GameStop rally fizzles; shares still on pace for 130% weekly gain

GameStop  customers inside Wall Street shop

An early surge in the shares of GameStop Corp fizzled and left the video game retailer’s stock down more than 15% on Friday, throwing water on a renewed rally this week that has left analysts puzzled.

GameStop shares hovered around $94 after hitting $105 in late-morning trading. Despite Friday’s losses, the company’s stock is up about 135% for the week in the face of a broader market selloff that has sent the benchmark S&P 500 down about 2% over the same time.

Analysts have struggled to find an clear explanation for the rally, leaving some skeptical that it will continue.

“You might be able to make some quick trading money and it could be a lot of money, but in the end, it’s the greater fool theory,” said Eric Diton, president and managing director at The Wealth Alliance in New York. The theory refers to buying stocks that are over-valued in anticipation that someone else will come along to buy them at a higher price.

One catalyst that sparked GameStop’s rally in January – a high concentration of investors that had bet against the stock being forced to unwind their positions – does not appear to be as much of a factor this time.

Short interest accounted for 28.4% of the float on Thursday, compared with a peak of 142% in early January, according to S3 Partners.

Options market activity in the stock, which has returned to the top of the list in a social media-driven retail trading frenzy, suggested investors were betting on higher prices or higher volatility, or both.

Refinitiv data on options showed retail investors have been buying deep out-of-the-money call options, which are options with contract prices to buy far higher than the current stock price.

Many of those option contracts are set to expire on Friday, and would mean handsome gains for those betting on a further rise in GameStop’s stock price.

Call options, which would be profitable for holders if GameStop shares reach $200 and $800 this week, have been particularly heavily traded, the data showed.

“The actors are looking to take advantage of everything they can to maximize their impact and the timing is important,” said David Trainer, chief executive officer of investment research firm New Constructs. “The options expiration will contribute to their strategy on how to push the stock as much as they can and maximize their profits.”

Bots on major social media websites have been hyping GameStop and other “meme stocks,” although the extent to which they influenced market prices is unclear, according to analysis by Massachusetts-based cyber security company PiiQ Media.

GameStop’s stock is still far from the $483 intraday trading high it hit in January, when individual investors using Robinhood and other trading apps drove a rally, forcing many hedge funds that had bet against the video game retailer to cover short positions.

Other Reddit favorites were also lower, with cinema operator AMC Entertainment down around 5.5%, headphone maker Koss off about 25% and marijuana company Sundial Growers down less than 1% in Friday trading.

Bots hyped up GameStop on major social media platforms – Analysis finds

Bots on major social media platforms have been hyping up GameStop and other “meme” stocks, according to an analysis by Massachusetts-based cyber security company PiiQ Media, suggesting organized economic or foreign actors may have played a role in the Reddit-driven trading frenzy.

Shares in GameStop soared last month after Reddit users banded together to squeeze hedge funds that had bet against the video game retailer and other companies. Reddit Chief Executive Steve Huffman told Congress this month that bots, artificial or fake accounts with automated content, had not played a “significant role” in GameStop Reddit message traffic.

PiiQ Media’s analysis of Twitter Inc, Facebook Inc, Instagram and YouTube posts, however, found that bots used the platforms to push GameStop and other “meme” stocks, although it is unclear how influential they were in the overall saga.

A startup that focuses on social media risks, PiiQ said it examined patterns of keywords such as “Hold the Line” and GameStop’s stock symbol, “GME” across conversations and profiles prior to the Jan. 28 frenzy, through Feb. 18. For comparison, it also assessed posts on an unrelated set of stocks.

PiiQ said that it identified very similar daily “start and stop patterns” in the GameStop-related posts, with activity starting at the beginning of the trading day, followed by a large spike at the end of the trading day. Such patterns are indicative of bots, said Aaron Barr, co-founder and chief technology officer of PiiQ.

“We saw clear patterns of artificial behavior across the other four social media platforms. When you think of organic content, it’s variable in the day, variable day-to-day. It doesn’t have the exact same pattern every day for a month,” he said.

Based on its authenticity scoring system, PiiQ estimates there are tens of thousands of bot accounts hyping GameStop, the meme stocks, and Dogecoin, a cryptocurrency swept up in the frenzy. Thousands of fake accounts can be purchased for as little as $200, it said.

The company did not analyze Reddit data, but Barr said he would expect to see a similar pattern of activity on Reddit, indicating bot-like or coordinated management of conversations.

A representative for Reddit did not comment beyond Huffman’s testimony. Representatives for YouTube, Facebook and its Instagram subsidiary did not respond to requests for comment. The social media platforms generally try to weed out harmful bots, said Barr.

A spokesperson for Twitter said that “bots” had become a catch-all term that can often mischaracterize the nature of the account. The company notes bots can be used on its platform for creative or innovative purposes.

