Bankrupting a Billionaire in 4 Easy Steps: A Robinhood Story
Updated: Jan 30
Did you wake up this morning like everyone else & ask yourself, "Whats Gamestop ($GME) gonna do today?"
What happened yesterday was absolutely irresponsible, horribly corrupt, and should NEV.... just jokes, it was euphorically entertaining on so many levels!!
To remind you, $GME was trading at $3 when Covid struck (thats a 16,000% gain from its peak). For those who are just watching & don't exactly understand the fundamentals of what happened, here's a 4-part play by play in simpleton terms:
1. Gabe Plotkin - Right Place, Wrong Time
Legendary investor Gabe Plotkin of Melvin Capital ($30B AUM), began shorting $GME with approx $200+ million. A 'short' is when an investor borrows shares at a high price then sells them to another investor at market rate with the hope of buying them back at a lower price... Basically, it's how expert traders bet against a stock.
Right before the storm, the short interest on $GME was 150%... this means there were basically no shares left to trade bc they were borrowed several times over. (Yes a stock can have a short interest greater than 100%, you just short a shorted stock, read here).
2. SHORT SQUEEEEEEEEZE TIME
Gabe knows exactly what he's doing... he's actually one of the best as a protégé of Point72's Steve Cohen ($14B net worth) & praised member of the Wall Street elite. But just like us, Gabe can't see into the future... specifically into the future of the r/WallStreetBets Reddit page. A single post from user u/DeepFuckingValue led millions of people into the group. This flood caused massive buying volume on $GME, aka a short sellers worst nightmare.
When there's nothing left to borrow, that creates extraordinary pressure on the remaining shares. Arm a few thousand Robinhooders with stimulus checks & Reddit, they can buy all the remaining shares thus jacking up the price. Word on the street is u/DeepFuckingValue turned his $755k bet into $48 million practically overnight.
Game over Wall Street short sellers, you've been defeated by children.
3. it gets worse
Because a short position can experience infinite loss as stocks can go up infinitely (shorting is betting the stock price will decrease), they must post some sort of collateral to insure the shorted shares up to a certain price. It's speculated that Gabe protected his short with $1-2B.
Then comes Tuesday morning...
Gabe faints from seeing the stock doubling to $150/share! Gabe was faced with 2 choices:
1. walk away with a $1-2B loss or
2. increase his short position to protect his principal.
...He chose 2.
4. it gets even worse
Gabe gets $ from his boys at Citadel's Ken Griffin ($21B net worth) and his old boss Steve Cohen of Point72.............. and then guess what?!
BAM! Gabe's short position gets wiped entirely.
Billionaires are infuriated.
Robinhood blocked investors from from buying $GME.
Robinhood gets 150K 1-star reviews on the app store.
Massive lawsuits are in motion.
Accusations of Citadel colluding with Robinhood trended.
SEC investigations into r/WallStreetBets & u/DeepFuckingValue.
WHAT IS EVEN HAPPENING. SHORT STOCKS ARE OUTPERFORMING HEALTHY STOCKS.
This is what unity feels like people. Embrace the cult love.
DOGE Coin rockets 900% in 1 day
Thats 2000% since Jan 1st. DOGE Coin is a crypto currency that I'm pretty sure began as a mockery to all cryptos by using a Shiba Inu Dog Coin. But in classic 21st century fashion, the richest man on the planet began promoting it!
And now it has a $9b market cap and doesn't seem to be slowing down.
So, what's next? Here are a handful of the most shorted stocks on the market that have all made a mockery of Wall St since exactly 1 month ago:
Every single one of those shorted stocks has risen. I don't know about you guys, but so far I'm loving 2021. I'll leave you with some wisdom:
"The market can stay irrational longer than you can stay solvent... buy SPACs"