My Expectations for $GME Next Week (Feb 1)
The past two weeks in the stock market (especially this last one) have been unprecedented.
I’m sure if you’re reading this, you have some inkling of an idea about a war between hedge funds and retail investors over stocks for companies like GameStop, AMC, Nokia, and BlackBerry.
Next week is building up to be the finale of the short squeeze saga, and I have some predictions and explanations I’d like to make.
Before I begin, I want to make a couple of things abundantly clear:
- What is happening is not investing — it is gambling
- This is extremely risky
- You should not take my advice I’m just an idiot behind a keyboard
I’m going to explain this complicated situation as simply as I can for those who don’t understand it.
Hell, I don’t even understand the entirety of the forces at play. But if a dumb dumb like me can understand the fundamentals, you can too.
I am an avid chess player and like to use it as an analogy to things such as business, politics, and life.
So, I’ll explain what has happened thus far using the three phases of a chess game: The opening, the mid-game, and the endgame.
I believe next week is the start of the endgame.
The Opening Moves
Players in this game started to develop their positions back in late 2019.
The main players at this point were a Reddit user by the name u/deepfuckingvalue (u/DFV) and the famous investor Michael Burry who was portrayed in the movie “The Big Short” by none other than Steve Carrel (aka Michael Scott).
u/DFV placed over $50,000 into GameStop call options in September of 2019 when the price was around $4 a share.
A call option is like a bet that a stock price will increase in value. u/DFV did this because he felt the company was fundamentally undervalued.
Short video on what a call option is.
He was followed by Michael Burry, who also believed the price of GameStop should be higher.
He based this on the upcoming game consoles that would include disc readers, which aligned with GameStop’s business model.
Fast forward to June of 2020, when GameStop announced they experienced over a 500% increase in online sales during the COVID shutdowns.
In August of 2020, Ryan Cohen, co-founder of the online pet supply store Chewy, bought a stake in GameStop and planned to turn it into a rival against Amazon through online sales and re-management of the company.
After that, GameStop announced a strategic partnership with Microsoft to expand its physical and digital stores.
The final opening move set everything up for the inevitable war that we all witnessed.
About four months ago, Reddit users on the subreddit r/wallstreetbets noticed why the company was being grossly undervalued.
Over 100% of GameStop’s available shares were being shorted.
When a stock is being shorted, it means that someone (like the hedge fund Melvin Capital) is borrowing shares to sell, only to buy them back later at a cheaper price for profit.
Except for this time, hedge funds were shorting the stock price so much they were forcing it down to zero so they could make maximum profit. Not cool!
This type of practice is unfortunately common and has been happening for years.
Reddit users realized that if they bought shares in GameStop it would create more demand and raise the prices to fair values — the opposite of what the hedge funds wanted.
Once the price theoretically went up, the people who shorted the stock would have to try and buy the stock back, which would make the price rise more — in favor of r/wallstreetbets
This is called a short squeeze.
Confused? That’s okay. Here is a link to my favorite YouTuber who explains everything up to this point very well (with pictures!):
The GameStop Infinite Money Glitch Explained
The Mid-Game
What the Redditors predicted came true.
They (including me) bought call options and shares of GameStop, forced the prices to rise, and prevented hedge funds from making a profit from killing a company.
Then, the hedge funds launched their counter-attack.
On Thursday morning, January 28th, 2020 the prices of GameStop stock almost reached $500.
This led stock brokerages like Robinhood to turn off the ability to buy shares in GameStop and other meme stocks, but they allowed users to sell their positions.
Hedge funds took this opportunity to start driving the price down by selling the stocks back and forth to each other at low volumes with hopes that retail investors from r/wallstreetbets would get scared and sell their shares.
But r/wallstreebets held their shares! They knew what was happening and weren’t scared of losing their money.
Whether or not turning off the ability to buy shares was a malicious effort to subdue retail investors from winning has yet to be confirmed.
However, there are lawsuits taking place, and the truth will be determined.
The day was hard for the r/wallstreetbets keyboard warriors, but they knew that the hedge funds had only been able to close a fraction of their short positions.
The number of shares being shorted is tracked with a metric called the “short percent of the float.” This metric is reported through analytics agencies and places like Yahoo Finance.
After markets closed on Thursday, reports published that around 130% of the shares were still being shorted — meaning the previous price rallies were due to investors buying, not the short squeeze.
There was a crucial move r/wallstreetbets had to make in this stock market chess game on Friday.
Thousands of call options would expire on that Friday, and they needed to expire “in-the-money.”
As stated before, buying a call option is like placing a bet that a stock will increase to a specified price.
If GameStop’s stock price could stay above the strike prices set, it would mean everyone who bought call options could demand shares from the people (hedge funds) who sold the call options.
After brokerages shut off the buying option for meme stocks, reinforcements flooded in like the Riders of the Rohirrim coming to save Minas Tirith from an onslaught of orcs.
Investors from around the world, congresspeople (AOC and Ted Cruz), and business people (Elon Musk) supported the degenerate apes from r/wallstreetbets.
It was no longer about making a quick dime off the arrogance of the rich. Now, they made it personal. They made it about the suppression of the little guy.
GameStop’s share prices successfully closed at $325 on Friday meaning there were almost 100,000 call options in-the-money.
You can see the list of these expired ITM options here, highlighted in blue.
Each call option isn’t for only one share, though. Each call option, by definition, is for 100 shares.
100,000 call options x 100 = 10,000,000 shares that need to be bought. That ridiculous amount of shares will drive the demand for GameStop stock up even further. (Possibly to the moon? Pluto? Alpha Centauri?)
Call options will start being fulfilled next week when markets open again. Additionally, about 100% of GameStop’s shorted shares haven’t been covered.
The hedge funds are being charged interest fees every day they wait to cover their shorted shares. They’ve already lost billions of dollars and they still have to take the losses on their short positions as long as r/wallstreetbets can hold.
Now, we are approaching…
The Endgame
There is a classic prisoners dilemma happening.
The price will continue to rise if retail investors of GameStop hold their positions and refuse to sell. The prices will start to decline if they decide to sell.
Melvin Capital: “Can I buy your share of GameStop for $X? I need it.”
r/wallstreetbets: “No.”
Melvin Capital: “Okay, can I buy it for this +$X?”
r/wallstreetbets: “No.”
Melvin Capital: “I have to return the stocks! What about for ++$X?”
r/wallstreetbets: “No.”
There is no telling how high the price will go before people start selling.
If investors sell too soon, they may end up giving the hedge funds a break. If they hold out long enough, they may drive the price to critical mass at a volume never seen before and crash the market.
Eventually, retail investors will have to sell to make money. Some will hold until they lose it all.
One thing everyone should know about r/wallstreetbets is they don’t care about losing money.
They love losing money. They have an entire section on their page called “Loss Porn” dedicated to sharing stories of insane losses. They eat losses for breakfast.
r/wallstreetbets is a hive mind of over four million beautiful idiots that have the collective initiative to hold on to their shares until death.
To all the new investors shaking in their seats ready to sell and the old investors preaching about risk, know this: they do not care.
If holding on and losing all their money means they got to watch the billionaire fat cats that ruined the economy in 08' crawl out of their hedge fund offices with a chapter 13 bankruptcy in their mouth, it will all be worth it.
You aren’t dealing with logic here. You’re dealing with pure degenerates.
I expect they will hold. I will hold until the short percent of shares fall close to the teens, which may happen in the middle to end of next week.
I could be totally wrong and misguided. Whatever.
Diamond hands. This is not financial advice.
I JUST LIKE THIS STOCK.