The Securities and Exchange Commission is probing the GameStop saga, and this month suspended trading in a handful of companies because some “social media accounts may be engaged in a coordinated attempt to artificially influence” their stocks.

In addition to traders, organized criminals may use social media to stoke asset prices, and undermining the integrity of U.S. markets is a known goal of hostile state actors, said Barr. But it is unclear how successful, if at all, these types of influence efforts are, he said.

“Measuring the effect of those campaigns is often illusive.”

GameStop’s Frankfurt shares nearly triple in catch-up trade to Wall Street

GameStop Corp’s Frankfurt-listed shares surged 180% in premarket trading on Thursday after the videogame retailer’s U.S. stock more than doubled in late trading in the previous session.

Analysts could not pinpoint one reason for the sharp move, but at least one ruled out a short squeeze that had fired the “Reddit rally” in January when amateur investors piled into stocks that hedge funds had bet against.

Some Twitter users pointed to an activist investor’s tweet of an ice cream cone picture, while others cited factors including options trading and the resignation of GameStop Chief Financial Officer Jim Bell, announced on Tuesday.

GameStop’s U.S.-listed shares soared nearly 104% on Wednesday and were halted several times in a rally that began after 1930 GMT. They jumped another 85% after hours.

German shares of cinema operator AMC Entertainment, another stock favoured last month by individual traders on online discussion forums such as Reddit’s WallStreetBets, jumped 34.7% following an 18% rise in its U.S. stock on Wednesday.

GameStop CFO to resign after Reddit rally

(Reuters) – GameStop Chief Financial Officer Jim Bell will step down next month, the video game retailer said on Tuesday, as it focuses on shifting into technology-driven sales in the wake of headline-grabbing big betting in its stock.

GameStop said Bell’s resignation was not due to any disagreement with the company relating to its operations, including accounting principles and practices.

However, a source said that while Bell’s exit was unrelated to the recent wild swings in GameStop’s stock spurred by retail traders on the Reddit social media site, his departure was initiated by the company.

The source, a person familiar with the firm’s thinking, said GameStop had become dissatisfied with Bell as it works to transform into a technology-oriented business and was not confident he would be the right CFO moving forward.

Bell, who will leave the company on March 26, previously worked at brick-and-mortar retailers Gap Inc and Coldwater Creek and restaurant chain P. F. Chang’s China Bistro, according to his LinkedIn profile. He did not respond to requests for comment.

Shares of GameStop fell about 5% to $42.75 in extended trading after the announcement. The stock has risen about 140% this year, after paring most of the gains that sent short sellers scrambling to cover losing bets and saw the company hit a record high of $482.95.

GameStop has also been targeted by shareholders pushing it to focus more on digital sales rather than its mall-based locations.

New directors focused on this strategy have recently joined its board and the source said those additions had helped create more momentum for the CFO transition.

GameStop said it has begun a search for a permanent CFO, adding that it would appoint Chief Accounting Officer Diana Jajeh as interim CFO if a permanent replacement was not found before Bell’s departure.

Roaring Kitty and Robinhood defend their actions

Key quotes from the GameStop testimonies: ‘I am not a cat’

(Reuters) – At a grilling by lawmakers over the frenzied trading in retailer GameStop, Keith Gill, a YouTube streamer known as Roaring Kitty, hedge fund managers and the head of Robinhood and Reddit defended their actions.

Those testifying were Robinhood CEO Vlad  Tenev, Melvin Capital CEO Gabriel  Plotkin, Citadel CEO Ken Griffin and Reddit CEO Steve Huffman.

Here are the testimonies here of the players involved and a link here to biographies of some of them.

Some quotes from the hearing:

KEITH GILL:

“A few things I am not. I am not a cat. I am not an institutional investor, nor am I a hedge fund. I do not have clients and I do not provide personalized investment advice for fees or commissions. I am just an individual whose investment in GameStop and posts on social media were based upon my own research and analysis.”

“Investing can be risky and my approach can be risky but for me personally, yes (I would buy GameStop now). Yes, I do find it attractive at this price point.”

“My investment in Gamestock was based on the fundamentals.”

“Increased transparency could help. That someone like me could have a better understanding of how those things work … would help retail investors.”

ROBINHOOD CEO VLAD  TENEV:

“We always felt comfortable with our liquidity… The additional capital we raised wasn’t to meet capital requirements or deposit requirements… ”

“I recognize customers were very upset (from the restrictions on trading)… it would have been significantly worse if we had prevented customers from selling.”

“Not at all, zero pressure (from anyone on the panel to decide to restrict trading), it was a collateral depository decision.”

