GME deathwatch - how to profit?

[ChpBstrd]

Some hedge funds are going short and other hedge funds are buying their shares and selling them the options they need to hedge or delay delivery. In terms of "how to profit" as a retail investor, this is a tough nut to crack. I'd rather be the later hedge funds, because they can basically set their price while the short hedge funds can only kick the can. But what would that involve? Selling naked calls or synthetic shorts to the short HFs might only be a rational decision when one is contemplating suicide anyway.

I suppose the compression of option prices across the strikes makes it attractive to do bull call or bear put spreads, because the price of debit spreads is low relative to the odds of winning the spread. I.e. an at-the-money April 23 bull call spread at the 190/192.5  could be had for about $0.95. That's a 163% return for a bet we can all probably agree has close to a 50/50 chance of winning.

[BigMoneyJim]

A tiny counterpoint: I just ordered a game from GameStop. It may arrive today. I got an old XBox 360 game for $10 plus another $5-$7 for shipping, taxes, and other microcosts. [...] I went to GameStop (online) partially because it was on my mind from all the GME talk and driving by a GameStop store on my way to grocery pickups. Also I feel reasonably confident they'll get a usable-quality game to me with little hassle and plenty of recourse if something goes wrong.

Ugh, I still don't have the game I ordered. Their website has been showing it shipped for over a week but "awaiting carrier pickup" with UPS. Sure enough UPS has no info on the tracking number.

I tried to submit a "contact me" email, but the form never did anything. Just now I used the online chat since it's business hours, and the chatter just gave me the info I already had except they said it was USPS even though their page says UPS. Same tracking number. USPS has no info on that number, either.

I told them there was no info on the site. They said there was.

So much for a low-hassle delivery and recourse!

On the bright side, I've lost far less on this used game order than I did investing in their company.

[MustacheAndaHalf]

... calls can reset the FTD. You immediately exercise the calls via synthetic short shares on the other side of the trade, and now you use these executed shares to show you've "covered" your short. Weeks later you have a FTD on your synthetic shorts you used to make the trade, so you do it again.

We've seen this actually happen. A whole bunch of calls were bought for $14, 15, 16, 17, 18, etc. just this week for an April 16 expiration. Who is buying millions of dollars of deeply ITM calls?

For the last few months, on a very cyclical pattern, we've seen this happen, deep ITM calls to be immediately exercised to hide FTDs. Indicating there are a LOT more shorts out there than being reported, because they don't have to report those numbers, they just keep kicking the can down the road.
...
In my opinion, there's reason to think the short positions are much higher than the data you quoted.

Thanks, that's really interesting - especially the idea call options could hide a failure to deliver (FTD, for others reading this).  I guess we both need to consider the source, Reddit, but I also learned something there months ago: someone's explanation of FTD said market makers have 3 weeks, but everyone else has 3 days...

If hedge funds only have 3 days, but there's a loophole to get 3 weeks... they'll probably figure a way to exploit that loophole.  I wonder if we can find a list of market makers in GME stock?  If market makers really do have different rules, then there has to be a list of them somewhere.  And that list would reveal all possible hedge funds using the FTD approach to short GME stock.  Hmm.

As to the data, Melvin Capital supposedly exited their short position in late January, while the data I posted starts in mid February - so it's probably other hedge funds closing 6 million shares of short interest.  I looked for data on a few other websites (Y-charts, Morningstar) but came up empty.

I expect hedge funds have learned to stay away.  So by that theory, the short interest is lower because hedge funds are leaving.  The elevated price since late February represents a lack of interest by hedge funds.  And under this theory, FTD should be declining.

Let's say I'm wrong.  Hedge funds are trying to trick investors, and are actually shifting their short positions into FTD type borrowing.  The ongoing purchase of deep ITM calls are an attempt to hide FTD positions.  The elevated stock price represents hedge funds who are reaching their limit of shorting, and can be broken by driving up the price further.  Under this theory, FTD should be increasing.

So the key things I find interesting now: can searching online reveal the list of current market markets for GME stock?  Can searching online reveal the FTD levels for GME over the past few months?

