Wall Street brokers are reportedly limiting short bets against meme stocks by hedge funds

AMC Entertainment
  • Major Wall Street brokers are tightening rules over who can bet against meme stocks that are popular with retail traders, according to Bloomberg.
  • Goldman Sachs, Bank of America, Citigroup, and Jefferies Financial are among the firms that have adjusted risk controls.
  • Jefferies Prime Brokerage will no longer offer custody on naked options in AMC Entertainment, GameStop, and MicroVision, the report said.
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Some of Wall Street’s largest brokers are quietly tightening rules on who can bet against meme stocks popular among retail traders in an effort to protect themselves against the fallout from sharp price surges and falls, according to a Bloomberg News report.

Firms that have adjusted risk controls at their prime-brokerage operations include Goldman Sachs, Bank of America, Citigroup, and Jefferies Financial Group, the Friday report said, citing people familiar with discussions about internal policy decisions.

With the adjustments, some hedge funds and other institutional investors now face higher collateral requirements or are limited from shorting certain stocks.

Jefferies Prime Brokerage will no longer offer custody on naked options in AMC Entertainment, GameStop, and MicroVision, the firm told clients in a memo seen by Bloomberg News. Naked options allow investors to short a stock without owning the underlying securities. Jefferies will not permit short sales of those securities and other stocks may be added to its list.

The changes come during a new wave of rallies among so-called meme stocks including AMC GameStop as retail investors on social media sites such as Reddit’s Wall Streets Bets forum band together to force short squeezes on hedge funds that betting shares of the companies will fall. AMC has been the key focus of the latest rally, similar to GameStop’s role during a trending frenzy in January.

It’s not unusual for banks to make risk-control adjustments as market conditions change, the report noted.

A number of brokerages have been looking over their risk controls after some large prime brokers in March were forced to liquidate at a discount the multibillion-dollar portfolio of Bill Hwang’s Archegos Capital Management. The family office collapsed after making wrong-way bets on media and technology companies. Bank of America and Citigroup were not hurt by the Archegos matter, Bloomberg said.

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GameStop’s latest rally has pushed shares up roughly 50% in the past month amid a new meme-stock boom

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  • Meme stocks are experiencing a resurgence, with shares of GameStop rising roughly 50% in the past month.
  • The rise can be partially attributed to a short-squeeze as the company’s short interest remains elevated at 20%.
  • Shares of Gamestop have risen more than 1,200% since December 31, 2020.
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GameStop stock continued its rally on Friday amid a meme-stock resurgence with shares rising as much as 5.39%.

In the past month alone, shares of GameStop are up nearly 50%, while fellow Reddit darling AMC has seen an incredible rise of nearly 200% over the same period.

The jump in share price can be at least partially attributed to a short-squeeze as 20.27% of outstanding shares are currently sold short, according to data from S3 Partners managing director of predictive analytics, Ihor Dusaniwsky.

GameStop shares were also buoyed by the company’s recent announcement that it is building a non-fungible token (NFT) platform based on the ethereum blockchain.

The meme-stock resurgence has put short sellers in some serious trouble. On Tuesday alone, short sellers in AMC and GameStop lost $618 million, according to data from ORTEX.

GameStop stock is up more than 1200% since December 31, 2020, and the company has capitalized on the move.

The video game retailer raised more than $550 million via an at-the-market share offering, paid down debts, and implemented a turnaround strategy led by Chewy.com co-founder Ryan Cohen.

However, GameStop’s resurgence comes in spite of recently released data that shows videogame sales declined on a year-over-year basis for the first time in 14 months in April, according to NPD Group.

Game Stop also let its former CEO, George Sherman, walk away last month with a $170 million pay-out.

Shares of Gamestop still trade around 45% off of the company’s record-high of $483 per share, reached during the wild late-January short-squeeze.

GME chart 4
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GameStop shares jump 12% as the company announces CEO George Sherman will step down in 3 months or sooner

Gamestop

GameStop’s shares rose 12% on Monday after the company announced its chief executive officer George Sherman will step down on July 31 or upon the appointment of a successor.

Shares were already up before the company’s announcement, buoyed by the company’s progress in making major changes led by activist investor Ryan Cohen.

GameStop said a board committee is actively looking to find a suitable replacement for Sherman’s position.

