Hedge fund Melvin Capital is down $4.5 billion after epic squeeze by Reddit traders, report says.
Hedge fund Melvin Capital is down $4.5 billion after epic squeeze by Reddit traders, report says
Betting against the crowd isn't always smart.
Hedge fund Melvin Capital reportedly lost $4.5 billion in assets value in January – a 53 percent drop – after its massive bet that GameStop's stock price will fall turned sour, the Financial Times reported Sunday. And that's after a $2.75 billion cash infusion from previous investors, who jumped in to save the fund from collapse.
For an explainer of what happened, go here, but the short version is that Melvin, as well as some other funds, bet against GameStop by shorting massive amounts of its stock (shorting means selling the stock in the hope you'll be able to rebuy cheaper later). Reddit traders that frequent the subreddit r/wallstreetbets noticed that GameStop's stock was ridiculously (perhaps unfairly) over-shorted, and they responded by buying the stock en masse, driving the price up higher, forcing shorters to buy the stock to cover their losses (this is know as a short squeeze). This, in turn, put enormous pressure on Melvin and other shorters; eventually, Melvin said it exited its short position on GameStop, likely at a massive loss.
According to FT, Melvin has since repositioned its portfolio to be a lot less risky; a source told the outlet that the company's leverage ratio is at the lowest it has been since the firm was founded in 2014.
Prior to the GameStop fiasco, Melvin was one of the best-performing hedge funds out there, with a 52 percent yearly gain.
GameStop's stock price is still sharply up compared to just weeks ago and is currently trading at about $344 in premarket trading.
SEE ALSO: Robinhood now says you can buy one GameStop share, as a treat
Traders at r/wallstreetbets have since turned their attention to other assets. One of them is silver, the price of which has surged to $29, a price the precious metal hasn't seen in eight years.
Oh no! Anyway... GIF
ReplyDeletehttps://media.tenor.co/images/85e649440af7e7f77cc038d91f096328/tenor.gif?t=AAW6Rp1BH00K7CyNMgJReA&itemid=18887547
Ruined Toys R Us, ruined Sears, piss on them.
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Yay!
ReplyDeleteWho will be the first to short Melvin? Hold the line up to the moon
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Not Over Till ISay Its Over GIF
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Well maybe they should stop getting the newest iPhone or Starbucks every day. They need to pick themselves up by their bootstraps. Or go back to school and get a better job.
ReplyDelete(Am I doing this right? Isn’t this what the wealthy tells the middle class all the time?)
The It Crowd Chris Odowd GIF
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Still not enough
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Just another bookie.....
ReplyDeleteSweet get more out of them no sympathy from me
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good
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https://media1.tenor.co/images/ce652a8cb9bd0c61817a3b021e3c0eef/tenor.gif?itemid=13268605
End short selling.
ReplyDeleteOr you can just not short...
DeleteUps qué pasó ;D
ReplyDelete... so, who's gonna be first to short Melvin Capital?
ReplyDelete