[MustacheAndaHalf]

I found "failure to deliver" (FTD) data on SEC.gov, and also see that someone has nicely formatted it on Reddit for just GME.  I spot checked several entries, and all were an exact match, so I'll trust the reddit image:
https://i.redd.it/2cm2kbhldgq61.jpg

I calculated the median as the middle value in a 5 day week, or averaged the two middle values in a 4 day week.  For completeness, I also included the lowest and highest FTD days of each week:

start .. low .. median .. high
1/4  182k .. 556k .. 799k
1/11 288k .. 663k .. 893k
1/18  274k .. 1.2M .. 1.5M (holiday, 4 day week)
1/25  138k .. 1.0M .. 2.1M
2/1  11k .. 48k .. 159k
2/8  99 .. 2k .. 23k
2/15 5k .. 13k .. 53k (holiday, 4 day week)
2/22  2k .. 29k .. 298k
3/1  15k .. 26k .. 83k
3/8  2k .. 17k .. 156k
(late March data is not yet available)

Compared to January, FTD has fallen dramatically by every measure.

Also note that in the first week of January, GME stock was in the narrow range of $17-$18 per share, yet median FTD was 556k.  Now compare that to the week of 2/22 when GME's price doubled in one day (2/24): FTD peaked at 298k, below the median value of when the stock wasn't moving in January.

I think the declining short interest and declining failure to deliver (FTD) both show hedge funds have reduced their exposure to GME.

[arebelspy]

FTDs decreasing fits exactly with the ITM calls--that's why they're doing it, to reset the clock on the FTDs. That would lead to less FTDs, because they can show the exercised calls as covering, and then it's not FTD. Then a few weeks later, when the synthetic shorts they created to deliver on those calls are going to be FTD, they repeat so they aren't FTD.

I'm not quite tracking why you think FTDs would increase.

I'm wondering what alternate explanation you might have for the deep ITM calls? Aside from the proposed theory that they're being used to hide FTDs, as described in the SEC document linked.

(Thanks for engaging in this discussion. Appreciate your thoughts.)

Edit: Also look into how many shares are available to borrow to short. If short interest has declined so much, there should be plenty.

[MustacheAndaHalf]

On deep in the money GME calls, do you have some specific expiration dates and strike prices?  I'm curious about the "open interest" and daily activity.  In my experience, deep ITM calls are expensive and give low leverage.  I like them because of certainty, forced savings, and equal leverage on gains & losses.  I would be surprised if a professional used them, because of their expense and lack of leverage.

As to high FTD rates, if FTD had been similar to January, or growing vs January, that suggests more trouble for the hedge funds.  That's why I was thinking increasing FTD would favor your thesis that hedge funds might be in trouble.  It would also show the short interest was hiding in FTD numbers.  With both FTD and short interest lower, I don't see where the hedge fund positions could be hiding.

I've grown more convinced hedge funds only have 3 days before FTD.  The January spike in price showed a rapid FTD spike, suggesting hedge funds don't have much time before FTD kicks in.  It's even more clear on the Feb 24 price spike, where FTDs spiked on both Feb 24 and even higher on Feb 26.  To me that's very strong circumstantial evidence they have 1-3 days before FTD.

To shorten my prior post, I dropped a paragraph about short positions and call options.  Together, they cancel any profits.  Deep in the money calls are expensive, and neutralize profits on the short position.  If the stock drops, the short position's profits exactly match the losses on the call option.  So it would be strange to tie up a lot of money on the call, and pay interest on the short, and get no possible profit.

GME isn't my favorite hype/WSB stock - I prefer to bet against AMC.  With AMC, I have predictions for specific events (summer crowds will look great... then the revenue numbers will arrive, and the stock will crash).  Competition is significant for AMC, as is their corporate debt.  Buying attacks on AMC have run into large share offerings, which deposit those purchases into AMC's bank account.

With GME, I'm less confident what happens for the next few months - spikes and drops, maybe.  Maybe Ryan Cohen gains more influence, and the stock spikes again.  I'm estimating two possible times when I could cash in on put spreads: (1) GME offers new shares, diluting the stock and sending the price tumbling.  Each buying attack meets printing new shares.  (2) Reopening causes WSB and retail traders to lose interest and want to use their money elsewhere.  Hedge funds lose WSB as cover for buying GME, and move on... so GME falls to it's fundamental value based on earnings.

What events do others expect in GME's future, over the next few months?