“GameStop appreciates the valuable leadership that George has provided throughout his tenure,” board chairman Ryan Cohen said in a statement. “He took many decisive steps to stabilize the business during challenging times. The company is much stronger today than when he joined. On a personal note, I also want to thank George for forming important partnerships with the new directors and executives who have joined GameStop in recent months.”

Sherman had been with the video-game retailer for less than two years. The company’s management shake-up is part of its wide “transformation” in culture and strategy being overseen by Cohen.

Gamestop was at the heart of a battle-play of “Wall Street versus The Little Guy” in a Reddit-fueled trading frenzy this year. It was hit with a stock downgrade last week by an analyst from Ascendiant Capital, who said its online popularity will have less of a long-term impact on the stock.

Shares ended at $154.49 per share at Friday’s close, but were trading as high as $173.08 on Monday.

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GameStop shares jump 6% as the company announces CEO George Sherman will step down in 3 months or sooner

Gamestop

GameStop’s shares rose 6% on Monday as the company announced its chief executive officer George Sherman will step down on July 31 or upon the appointment of a successor.

Shares were already up before the company’s announcement, buoyed by the company’s progress in making major changes led by activist investor Ryan Cohen.

GameStop said a board committee is actively looking to find a suitable replacement for Sherman’s position.

“GameStop appreciates the valuable leadership that George has provided throughout his tenure,” board chairman Ryan Cohen said in a statement. “He took many decisive steps to stabilize the business during challenging times. The company is much stronger today than when he joined. On a personal note, I also want to thank George for forming important partnerships with the new directors and executives who have joined GameStop in recent months.”

Sherman had been with the video-game retailer for less than two years. The company’s management shake-up is part of its wide “transformation” in culture and strategy being overseen by Cohen.

Gamestop was at the heart of a battle-play of “Wall Street versus The Little Guy” in a Reddit-fueled trading frenzy this year. It was hit with a stock downgrade last week by an analyst from Ascendiant Capital, who said its online popularity will have less of a long-term impact on the stock.

Shares ended at $154.49 per share at Friday’s close, but were trading as high as $164.96 in Monday’s pre-market session.

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A ‘Simpsons’ episode comically predicts bitcoin’s price will surge to infinity – and GameStop’s stock will fluctuate ridiculously in the future

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  • A ‘Simpsons’ episode fictitiously shows bitcoin priced at infinity and huge fluctuations in GameStop shares.
  • A financial market channel amusingly states for Tesla stock: “If you have to ask, you can’t afford it.”
  • The highly bullish bitcoin prediction on an animated TV sitcom shows the magnitude of crypto frenzy.
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“The Simpsons” is one of the longest-running American TV shows that has managed to produce several accurate predictions.

Episode 18 of Season 32, titled “Burger Kings,” shows Marge Simpson is seemingly hooked on stock trading, specifically with a fictional stock of plant-based burger chain “Ex-cellent Burger” run by town billionaire Monty Burns.

While Marge checks the stock’s performance on an episode of “Crazy Cash,” perhaps a parody of Jim Cramer’s “Mad Money,” real-time data on the fictitious market channel shows bitcoin accompanied by a green infinity symbol.

Bitcoin priced at infinity seems to indicate the show creators are either very bullish on digital assets, or believe the system will crumble.

Marge

The screen ticker also showed GameStop’s stock rising by 1 trillion, and instantly falling by 2 trillion in the Simpsons’ world. Meanwhile, the TV host quips enthusiastically: “Buy, buy, buy! Then, when you hear a rumor of trouble, sell before anyone else!,” with no specific reference to a stock.

Crrazcyash

Tesla was another amusing stock prediction in the show, for which the ticker feed directly stated “if you have to ask, you can’t afford it.”

Tesla

Cryptocurrency has previously featured on the show in Season 31, Episode 13 called “Frinkcoin.” Actor Jim Parsons, who played Sheldon Cooper in the Big Bang Theory, referred to it at the time as the “cash of the future.”

Past predictions on the show that surprisingly came true include Kamala Harris’ purple inauguration outfit, the election of former President Donald Trump, the discovery of the Higgs Boson equation, and a big plot twist in “Game of Thrones.”

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GameStop’s Reddit-fuelled trading surge could plunge 94% as it faces growing competition from rival digital games, one Wall Street analyst says

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  • GameStop’s shares could tumble 94% on strong competition from rival digital games, one analyst said.
  • The Reddit favorite’s meme popularity will likely have less of a long-term impact on its stock, he said.
  • Edward Woo downgraded GameStop’s rating to “sell” from “hold” and lowered his 12-month price target.
  • See more stories on Insider’s business page.

