adhesive promsiri
After a long slumber, meme stock mania is back. GameStop (New York Stock Exchange:GME) has increased by over 100% Before commercial release It’s still up today, still up just under 80% as of this writing. AMC Entertainment (AMC) was rising even more. AMC revealed that it had unloaded $250 million in inventory. Yesterday’s amount is enough to cover about three months of ongoing losses for the company. And a quick scan Reddit WSB showed many people saving their lives with short-term options on various meme stocks.
Roaring Kitty is back after last week’s unusual activity in short-term GME call options
So what caused this? This possibility can be ruled out because no fundamental changes have taken place in the company. The answer is because “Roaring Kitty” is back on Twitter. At the first GameStop rally, a man from Massachusetts named Keith Gill was an early investor in the company along with others. Value investors like Michael Burley. Gil frequently shared her own insights on her YouTube as “Roaring Kitty” and on Reddit as “Deep F***ing Value.” The last time Reddit heard from Gil, he had posted a screenshot of a position he could have made if he sold it. His trade is $20 million to $30 million after taxes (my calculations).
More money means more problems here too. Some of his fans tried to sue him and had to testify before Congress, but he wisely disappeared from the radar after that. Gill returned to Twitter on Sunday. He first posted a gamer slouching in his chair, and then some meme videos. Thousands of people took this as a signal to go all-in on GME options. But here’s where things get interesting. Analysts noted unusual activity in short-term call options on GME last week.Steve Sosnick, Chief Strategist, Interactive Brokers shared his analysis with Bloomberg. Is this a coincidence? Probably not.
I find it very interesting that the volume and open interest for upside calls expiring on May 17th have been steadily increasing this week. All of them seem a bit “convenient”.
Steve Sosnick, chief strategist at Interactive Brokers, spoke about GME.
Is this considered? insider trading?It depends on how you define insider trading.? All Gill technically did was post a cryptic video on Twitter. Elon Musk did the same thing on Twitter and made huge profits from cryptocurrencies in a short period of time. Activist investors are allowed to trade ahead of their own actions, and one of the benefits of having a large following on the Internet is that they buy first and then encourage others to buy. I can give instructions. This is fine as long as you don’t sell it immediately after telling everyone to buy it. This is known on Wall Street as “talking the book.”
I believe there is a strong possibility that there is a connection between the significant rise in option rates and Mr. Gill’s return to Twitter. This is probably legal even though it would result in a transfer of wealth from the general public to Gill and his friends or whoever purchased all of these options. Could he reasonably expect that by sending out vague tweets a GME options trading frenzy would ensue? That’s what happened. But it’s still a gray area, and there will no doubt be an SEC investigation into who was behind these transactions and what the circumstances were.
GameStop’s fundamentals haven’t changed
GameStop’s underlying business is in a strange kind of financial impasse. If you look at it, Profit and loss statement, we see a significant decline in revenue from $5.9 billion in FY2022 to $5.2 billion in FY2023. GME was able to reduce expenses at roughly the same rate as the decline in revenue, resulting in the company’s operating loss improving from -$363 million. $32 million. Although cost cutting is effective for GME in the short term, it is very difficult to create much value in the long term with this method. And even if the dramatically reduced store footprint resulted in annual profits of $100 million to $200 million, the company’s traditional valuation was $1 billion to $3 billion, and GME’s market value The total is not the $16 billion it currently reflects. The balance sheet gives a different view of the company, showing that GME has approximately $2.7 billion in assets and his $1.4 billion in liabilities. This values the company at approximately $1.3 billion, or $4.38 per share.
Assuming you know what’s going on, you don’t buy GME stock thinking the company is worth more than you’re paying. You buy his GME out of fear of missing out (FOMO), as a punt (YOLO), or because you think the short seller can get someone else to pay a higher price than you in the short term. Because it is. I was forced to cover it. And lastly, there aren’t that many short sellers in GME at the moment. Short interest on GME has risen to just over 20%, but it is far from the 100%+ that sparked the epic short squeeze in 2021.
How far can GME reach this time? It’s not scientifically exact, but some factors that will affect 2021 won’t affect you this time.
- Multiple stimulus packages were implemented in 2020 and 2021 at a time when there was a lack of services for consumers to spend their money on. The money had to go somewhere, so many consumers chose to make speculative bets on stocks with their checks.
- Interest in shorting GME is currently increasing, but it is not as extreme as it was in 2020 and early 2021.
- Traders have extensive experience trading meme stocks. This also shows up on Reddit, where some YOLO posts are about people actually going all in and then selling for a profit. Back in 2021, the mentality was to hold on to stocks to corner the market and drive prices up, but now people are actually taking profits.
AMC’s management took it a step further, sensing the first signs of a Meme stock squeeze this week and brutally diluting shareholders. This quickly increased his share count by more than 20%. GME is not in immediate financial trouble, but the current pace of revenue declines requires it to continue cutting costs at a rate equal to or faster than revenue declines. This is difficult for retailers to do because many of their expenses are fixed.gamestop’s The latest earnings report reflects this And it was somewhere between bad and awful. If nothing changes, GameStop will be out of business within five years. I’m honestly surprised GME isn’t more proactive in using secondary recruitment, and I think it could shorten the company’s lifespan. Let’s see if anything changes and if GME ends up issuing a large amount of shares.
How to make money with GameStop
The GameStop options frenzy has driven option prices to extreme levels. Buying options is out of the question. One interesting trade you can make is to sell a put on GME. For example, if GME is in the low $50s, that means a $50 put expiring on Friday is currently trading at $12.40. This is good for an implied volatility of over 616% per year. However, GameStop’s historical volatility is only about 220%. This is an overlay of approximately 400% per annum and is an ideal setup for small trades. If you sell these puts at that price, your cost basis in GME stock will be $37.60. This is simply the strike price of $50 minus the premium for selling the put ($12.40). If GME stock is above $50 at Friday’s close, you hold $1,240 to write a put. If you want, you can turn around and repeat the same thing next week.
It’s a pain to watch, but I think there’s enough compensation to sell puts on the stock, and the downside is limited.
Another way to do this same trade economically, without requiring sophisticated options approval, is to make a covered call trade on GME. If he buys 100 shares at $5,000 or some other price, he can sell the top price between now and Friday and pocket $1,200. Making $1,200 in 4 days from a $5,000 investment is not rocket science. Software modeling of GME’s actual volatility shows that a fair price is around $400. The price difference is created by people trying to get rich quick with GME. I think there is a profitable trading opportunity whenever you can get on the other side of a Reddit trader without directly taking on directional price risk. Of course, you can fail with this trade, but if you want to know how I make money with this trade, this is probably your best bet. I’m just looking at it for now.
conclusion
Meme stock mania is back. Eat your popcorn and be careful with your money.