[MustacheAndaHalf]

GameStop announced it may sell up to 3.5 million shares "at the market", meaning the company decides the timing.
https://apnews.com/article/business-video-games-games-fae4fbae46ed05c8c4c06223db525fa5

That's confusingly small, just 5% dilution.  That's enough to pay off their debts according to Y-charts, but I don't see how they compete online with $200 million.  CNBC knows more about this than I would, and they estimated it costs billions to compete in online game sales.

At this point, my earlier guess of 30 million shares is way off.  But the market dropped GameStop -8% to -12% (keeps changing), as if there could be more share offerings after this 5% dilution.  Given how long GameStop waited to do anything (Jan to Apr), maybe they're trying out 3.5 million shares, and plan on offering more later.  That would fit their slow reactions, and the market's greater than 5% drop.

So maybe another share offering by the end of June (this quarter)?

[ChpBstrd]

^ They are trying not to burst their own bubble. Dumping shares on the market weakens the leverage of those holding the short squeeze play. But the short squeeze play has to end someday, and the company should have grabbed all the money they could from this once-in-a-lifetime economic imbalance. The fact they are only grabbing a little bit implies the new board doesn't have a clear plan yet, or is in conflict and had to compromise. That's not a happy sign for the stock - potentially worse than if they were aggressive with share issuance.

[arebelspy]

Nah guys, this is super bullish.

They didn't announce something new. They amended a previous announcement to basically say they're gonna sell LESS shares at a HIGHER price.

In Dec 2020 they filed that they could sell  shares capped to raising $100MM (at the time about 6MM shares)

Today they amended that to say they'll only sell up to 3.5MM shares (up to-- they may sell 0.. they just want the right to fundraise off the squeeze) but that they can make up to 1B off of it.

They always had the right to sell these shares since December (and note that they didn't sell any, at price points of 300, 400, 500), now they just said "oh, we actually will raise the cap on what we can make on it, and guarantee a cap on the number of shares sold."

When the price rockets, they'll be able to make some cash on it.

None of that is a bad thing for people long the squeeze.

[bwall]

@arebelspy : Wow. That's eye-opening, the whole short reporting and FTD work around. Thanks for sharing.

It makes total sense, although that's not to say that is what's happening. The only people who really know are the ones who engage in this activity and they have every motivation to keep quiet.

I'd often wondered who'd buy a bunch of  ITM Calls at $15 or $20 shortly before expiration. Why not buy them at, say, $50? Why tie up all that extra money when the time decay premium is the same when you're that deep ITM? Well, if the buyer is hoping the stock drops below $50, that's one possible logical explanation. Contrary to the common understanding of the motivation of buying Calls, and that's the head-twisting thing about it.

[MustacheAndaHalf]

ChpBstrd - You're right that there's a conflict.  I'll quote the end of a letter to GameStop's board of directors:
"We want GameStop’s leaders to do their jobs and implement a strategy for bringing the Company into the 21st century.
Sincerely,
Ryan Cohen"
https://www.sec.gov/Archives/edgar/data/1326380/000101359420000821/rc13da3-111620.pdf

Ryan Cohen has joined the board with two colleagues.  His company owns 13% of GameStop, up from 9.9% when he sent that letter.  The CFO left, and several board members are leaving this year... so it looks like Ryan Cohen will take it over.


arebelspy - It's definitely a let down for put spread holders like me!  GameStop's annual shareholder meeting is June 2021.  My guess is Ryan Cohen installs more friends on the board, and tries to become Chairman.  And my guess on top of that guess would be GME spikes up on the news, with WSB and hedge funds buying.

[lemonlyman]

I don't understand GME's valuation and stand by my original contribution to the thread.

I just wanted to add that I think EMH is complete nonsense. It takes a whole lot of mental gymnastics to reconcile EMH and GME.

[chasesfish]

@MustacheAndaHalf - I agree on AMC, *that* is a company that'll flood the market with shares when they have a chance.

I hold a bunch of stock in their major landlord, I'm happy WSB kept them from bankruptcy!   I'll happily short AMC when it gets above $13.

They'll be fine long term if WSB keeps letting them issue equity to retire debt

[MustacheAndaHalf]

I just wanted to add that I think EMH is complete nonsense. It takes a whole lot of mental gymnastics to reconcile EMH and GME.