GameStop, the video-game retailer cheered by day traders this year, is likely to see its Reddit rally fade because of strong digital competition from Microsoft and Sony, Ascendiant Capital analyst Edward Woo wrote in a research note on Saturday.

Woo has raised questions about GameStop’s low market share in digital game sales and expects the company’s long-term share price to drop sharply.

He further said GameStop’s popularity on Reddit will at some point stop driving the movement in its stock.

“Due to the popularity of GameStop on Reddit chat boards and with Robinhood retail investors, GameStop shares appears to no longer trade on traditional fundamental valuations or metrics, but on retail investors’ sentiment, hope, momentum, and the powers of crowds,” he wrote.

“This makes short term price movement forecasts nearly impossible (and we acknowledge can drive shares much higher), but we believe that over the long run GameStop’s current elevated share prices will come back down to match its current weak results and outlook.”

Woo downgraded the company’s stock to “sell” from “hold,” and lowered his 12-month price target to $10 per share from $12.

GameStop didn’t immediately respond to Insider’s request for comment.

The company’s stock was up almost 4,000% from a year ago after it found itself at the center of a stock market storm between Reddit day traders and short-sellers.

Its shares were last trading 10% lower in the pre-market, at $141.09 per share on Tuesday, after GameStop was said to be looking for a new CEO to replace George Sherman, sources told Reuters.

News of the management shake-up followed Woo’s stock downgrade. The company is already going through wide “transformation” in culture and strategy under board member and activist investor Ryan Cohen.

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Why one Wall Street analyst doubts GameStop’s e-commerce turnaround plan, even with Ryan Cohen set to become chairman

gamestop
  • GameStop’s plan to elect activist investor Ryan Cohen to become its chairman isn’t winning over Wall Street analysts.
  • CFRA Research reiterated its “sell” rating on GameStop and said plans to make Cohen chairman don’t change the fundamental story of the video game retailer.
  • Here’s why CFRA is still bearish on GameStop despite its e-commerce turnaround plan.
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GameStop is moving ahead with its turnaround plan to shift its selling strategy to e-commerce from physical stores, and its recently announced plans to elect activist investor Ryan Cohen as board chairman is part of that.

But one Wall Street analyst remains unconvinced that shares of GameStop present a good value for investors at current prices, and that GameStop can even pull off its turnaround plan.

CFRA Research analyst Camilla Yanushevsky reiterated her Sell rating on GameStop, arguing that the stock’s fair value is $16 rather than its current price of $177. That $16 price target represents 91% downside potential from its current price.

Yanushevsky was not surprised by GameStop’s decision to elect Cohen and said “little has changed in the fundamental story.”

The fundamental story, according to Yanushevsky, is the fact that GameStop was the only member of its peer group to post negative sales growth in its fiscal year 2020 despite the backdrop of thousands of dollars in stimulus checks and a surge in video game activity amid the pandemic. GameStop’s comparable store sales fell 9.5% to $5.1 billion last year.

“We hold concerns over [GameStop’s] ability to maintain competitive positioning due to [its] high dependence on brick-and-mortar and consumers’ shift away from physical to digital,” Yanushevsky said.

Further adding to Yanushevsky’s concerns on GameStop is the fact that it was the only member of its peer group to not provide earnings guidance for the upcoming year.

Investors seemed to also not view Cohen becoming chairman of GameStop’s board as a surprise. Shares initially rose 4% on the news, but eventually traded about flat in Thursday trades.

Read more: Goldman Sachs handpicks 40 stocks that will enjoy bigger earnings growth than Wall Street expects in 2021

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GameStop pares early gains after saying it plans to elect Reddit favorite Ryan Cohen as chairman

ryan cohen millennial activist investor 2x1

GameStop shares rose on Thursday after the company announced it intends to elect activist investor Ryan Cohen as chairman, but quickly pared their gains.

The video-game retailer also nominated five other people for the board – including private equity executive Larry Cheng and Kraft Heinz senior vice president Yang Xu – as it tries to reinvent itself as an e-commerce force.

GameStop’s board also appointed one of those nominees, Jim Grube, to serve on the strategic planning committee. Grube was chief financial officer at Chewy, the online pet supply retailer founded by Cohen.

Voting on the board nominees will take place at the company’s annual meeting of stockholders on June 9, the company said in a statement before markets opened.