“I’m sorry for what happened. I apologize. I’m not going to say that Robinhood did everything perfect and we haven’t made mistakes in the past, but what I commit to is making sure that we improve from this, learn from it, and we don’t make the same mistakes in the future. And Robinhood as an organization will learn from this and improve and make sure it doesn’t happen again, and I will make sure of that.”

CITADEL CEO KEN GRIFFIN

“As I was trying to explain… the quality of the execution varies by the channel of the order, this is a commonly understood phenomenon in economics.”

“We have fought for 15 years to make that the basis by which orders are allocated because we strongly believe Citadel is better to provide better execution for retail orders in the long run.”

“We are able to share our trading acumen with retail investors, give them a better price and give payments for orderflow to firms like Robinhood.

“This has been very important for the democratization of finance.”

“I believe that the short interest in Gamestop was exceptional. I’m not sure it’s worth us delving into legislative corrections for a very unique situation.”

MELVIN CAPITAL CEO GABRIEL  PLOTKIN

“I think it is a really good question (regarding more reporting around shorting). It is not for me to decide. But if those are the rules then I will certainly abide by them.”

“Anytime we short a stock, we locate a borrower. Our systems actually force us to find a borrower.”

REDDIT CEO STEVE HUFFMAN

“We spend a lot of time at Reddit ensuring the authenticity of our platform. So we’ve got a large team dedicated to this exact task. Everything on Reddit – all of the content is created by users, voted on by users and ranked by users, and we make sure that that is authentic, and as unmanipulated as possible. And in this specific case, we did not see any signs of manipulation.”

Hedge funds, Robinhood face grilling by Congress over GameStop Reddit rally

(Reuters) – Wall Street hedge fund managers, the chief executives of Robinhood and Reddit, and a YouTube streamer known as Roaring Kitty face a grilling on Thursday afternoon from U.S. lawmakers over the Reddit rally in shares of GameStop Corp.

Some of Wall Street’s most powerful players, including billionaire Republican mega-donor and Citadel CEO Ken Griffin, will make rare public statements about their business practices during the Congressional hearing on how Reddit users trading on retail platforms banded together to squeeze hedge funds that had bet against shares of the video game retailer and other companies.

Griffin will appear before the Democratic-led House finance panel alongside Robinhood CEO Vlad  Tenev, Melvin Capital CEO Gabriel  Plotkin, Reddit CEO Steve Huffman, and Keith Gill, a Reddit user and YouTube streamer known as Roaring Kitty who promoted his investment in GameStop.

The five men have been at the center of the saga that roiled Wall Street in January prompting probes by several federal and state agencies.

With Wall Street critic Representative Maxine Waters at the helm and Alexandria Ocasio-Cortez and other progressives on the 54-member panel, the hearing promises to be firey, with tough questions for Tenev, Griffin and  Plotkin in particular.

“Once or twice a year a hearing lends itself to good theater…Thursday’s hearing is one of those rarities,” wrote Ian Katz at Alpha Partners in Washington, adding the hedge fund moguls are likely to be top targets for Democrats.

A spokesman for Waters declined to comment ahead of the hearing. In prepared testimony published on Wednesday, the witnesses generally acknowledged the GameStop saga was unprecedented, but they all said there was no foul play on their part.

The Reddit rally drove massive volatility in GameStop and other shares, prompting the post-trade “clearing” houses that guarantee trades to call for billions of dollars in extra collateral from Robinhood and other retail trading platforms.

In response, many suspended buying in the affected stocks on Jan. 28. Lawmakers from both parties were outraged and questioned if the trading platforms were siding with the hedge funds over Mom and Pop investors.

New York-based Melvin Capital, one of several hedge funds that had bet GameStop’s shares would tumble, suffered massive losses as the stock soared leading up to Jan. 28. Citadel made a $2 billion investment in Melvin on Jan. 25.

Lawmakers will likely focus on whether Robinhood made it too easy for small investors to take risks, said analysts. Its commercial arrangements with market makers to which it routes orders may also be a hot topic, they said, as well as whether that “payment for order flow” model may disadvantage customers.

Robinhood says few of its customers engage in risky trades, while “payment for order flow” often helps customers get better prices than trading on a stock exchange.

Tenev, Griffin and Plotkin are likely to be grilled on short selling, and whether Robinhood’s decision to suspend buying in the affected stocks was influenced by Citadel or Griffin, who majority-owns Citadel Securities, a Robinhood market maker.

All parties have denied any attempt by Citadel or Citadel Securities to influence Robinhood’s policies.

Yet legislative action is unlikely once the fireworks dissipate, said Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.

“We doubt that Washington can advance an acute policy prescription when broader concerns regarding equity market structure and economic equality complicate the conversation.”

