GAMESTOP (The Battle between Wall Street giants & Retail Investors) !!

When the Bullies got Bullied.

The Power of Retail Investors.

Baby Boomers versus The Millenials.

When the Pros had to Bow down to Retail Investors.

GAMESTOP Mania.

No matter how many number of titles you come up with for this article, it looks so cool and with good reasons.

"GameStop" is a company that owns stores, many based in malls that sell video games, consoles, peripherals and assorted knickknacks and merchandise.

Because of the Online gaming industry and Playstation consoles the company was having trouble keeping its head above water.

In simple words it was struggling "Financially" and some even go to the extent of saying that it was on the verge of "Bankruptcy".

Just so that i don't have to break the reading flow later, i will introduce you to 3 terms which are particularly important to really understand "What the YOLO" Or "What the Frick" happened !! 

WHAT IS A SHORT ?

It is how investors can make money off a falling stock. In a short sale, a person borrows a share and then sell it later. If the stock price does as expected, a person can buy the stock at a lower price and keep the difference. "GameStop" was one of the most heavily shorted stocks on Wall Street because the street was betting on its financials and the Institutions were thinking that it would go "Bankrupt".

WHAT IS A SHORT SQUEEZE ?

It is what happened with "GameStop" stock. When a stock is very heavily shorted, a rise in its price can force "Short sellers" to get out of their bets. To do that, they have to buy the stock, which pushes the stock even higher and this phenomenon can create a "Feedback loop".

WHAT IS OPTIONS AND MARGIN TRADING ?

There are ways that investors can make a big profit with relatively small payments up front if the stock moves in the right way. Many of the traders pushing up "GameStop" were "Smaller-pocketed/ Novice investors".

When they buy stocks “On margin,” they’re using borrowed money, which can supercharge their gains and losses. With "Options", an investor can buy the right to buy the stock at a later date at a certain price. If the stock hits that target, investors can reap a bigger return than if they simply bought a share but if it does not, it can mean a total loss.

Let us see "What happened to the GAMESTOP price" before we delve into "How it all started and ended" !!

It all started when a member of Reddit community named "WallStreetBets" came up with Fundamental analysis of "Gamestop" and thought that the price was "Undervalued" and shared his opinion with the Reddit community.

Many people at that community were quite skeptical of the analysis but they were still emotionally attached to the store where they bought games from in their childhood days and thought of buying some shares because why not and the price also appeared to be kind of cheap.

The community was called "WallStreetBets" and people were just betting against "Wall Street Pros/ Hedge funds/ Big guys/ Bullies/ Baby boomers/ MBA's from Grade A colleges" who had heavily shorted the shares of "Gamestop".

As the world went into a lockdown due to "Covid-19" people were left with almost nothing to do and got bored by watching TV, Playing video games, Binging on various series and Staring at walls of their home. 

Everyone had a "Smartphone" in their pocket and when zero commission brokerages like etoro and robinhood came into the picture the scene started changing dramatically.

Soon there were many "Retail investors" addicted and glued to trading and watching the prices go up and down.

As the price of "Gamestop" shares started to rise slowly, the institutions did not pay much attention at first but when price increased a bit more they found out that "Redditers" are buying the stock and took the scenario lightly by neglecting them and saying to themselves that they don't have enough money power to keep doing this and few institutions even "Short sold" more shares.

But the community on "Reddit" was growing and it was more adamant than institutions thought.

They were acting like one voice, they were not shaking up, they were not faded by small dips in stock price and they were not willing to sell the shares.

The market for shares of "Gamestop" was equally balanced at this point.

In order to get out of position, one hedge fund made the mistake of portraying itself as an expert and went out on social media to call "Retail investors/ Redditers" suckers in a tweet regarding the situation.

At that point the "Big boys" hurt the sentiments of the "Retail investors" in general.

The Reddit community increased exponentially in size.

With nothing to do at home, with their "Ego bruised", frustrated by how the "Big money always makes a fool of them" and a jibe at their "Self-respect", no one could have imagined what happened next.

All the "Retail investors" joined forces and became one, spoke the same tone and shared just one idea which was to "ENOUGH IS ENOUGH, TAKE THE BIG-BOYS DOWN".

The "Retailers" dedicated their money-power to the shares of "Gamestock".

This activity increased the demand for the shares and started to push the price of "Gamestop" up.

As the price started to surge, more and more "Retailers" started buying the stock.

At the "Reddit community" you would be egged and called a coward/ traitor/ snitch/ weaklink if you sold the shares.

The price started to increase further, many people started buying futures, call options and poured in more money into the stock and as a result "The price exploded and forced the Shorts to cover".