Cohen has become an increasingly powerful figure at GameStop in recent months. The billionaire’s RC Ventures first invested in GameStop in September 2020, and is one of the biggest shareholders.

GameStop stock opened around 4% higher but quickly fell back. It stood 0.44% lower at $177.38 at 10.10 a.m. ET.

Cohen was first appointed to the board in January, which analysts have cited as one of the catalysts for the dramatic rise in the stock which captured the markets’ attention at the start of the year.

He has since seized control of the company’s strategy, hiring numerous executives with backgrounds in online retailing in an effort to turn the flagging company around.

On Monday, GameStop said it plans to sell as many as 3.5 million shares to raise up to $1 billion to help fund Cohen’s transformation plans.

Separately on Monday, GameStop said preliminary global sales during the first nine weeks of fiscal 2021 increased by about 11% from the period a year earlier.

Read more: Goldman Sachs handpicks 40 stocks that will enjoy bigger earnings growth than Wall Street expects in 2021

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GameStop is almost six times more volatile than bitcoin as earnings results jolt retail belief in a turnaround

Trader
Traders work on the floor of the New York Stock Exchange (NYSE) on March 16, 2020 in New York City

  • Shares of GameStop have been nearly six times more volatile than bitcoin, according to data from Bespoke Invest.
  • Over the past 50 days, GameStop has had an average daily price move of 21% compared to just 4% for bitcoin.
  • GameStop was especially volatile over the past week as investors digested its earnings report.
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Shares of GameStop have been subject to extreme volatility over the past few months that far surpasses the price swings of bitcoin, according to data from Bespoke Invest.

Over the past 50-days, the daily average percentage move in shares of GameStop stands at 21%, compared to just 3.6% for bitcoin, according to Bespoke.

Volatility has skyrocketed for bitcoin following the epic January short-squeeze that saw its shares hit an all-time high of $483, and it has remained heightened as investors continue to grapple with the company’s e-commerce turnaround plans led by activist investor Ryan Cohen.

GameStop’s Tuesday earnings report gave investors a lot to grapple with as results missed analyst expectations. The stock saw a subsequent price decline of 34% on Wednesday, followed by a 53% rebound on Thursday as the stock found technical support at its 50-day moving average.

Bitcoin has also seen some choppy trading in recent weeks, as it hovered just below its all-time-high of about $60,000 for most of March. The cryptocurrency was down as much as 7% on Thursday, but has since bounced off the key $50,000 level.

How long the heightened volatility will last in GameStop is anyone’s guess, but if CFRA’s $16 bear case plays out, it could be a while.

“And you thought bitcoin was volatile,” Bespoke said.

bespoke data
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GameStop has fallen nearly 50% from March intraday highs, but ‘diamond hands’ Reddit traders are still holding

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Day traders piled into GameStop stock in January, alerting Wall Street to the power of amateur investors

GameStop stock has fallen nearly 50% from March 10 intraday highs of $348.40, but that hasn’t stopped Reddit traders from holding the stock.

Traders on the popular r/wallstreetbets forum are doubling down their bets on the beleaguered video game retailer despite falling short interest and share prices.

GameStop stock was down as much as 20% on Tuesday before it mounted a recovery. Short interest in the stock has dropped to just 15.77% of its float as of March 16, according to data from Ihor Dusaniwsky of S3 Partners.

Even in face of the bearish news, Reddit traders continued to comment about their “diamond hands” on the GameStop thread of r/wallstreetbets for Tuesday, March 16, referring to investors who hold a stock or cryptocurrency regardless of potential risks, headwinds, or losses. The term is used to represent a group of retail traders’ collective strength in the markets if they act in unison.

A Reddit user going by the name u/darkspherei commented on the March 16 GameStop thread, “upvote if you ain’t selling 💎🙌🦍🚀,” and quickly received nearly 3,000 upvotes.

The online community is attempting to band together once again to “defend” GameStop.

Another commenter on the site going by u/_exordium argued the forum can create a repeat of February’s rise in prices if they band together.

“Don’t forget, in January once it tanked, we all quieted down for a while, but we never f—-‘ left and we never f—-‘ sold. When this place is overrun by FUD and shills, we wait…Hang the f— in there,” u_exordium said.

Despite the rallying cries, and the recent appointment of Chewy co-founder Ryan Cohen to lead a digital shift at the company, shares of GameStop traded down 10.79% as of 11:44 a.m. ET on Tuesday.

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