E-commerce companies focused on single vertical are rarely successful, let alone worth $14 billion. Substantially all of GameStop’s current revenues are brick-and-mortar. Personally, I don’t believe in that thesis for a minute. As crazy as the GME rally has been, the stock still trades for less than 3x revenue when many other e-commerce companies trade at vastly higher multiples. Chewy (NYSE: CHWY) co-founder Ryan Cohen still is on the board, and still leading GameStop’s digital transformation strategy. One answer is that the fundamentals simply are that good. So if not’s a gamma squeeze and not really a short squeeze, what is keeping GME above $200? Even for Tesla (NASDAQ: TSLA), another purported gamma squeeze beneficiary, options markets look more bullish. That’s still not the case for AMC, for instance. Put/call ratios across expirations generally lean toward the bearish side. Interestingly, that doesn’t quite appear to be the case for GME anymore. Call option buying was massive, as I noted at the time. On the way up, the action looks almost like a perpetual motion machine.Īlmost certainly, the January rally in AMC Entertainment (NYSE: AMC) was a gamma squeeze. Adding fuel to the proverbial fire, the market maker buys more of the stock as the price moves higher. (In options greeks, “gamma” roughly speaking is the change in option value relative to changes in the price of the underlying.) And so the market maker buys the underlying stock to hedge. If GME, for example, moves higher, the call options the market maker has sold become more valuable. In this scenario, market makers now are effectively short the underlying stock. A gamma squeeze starts with heavy buying of call options (bets that the price will go up) relative to put options (bets that the price will go down). One appears to be a so-called gamma squeeze. By the standards of the retail sector, shorts were relatively uninterested in Express (NYSE: EXPR). Koss (NASDAQ: KOSS) had exceedingly low short interest as late as mid-December it only picked up when the stock suddenly soared at year-end. Is This a Gamma Squeeze?įor the January rallies in GME and other Reddit stocks, short squeezes were not the only driver. Instead, GME looks like something else – which probably isn’t a good thing for the bulls. Regardless, with short interest down and the cost to borrow now minimal, there’s little support for the short squeeze thesis going forward. They could have bought call options as a hedge, though the price of those hedges likely required alternative mitigating strategies in the options or equity markets. They may have kept higher-than-usual dry powder behind the short, with the knowledge that the trade might require waiting out the army of buyers. But there are no short sellers of size in the market who didn’t prepare for such a move. Yes, GME has rallied again, gaining more than 400% from a Feb.
Nearly two months later, however, shorts aren’t really getting squeezed. It combined an intriguing fundamental case centered on GameStop’s potential in e-commerce with a flawless reading of the market environment. The coordinated effort led (largely) by traders on Reddit was brilliant. It nearly bankrupted one hedge fund, Melvin Capital, and caused huge losses at many others. By pumping up the price of GameStop shares, the day traders trapped the short sellers in something called a short squeeze, which had the double effect of bruising the short sellers, while driving the stock price through the roof.Yes, the original trade that sent GME stock soaring back in January looks like a well-executed short squeeze. Some did this to make money others did it to thumb their noses at Wall Street but a large proportion of them appear to have done it to hurt short sellers, who had placed heavy bets that the price of GameStop shares would fall. It became clear quite quickly that much of the activity was driven by day traders, many of whom had clubbed together on Reddit and other platforms, to drive the stock up. And then surged again - at one point reaching $350. Rather than fall in price, which is what usually happens when a negative report is published, GameStop shares surged. Several Wall Street analysts released research reports recently saying the stock was worth a lot less that that, based on the company's fundamentals.
Last week it was trading at about $40 a share. GameStop is a brick-and-mortar video and computer game retailer.
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