Factbox: Stonks in Washington – Deciphering Reddit’s WallStreetBets lingo

(Reuters) – Reddit trading lingo may filter in to Washington on Thursday when top hedge fund managers, the head of Robinhood and Roaring Kitty himself are set to give testimony before U.S. House of Representatives lawmakers.

The lingo of the online traders of Reddit’s WallStreetBets group, or WSB, which fueled a surge in GameStop Corp’s stock, prompted even singer Dionne Warwick to ask on Twitter here, “What are stonks and why is it a trending subject?”

For the uninitiated, here is a guide to understanding some common WSB words.

STONKS

An intentional misspelling of “stocks” that originated with an internet meme.

ROARING KITTY

The social media pseudonym of Keith Gill, a financial adviser in Massachusetts whose Reddit posts and YouTube video streams helped drive interest in GameStop’s stock.

YOLO

An acronym for “you only live once.” If someone on WSB has “yoloed” a stock, that person has poured a significant portion of their investments into it.

BAGHOLDER

Someone who has taken heavy losses on a stock, in WSB parlance: While others may have profited from a similar position in the past, that person has been left holding the bag.

TENDIES

Shorthand for chicken tenders, which WSB uses as slang for profits on a trade.

DIAMOND HANDS

Often referenced using emoji, “diamond hands” are how members express their belief that their position is valuable and worth holding on to for maximum profit. Conversely, a trader with “paper hands” sells out early.

TO THE MOON

A rallying cry on WSB, which members use to express their belief that a stock will rise significantly. The phrase is often accompanied by a rocket emoji.

Robinhood, Citadel, Melvin Capital CEOs to testify in Congress on GameStop turmoil

(Reuters) – The chief executive officers of Robinhood, Citadel, Melvin Capital and Reddit will testify before the U.S. House Financial Services Committee on Feb. 18 on the trading turmoil in GameStop Corp and other stocks, the panel’s chairwoman, Representative Maxine Waters, said on Friday.

The committee is examining how an apparent flood of retail trading drove certain stocks to extreme highs, squeezing hedge funds like Melvin that had bet against those shares.

Explainer: Why Gang Weed is not the next GameStop

(Reuters) – North American cannabis companies rocketed in value in recent days – before plunging on Thursday – as the Reddit forums behind a month of frenzied stock market trading stoked interest in a sector booming on the back of expectations of decriminalization.

However, the investment case for the sector’s biggest players, nicknamed Gang Weed by Reddit’s WallStreetBets community, differs substantially from that of GameStop Corp – or “Gamestonk” as it was dubbed by many online – and from other retailers involved in the past month’s surges.

WHY CANNABIS?

Pot stocks have been rising for months, fueled by state moves toward decriminalization across the United States and, since November, expectations that President Joe Biden will seek to relax federal prohibitions on marijuana.

With Democrats also taking of control of the Senate, Majority Leader Chuck Schumer promised last week to make the issue a priority.

Federal decriminalization would allow interstate movement of cannabis products, making it possible for companies to begin operating in a similar fashion to the alcohol industry.

At the same time, banks and other financial institutions, previously restrained by the federal prohibition, will be able to work with cannabis companies, giving the industry access to much-needed financing.

However, experts caution against over-enthusiasm and say actual changes could require full legalization.

CANADA-CENTRIC

For now, no U.S. marijuana producer has been allowed to list on a U.S. exchange and U.S.-based investment and mutual funds have largely avoided investing in Canadian-listed producers.

As a result, in contrast to GameStop, much of whose stock was held by major U.S. financial institutions, the companies driven higher in the past week tend to be owned by a much more diverse range of small hedge funds, investors and venture capitalists.

The biggest investor in Sundial Growers Inc, for example, is hedge fund Hudson Bay Capital, with a small stake of 1.26%, according to Refinitiv data. No other financial investor holds more than 1% of its shares.

This means that the rally to date has likely already been driven by small – or “retail” – investors.

On Reddit’s WallStreetBets thread, Sundial, Tilray Inc and Aphria Inc were the three most discussed stocks on Wednesday, according to one regular count of the number of mentions. (www.reddit.com/user/pdwp90/)

SHORT OF SHORTS

The huge rises in shares of GameStop, cinema operator AMC Entertainment Holdings Inc and Blackberry Ltd last month were also the result of a squeeze on hedge funds and other investors who had taken out “short” bets on those stocks falling.

After months of gains, short interest – the percentage of a company’s shares that have been borrowed as part of short trades – in the marijuana companies is an average of just under 14%. Tilray, among the biggest gainers but also engaged in a complicated merger with rival Aphria, has the highest short interest, at just over 23%, according to financial analytics firm S3.

That compares with the peak short interest as a percentage of the shares in GameStop on Jan. 4 at 141.86%, according to S3. That means that any squeeze on investors who have bet against the stock will have less impact.