The fund who called "Retailers" a sucker went bankrupt as it could not cover the amount of shares that it had sold and the price kept on shooting up. 

But "What goes up must come down".

Looking at the price which was in "Stratosphere" some people started selling shares.

What "Retailers" did not realized was that it takes 2 days for the trades to settle with the clearing corporation and etoro/ robinhood did not have enough capital to keep up with the margin requirement so they had to suspend any further buying into the stock.

As the "Buying power" was fizzling out and people were selling shares, the price started declining.

Following the decline in price more and more people started selling the shares.

Conclusion : 

Some won and some lost but the perception of "Wall-Street" changed forever after this Event/ Phenomenon.

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The Rise & Fall of Archegos Capital !!

He had 20 Billion dollars & he lost it all in 2 days.

Before he lost it all “Bill Hwang” was the greatest trader you'd never heard of.

Starting in 2013, he parlayed more than $ 200 million left over from his shuttered hedge fund into a mind-boggling fortune by betting on stocks. Had he folded his hand in early March and cashed in, Hwang, 57, would have stood out among the world's billionaires. There are richer men and women but their money is mostly tied up in businesses, real estate, complex investments, sports teams and artwork.

The sudden implosion of “Archegos Capital” is one of the most spectacular failures in modern financial history. No individual has lost so much money so quickly. At its peak, Hwang's wealth briefly eclipsed $ 30 billion.

He became the biggest of whales in the market-without ever breaking the surface. "Archegos" never showed up in the regulatory filings that disclose major shareholders of public stocks. Hwang used swaps, a type of derivative that gives an investor exposure to the gains or losses in an underlying asset without owning it directly. This concealed both his identity and the size of his positions. Even the firms that financed his investments couldn't see the big picture.

He was using borrowed money and levering up his bets five-fold. Banks dumped his holdings, savaging stock prices. Credit Suisse, one of Hwang's lenders, lost $ 4.7 billion and several top executives including the head of investment banking were forced out. Nomura Holdings also faced a $ 2 Billion loss.

Modest on the outside, Hwang had all the swagger he needed inside the "Wall Street prime-brokerage departments that finance big investors". He was an alumnus of Tiger Management, the hedge fund powerhouse that Julian Robertson founded in the 2000′s, Hwang ran his own fund, Tiger Asia Management, which peaked at about $ 10 billion in assets.

It didn't matter that he'd been accused of “Insider Trading” by U.S. securities regulators or that he pleaded guilty to “Wire fraud” on behalf of Tiger Asia in 2012. Archegos was a lucrative client for the banks and they were eager to lend Hwang enormous sums.

Archegos appears to have plowed most of the money it borrowed into a handful of stocks. Hwang invested the Tiger way, using deep fundamental analysis to find promising stocks and he built a highly concentrated portfolio.

In 2013, "Hwang" started "Archegos" as a family office. There were no outside investors this time, only the money from him and some of the friends.

U.S. rules prevent individual investors from buying securities with more than 50 % of the money borrowed on margin. No such limits apply to hedge funds and family offices. People familiar with Archegos say the firm steadily ramped up its leverage.

That's how Hwang was able to amass huge positions so quietly. Because lenders only had detail of their own dealings with him.

One problem with stock-picking at Hwang's scale is "Hedging".

Leverage was playing a growing role and Hwang was looking for more. Credit Suisse and Morgan Stanley had been doing business with Archegos for years, unperturbed by Hwang's brush with regulators. Goldman, however, had blacklisted him.

In the month of March 2020, Stocks tanked, Hwang's bets suddenly went haywire, jeopardizing his swap agreements. A few bankers pleaded with him to sell shares, he would take losses and survive, they reasoned avoiding a default and "Hwang" refused.

The dilemma for Hwang's lenders was obvious. If the stocks in his swap accounts rebounded, everything would be fine but if even one bank flinched and started selling, they'd all be exposed to plummeting prices.

On march 24, without a word to its fellow lenders, Morgan Stanley made a pre-emptive move. The firm quietly unloaded $ 5 billion of its Archegos holdings at a discount.

When the smoke finally cleared, Goldman, Deutsche Bank, Morgan Stanley and Wells Fargo had escaped the Archegos fire sale almost unscathed. Credit Suisse and Nomura appeared to have sustained the greatest damage.

The best thing anyone can say about the “Archegos collapse” is that it didn't spark a market meltdown. The worst thing is that it was an entirely preventable disaster.

European rules require the party bearing the economic risk of an investment to disclose its interest. In the U.S, whales such as "Hwang" could stay invisible.

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