It's a bit like saying accounting is nonsense because Enron cheated at it.

The weakest form of EMH says you can't predict future stock prices from past prices.  That sounds accurate to me.
https://www.investopedia.com/terms/w/weakform.asp

@MustacheAndaHalf - I agree on AMC, *that* is a company that'll flood the market with shares when they have a chance.

I hold a bunch of stock in their major landlord, I'm happy WSB kept them from bankruptcy!   I'll happily short AMC when it gets above $13.

They'll be fine long term if WSB keeps letting them issue equity to retire debt

AMC is the strongest bear case I have.

According to Yahoo Finance, they have $300 million in cash and $11.4 billion in debt.  From Dec to Feb, AMC almost tripled the number of shares.  It does seem like they both need cash and are willing to issue more shares.

AMC did reach $13 in Mar 15-19, but I think lower strike options are a better approach.  If AMC recovers to it's 2019 market cap, that leaves it at $2-4/share... I think it's worse than that.  So it's safer to buy $10 or $12 strike puts, and break even faster... but if AMC drops below $3, the lower strike puts are best.

[lemonlyman]

I just wanted to add that I think EMH is complete nonsense. It takes a whole lot of mental gymnastics to reconcile EMH and GME.

It's a bit like saying accounting is nonsense because Enron cheated at it.

The weakest form of EMH says you can't predict future stock prices from past prices.  That sounds accurate to me.
https://www.investopedia.com/terms/w/weakform.asp

As an accountant, that simile doesn't make any sense.

Have you read any of Richard Thaler and Robert Shiller's work? From reading the forums, it seems like you active trade often. Do you believe you have any chance of beating the markets or just do it for fun? If it's the former, I'm not sure how you reconcile yourself with EMH.

[chasesfish]

@MustacheAndaHalf - I think the balance sheet numbers are a little aged, some of the debt was convertible and that's led to the share count offerings.  Shares actually got as high as $14, that was my threshold to short.

I give their management credit - Survival is more important than dilution. 

I still worry about their model long term, I don't think they sell enough "stuff" on top of movie tickets.   I did some consulting in this industry for a friend's company, movies have to be a traffic anchor them you capture a bunch of other revenue.  Their company is actually break even YTD even though there have only been two major movie releases so far.

It'll be a great nine month run for the theatres starting in June...the question is what happens after the Holidays.  Will studios pull back on budgets now that they've been hit with tail risk.

[ChpBstrd]

It'll be a great nine month run for the theatres starting in June...the question is what happens after the Holidays.  Will studios pull back on budgets now that they've been hit with tail risk.

My question is whether theaters can offer studios enough money to incentivize them to release movies to theaters before streaming. If this model no longer makes sense in the era when there are dozens of streaming services, and the studios won't take any amount the theaters are willing to bid, then the theaters will lose the one advantage that has kept them alive in the earlier Netflix / pay-per-view era.

[MustacheAndaHalf]

I just wanted to add that I think EMH is complete nonsense. It takes a whole lot of mental gymnastics to reconcile EMH and GME.

It's a bit like saying accounting is nonsense because Enron cheated at it.

The weakest form of EMH says you can't predict future stock prices from past prices.  That sounds accurate to me.
https://www.investopedia.com/terms/w/weakform.asp

As an accountant, that simile doesn't make any sense.

Have you read any of Richard Thaler and Robert Shiller's work? From reading the forums, it seems like you active trade often. Do you believe you have any chance of beating the markets or just do it for fun? If it's the former, I'm not sure how you reconcile yourself with EMH.

What about the rest of my post?  I cited one form of EMH, and you ignored it.
https://www.investopedia.com/terms/w/weakform.asp

[MustacheAndaHalf]

@MustacheAndaHalf - I think the balance sheet numbers are a little aged, some of the debt was convertible and that's led to the share count offerings.  Shares actually got as high as $14, that was my threshold to short.

I give their management credit - Survival is more important than dilution. 

I still worry about their model long term, I don't think they sell enough "stuff" on top of movie tickets.   I did some consulting in this industry for a friend's company, movies have to be a traffic anchor them you capture a bunch of other revenue.  Their company is actually break even YTD even though there have only been two major movie releases so far.

It'll be a great nine month run for the theatres starting in June...the question is what happens after the Holidays.  Will studios pull back on budgets now that they've been hit with tail risk.

