Posted on 02/24/2021 3:40:02 PM PST by dennisw
GameStop shares surge 100% despite trading halts as Warren Buffett's right-hand man Charlie Munger calls day traders 'gamblers with a racetrack mindset' and warns they will go bust GameStop shares jumped 100% on Wednesday despite two NYSE trading halts It followed the ouster of the struggling retailer's CFO Jim Bell on Tuesday But even fans of the stock on Reddit expressed confusion about the surge Meanwhile Warren Buffett's right-hand man Charlie Munger scolded day traders
GameStop shares surged again on Wednesday, as investors piled back into the 'meme stock' in a frenzy that triggered two trading halts late in the session.
At the end of trading, GameStop stock was up 104 percent for the day, at $91.71. It came a day after the company's CFO resigned under pressure, but the afternoon surge baffled even fans of the stock on Reddit.
GameStop shares still remained well below their peak of $483 in January, when traders on the Reddit forum WallStreetBets fueled a buying frenzy in a bid to punish hedge funds that had bet against the stock.
CFO Jim Bell resigned on Tuesday, and although the company said his resignation was not due to any disagreement with the company, a source told Reuters that his departure was initiated by the company.
(Excerpt) Read more at dailymail.co.uk ...
Any option trader who has the courage to play GameStop from the sell side has my respect.
The stock went from 50 to 483 then back to 50 in ten trading days!
Re: Yesterday
GME close - $92
At the money long option premiums - $26
GME after hours close - $168
Certain people are not sleeping well tonight.
No hedge fund is stupid enough to be short and not hedged. The idiots who got caught last time are just that. If you go short @ $100 you protect that with a call at like $110. Max loss of $10 and you can hold it. Does matter if it shoots up to $200, $500, 1 Million. You sleep like a baby.
With the insane and unpredictable volatility you don't just trade simple outright naked positions. Always hedged with stock and/or other options, long/short in some type of collar or spread.
Amateurs are hard to predict and do crazy. Trading against other Pros has a degree of predictability. When it gets too crazy you just have to walk away from the table, otherwise it is just pure Vegas gambling.
To me it looks yesterday's run was due to resting stops and buy orders being hit. You'd be surprised the games that are played, especially is the after/pre markets when the liquidity is thin. Easy to guess resting buy/sell orders levels and hit them so you cause a cascade in very thin conditions ...
A lot of dopes got shocked to see they were filled at $150, $175, $200 and will lose big when this fades in a day or two. Amateurs who had limit orders without limits such as "buy >= $100 with a limit of $105".
It is a $10-$20 stock and can't stay overvalued forever.
Now trading at $122 and predict it will trade under $80 by end of day.
Thanks for your erudite commentary. You know what you are doing. When is bitcoin coming down? I am impressed that only xx millions of bitcoins can be created while the Federal Reserves own digital currency can be issued (printed) to the moon. At least until (My opinion) the Chinese allied with the Russians somehow bring in a new gold backed (even semi-gold backed) reserve currency.
Arabs and Persians have visceral love (attraction) for gold and will trade their oil for gold. The individual Chinese are very superstitious gold hoarders and it seems that their own version of the Federal Reserve has been accumulating the most tons of gold in the world. Via their internal mining.
Russians have lots of gold mining going on and the Chinese much more.
I would never trade bitcoin because it is so opaque. You don't have a huge amount of info to give you enough of an edge as when trading stock, bonds, commodities. Everyone is a genius on the way up, you just buy and hold tight.
If I had to take a quick guess for the short term, I'd expect bitcoin to trend down into April 15th, as holders file the new forms, get surprised by the big big capital gain taxes that are due that they did not expect/anticipate, and then some sell existing holdings of bitcoins to raise money for that. It's not likely any of them were setting aside money throughout the year and/or paying quarterly estimated taxes.
I like your style and best luck in all your trades. I hope you have it made in the shade. At least for today.
Thanks. GME is trading as expected. Everyone woke today and thought it was Christmas morning.
The reddit kiddies dreamed of sugar plum fairies flying to $500 land again and were eager to buy, bidding it up to like $175 in the pre-market.
The pros dreamed of taking those dumb kiddies money again and could not believe their good fortune.
When the bell rang, the pros sold it with abandon from $170 down to $100. The reddit kiddies have since kept bidding it up, thinking that changing the CEO of a $5-$10 company with a business model the same as Blockbuster will magically turn the stock into a $500 stock.
Traded down to 95 around the close - close enough. So those who bought in at $150 - $200 are learning it's fun till someone loses an eye, or 50% of your money in one day.
I did not make my earlier comment clear.
I never short the actual stock - my broker has the legal authority to cover (buy in) a shorted stock at any time, without my permission. I am not comfortable with that.
I only go short by buying put options.
Your strategy to insure a GameStop short position with a $10 option premium does not match the reality of current option prices.
The current premium on at-the-money March $108 puts and calls is almost $45!
That was only meant to be an example of the general idea, not an actual trade.
The worst time to straight up buy puts or calls when is when the big move is already in progress or occurred. The volatility component of the premium explodes. Like calling to buy homeowners insurance as a cat 5 hurricane is blowing on your front door.
I was responding to your claim that hedge funds are buying options to insure their short positions.
That has not been possible for almost four weeks.
When GameStop settled above $200 for several days in a row, option premiums were running at 60%-80% of the total option value.
So when GME was trading at $300, what was the $330 call premium? And how do you come up what you call the “option value” on that call?
I use at-the-money options as my premium benchmark, because at-the-money premiums for puts and calls are almost equal.
During those three or four days of insane prices, the premium for a 300 at-the-money call option for the nearest expiration date was consistently in the range of 60% - or $180.
A 330 strike premium would have been less, but not 10% less.
The further you moved out on the expiration date, the higher the premium, up to 80% of the strike in some cases.
Bottom Line...
By 25 January, every option market maker in the world could see the Cat 5 storm coming.
NONE of them were selling short insurance to the hedge funds - except for a king's ransom.
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