The violent movement of GameStop Corp.’s stock shows the power of social media to force short sellers (even professional investors) to give up their position and make big losses. However, it may be premature for individual investors to “break” the structure of the stock market.
Of the S & P Composite 1500s, GameStop is the largest shortage of shares available for sale, according to FactSet, which updates its value twice a month. The biggest shortage of dollars is Tesla Inc.
Other large companies, including Tesla and Amazon.com Inc.
And Apple Inc.
They have tens of billions of dollars short for their stock. These bets are centered around hedge funds and other professional investors who make far larger bets than those against GameStop.
“I have never seen anyone rushing to the capital markets as they did [into GameStop’s shares], And that wouldn’t have happened without social media. The public has been so deeply involved in individual stocks that these small and medium-sized stocks are now overwhelming the experts. It’s not Tesla, “says Brad Lamensdorf, CEO of Active Alts in Westport, Connecticut, who is implementing a long-term and short-term investment strategy.
Anyway, GameStop’s action once again shows why non-professionals shouldn’t sell stock.
What’s happening with GameStop
Take a look at the one-year chart of GameStop shares through January 25:
This is a rocket vehicle, as investors connected through Reddit poured money into the stock and pushed up prices, forcing short-position investors to cover it and raising the stock even further. Despite the recent lack of good financial news from the company, As Wallace Witkowski explained.
A short cell is when an investor wants to borrow a stock and sell it immediately, later buy it back at a lower price, and return it to the lender to keep the difference in his pocket.
The reason why it’s best to leave short stock to an expert is Unlimited loss. In contrast, if you buy a stock in a company (take a “long” position) and the stock falls, the potential loss is your investment. If the company goes bankrupt, it can be wiped out.
But what if inventory runs out and inventory continues to grow? The possibilities for your loss are endless. At some point, you probably give up and “cover” your short position by buying stock and returning it to the lender and take the loss. If you borrow a stock and sell it for $ 10 and then cover it for $ 20, you’ve lost $ 10 per share. If your shorted stock rises, your broker will eventually demand more collateral — cash set aside to protect the broker from potential losses as your loss position grows.
Therefore, short squeeze is a battle between investors with short positions to buy stocks and cover them as soon as possible. As we saw in GameStop, it can cause feeding frenzy and a temporary surge in stock prices.
On Monday, while discussing GameStop Jim Cramer said on CNBC It “[t]The structure of the market is collapsing. It is arguable that these people are all in one group. ”
Two lists of stocks that are significantly missing
And S & P Small-Cap 600 Index
), Here are 20 stocks with the highest ratio of sold out stocks to the total number of stocks tradeable.
Scroll the table to see all the data.
The short percentage provided by FactSet is updated twice a month based on the latest data on shares sold out and the number of shares issued as of the end of the previous month.
Lamensdorf co-managed AdvisorShares Ranger Equity Bear ETF
“Short percentages above 30% to 40% are exorbitantly high,” he claims. Participating in a very aggressive deal is very dangerous, as it is very likely a short squeeze, he said in an interview.
HDGE is designed for professional investors to use as a hedging tool. ETFs take short positions in companies whose managers consider them to be “aggressive accounting” with poor earnings or potential to “hide operational degradation.”
Lamensdorf emphasized that in the bull market, short-only funds are “very lonely places” and are intended to be used to help investors create their own long / short strategies. Did.
Professional money manager long / short strategies can help companies such as CleanSpark Inc explain why.
The stock has recently risen from about $ 10 in late November to $ 25, but still lacks 10% of the stock.
“Some quantitative investors are being leveraged 2: 1 and are long / short similar companies trying to reclaim the spread between the two. According to Lamensdorf, they are the same on the other side. I don’t care if they are squeezed by some because they have something to thank at such a rate.
When discussing GameStop’s short squeeze, Lamensdorf said that this kind of behavior (individual investors who use social media to make a big impact on stock movements) hasn’t happened in large companies.Tesla, Inc.
It provides an amazing example.
When asked why more than 100% of GameStop’s stock could be short-sold, Lamensdorf said there was a place where people could “bare” short-selling positions. You didn’t have to actually borrow the stock and sell it short.
“In general, it’s illegal to short a stock without borrowing,” he said. “But sometimes brokers aren’t paying as much attention as they need to be.”
The 20 worst-selling dollar-equivalent stocks in S & P Composite 1500 are:
So 8% of Tesla’s floats are sold out, which is $ 66.7 billion.
“It’s not Robin Hood, hey!” Lamensdorf emphasized that for large corporations, short-term behavior is controlled by hedge funds and other professional investors.
It’s worth noting that GameStop is on both lists — it shows how extreme the stock situation is, at least until the FactSet data catches up with all the short positions covered.
Look at the second company in the second table. Amazon sells only 1% of the float, for a total of $ 12.7 billion. Next is Apple, which is significantly short of 5%, at $ 12.5 billion. Other companies on the list that may surprise you include Microsoft.
And Nvidia Corp.
But, again, these companies have a relatively small percentage of short sales, but a large market capitalization.
Become “long” with a significantly shorted stock
Lamensdorf is the CEO of Active Alts, and he and his colleagues are implementing a “momentum” strategy focused on the stocks of companies that are significantly in short supply.
An example of a very scarce strain that was very beneficial to Lamensdorf is BlackBerry Ltd.
Look at the chart for the year.
BlackBerry shares began to skyrocket after the company announced Multi-year contract to provide software to Amazon Web Services.. Lamensdorf said BlackBerry is already “our” because we are confident that BlackBerry will continue to sign new contracts with companies developing self-driving car and other connected car technologies under the leadership of CEO John Chen. It was a “core position”.
BlackBerry has always been renowned for its excellent network security. That wasn’t enough to save the smartphone business from the iPhone and Android phones, but there is a growing need for what BlackBerry offers.
Behavior on BlackBerry stocks continues to heat up. Stocks rose 28% on January 25, the same day the company saidNot a ware ”Reason for trading activity. But on the same day, BlackBerry said,Expansion of its strategic partnership“Baidu Inc.
Develop autonomous driving technology.
According to FactSet, a 7.1% stake in BlackBerry is still in short supply. With a market capitalization of $ 10.1 billion today, short-term bets on the company are more than $ 700 million.
“You’re talking about a short-selling $ 1.4 billion drop,” Ramensdorf said.
How You Can Lose Everything By Selling Shares, Whether You’re Bet On GameStop or Tesla
http://www.marketwatch.com/news/story.asp?guid=%7B21005575-02D4-D4B5-4572-D227C9DFBA4F%7D&siteid=rss&rss=1 How You Can Lose Everything By Selling Shares, Whether You’re Bet On GameStop or Tesla