company says tomorrow, ‘hey, we are going to issue 30 , 40, 50 million shares, you can’t blame them. They are running a business and someone has hijacked their story. ”
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