Home U.S. Wall Street Behemoths Ate Reddit’s Gamestop Lunch

Wall Street Behemoths Ate Reddit’s Gamestop Lunch

According to Wall Street behemoth JPMorgan, the fairytale spun by pundits about Reddit’s WallStreetBets organizing to “squeeze” badly positioned hedge fund short sellers of video game retailer Gamestop (NYSE: GME) in what has been affectionately dubbed the “Gamestop Rebellion” is simply false

Peng Cheng, the JPMorgan quantitative and derivatives strategy analyst, wrote to clients in a note: “Although retail buying was portrayed as the main driver of the extreme price rally experienced by some stocks, the actual picture may be much more nuanced,” according to CNBC

According to data provided to CNBC by JPMorgan’s quants team based on higher-level data and proprietary analysis methodologies not available to the public, while the top 10 most purchased stocks by retail-level investors included names like Apple, Tesla, Coca-Cola, and AMC, Gamestop “was number 15 on the firm’s retail buying list for January.”

Hedge Fund Senvest Management walked away with more than $700 million in gains from the Gamestop Revolution, according to a Feb. 3 report by Wall Street Journal. The firm was buying Gamestop prior to October of 2020, ending up holding more than 5 percent of Gamestop at an average price of less than $10 per share.

JMP Securities analyst Devin Ryan told CNBC the obvious: Institutions were naturally trading Gamestop while the mirage and hype around Reddit, a social marketing platform rather than a social media platform, served as a screen. “I think that it’s reasonable to say that institutional investors were also very active in those stocks last week because there are institutional investors that participate in names that have elevated volume. I think most likely that was also expressed in some of the options activity last week as well,” he said.

According to data from Citadel Securities, retail traders were actually net sellers of Gamestop last week, finding that from Monday to Thursday, amateur investors sold 719,932 more shares than purchased. This was likely the result of popular trading apps like Robinhood restricting buying of select “meme stocks” like Gamestop after being hit with a $3 billion deposit requirement from the Deposit Trust & Clearing Corporation to cover clearinghouse volatility.

Hedge Fund Senvest Management walked away with more than $700 million in gains from the Gamestop Revolution, according to a Feb. 3 report by The Wall Street Journal. The firm was buying Gamestop prior to October of 2020, ending up holding more than 5 percent of Gamestop at an average price of less than $10 per share.

Gamestop peaked on Jan. 28 at $483 per share.

A Gamestop location closed after rioting
A Gamestop location closed after rioting. (Image: A.Currell on Flickr / CC 2.0)

Senvest wasn’t the only fund playing the game. Permit Capital LLC owned as many as 3.1 million shares according to Sept. 8, 2020, SEC filings. GME closed that day at $7.70 per share. 

BlackRock Inc. is Gamestop’s largest institutional owner, holding 9.2 million shares, a 13.2 percent stake. The firm is a partner of the globalist bloc World Economic Forum, and Chairman and CEO Laurence Fink is a WEF Contributor

The small fry who thinks they can make money by getting on a message board and becoming a member of a herd has no chance in these markets.

Michael Swanson, lead editor of Wall Street Window

“It is not just little people on the long side here. There are huge players playing both sides of GameStop,” said Thomas Peterffy, Chairman of Interactive Brokers to WSJ.

University of Chicago Law Professor Todd Henderson, a specialist in corporations and securities regulation, said in a webinar: “I know people are hung up on Reddit and the little guy sort of teaming up on the big guys… I think this was just big guys teaming up on big guys.

“All of that price inflation was likely driven by vindictive hedge funds trying to squeeze out a hedge fund that was short GameStop.”

Reddit reality check

While Gamestop closed January at $325 with a high of $483, the first week of February showed gravity, and reality, taking hold as GME closed at $63.77, the same price as its previous 2007 all-time high. The faltering video game retailer trades under $50 during Tuesday afternoon’s session.

Trading pundit Michael Swanson, the lead editor of Wall Street Window, aptly cut to the chase: “It wasn’t small fries who won. They had no chance to destroy the hedge fund industry by shorting the stock, because it was other giant hedge funds that got in way before they did. The ‘kitty’ character on Reddit was simply acting as front for these hedge funds lions whether he knew it or not.

“The small fry who thinks they can make money by getting on a message board and becoming a member of a herd has no chance in these markets.”

Reddit's r/WallStreetBets. Bloomberg Terminals cost $24,000 a month to operate. The narrative they pumped Gamestop is in doubt
Reddit’s r/WallStreetBets. A Bloomberg Terminal costs $24,000 per month to operate. (Source: Focalphoto on Flickr / CC2.0)

Swanson’s words were a grave caution to retail traders on the reality that amateur, self-driven investment in volatile markets is a huge risk to financial health and wellbeing: “It didn’t matter to them [Redditors] that it was giant hedge funds they were helping buying the stock when they heard someone on the radio or the TV repeat a little guy against the system story that they just wanted to believe in.

“…well it is their fault for trying to gamble in the stock market like this. If they want to make money they have to take what they are doing seriously. They need to do research and buy into real companies with real potential. They need to have a trading method.” 

Swanson described trading on Robinhood as your primary tool as “like taking a knife to a gunfight.” He continued: “A few will learn from this experience to become winners. Most will wallow in a new victim narrative and the only way to get a few to stop is try to shake them up, even be mean for a moment at them to do it.

“What was most fascinating to me is how everyone last week had to have an opinion on Gamestop everywhere on the internet as it dominated the news cycle as a viral story.”

“The internet phone is destroying people’s lives. Reddit is the ultimate hellhole, the type of place John Milton wrote about,” he said.

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  • Neil wrote for the Provincial and National level edition of The Epoch Times in Canada.

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