This AMC quarterly report is dated March 10, 2021, and cites $5.7 billion in debt.  I can't explain the difference between that and Yahoo Finance's higher number:

"(dollars in millions)"
"Corporate borrowings 5,715.8"
https://s25.q4cdn.com/472643608/files/doc_financials/2020/q4/FINAL-4Q-2020-earnings-press-release-20210310-1435-clean-v.f.pdf#page=8

My question is whether theaters can offer studios enough money to incentivize them to release movies to theaters before streaming. If this model no longer makes sense in the era when there are dozens of streaming services, and the studios won't take any amount the theaters are willing to bid, then the theaters will lose the one advantage that has kept them alive in the earlier Netflix / pay-per-view era.

Disney was 40% of box office revenues in 2019.
including releasing movies on Disney+ the same day they appear in theaters.
https://www.cnbc.com/2019/12/29/disney-accounted-for-nearly-40percent-of-the-2019-us-box-office-data-shows.html

Disney's movie "Black Widow" will come out on their streaming platform the same time it appears in movies.  Disney holds the marvel and Star Wars franchises, so they can do something similar for those movies as well.  In my view, Disney is doing more damage than the other streaming services, because they have been vitally important to movie theaters.  I think Disney will decide the fate of movie theaters... while it tries to promote it's own streaming service.

[chasesfish]

@ChpBstrd

Movies aren't a bid process anymore.  The theatres just pay a percentage of sales.

In the case of my friend/theatre owner, he's a little irritated but also kind of indifferent on these dual releases now.  He'll still show them and happily pay the 50-65% in royalties instead of the theatre sitting empty.   There's tons of content at home.  Godzilla vs. Kong did well in his markets.  Now, if it's a 25yr old theatre with poor seating in a market with a bunch of other stuff to do?  They'll be disproportionately hurt. 

Disney has to decide how they're going to recoup their investment, right now the market is valuing their stock based on streaming subscribers.  Does that change later?  I'm not sure.  The economics of the major theatre release is still overwealming compared to all else.  My guess is there will be a high price point rent at home option for most movies ten years from now at the same time as the theatre release, then it'll hit the subscription based services 45 days later.

[MustacheAndaHalf]

arebelspy - What do you think of this week?   Ryan Cohen announced he will become Chairman of the Board at GameStop... which I expected to send GME soaring, as it makes the transformation of GameStop more certain at a sooner date.  And yet... GME stock just dropped a little, and didn't do much else.  On a Friday, no less.

[arebelspy]

Yeah, you'd think that would be positive news, a drop is unexpected. You could view it as short hedge funds still trying to drop the price, especially on news like that, trying to get retail to sell.. or you could view it as it was already priced in/expected, and people are just losing interest. Who knows.

Seems like the next catalyst, if there will be one, could be in the next few weeks, if shares are recalled for the shareholders meeting (though the big institutions lending them out don't have to recall them, they could just not vote). Otherwise hard to imagine what could drive this up in a squeeze type scenario, and then it becomes what do you expect it to be worth based on this transition?

I'm still tempted to increase my position in a yolo move, but it's hard to justify. The volume certainly has disappeared.

[MustacheAndaHalf]

I'm still tempted to increase my position in a yolo move, but it's hard to justify. The volume certainly has disappeared.

I hope that's fun money.  In my experience emotions are bad for investing.

I don't invest on luck, but I note when luck is involved.  Vanguard locked up cash proportional to a maximum loss on my short positions.  To free that cash, I closed my short GME positions at Vanguard.  If GME keeps falling (-10% today?), that's a lucky move on my part.

Last I checked, Ryan Cohen owned 1/8th of GameStop.  Maybe his significant stake also means he doesn't want to see the stock diluted.  He's probably a good sign for GameStop's future and for current holders of the stock.

[arebelspy]

Nah guys, this is super bullish.

They didn't announce something new. They amended a previous announcement to basically say they're gonna sell LESS shares at a HIGHER price.

In Dec 2020 they filed that they could sell  shares capped to raising $100MM (at the time about 6MM shares)

Today they amended that to say they'll only sell up to 3.5MM shares (up to-- they may sell 0.. they just want the right to fundraise off the squeeze) but that they can make up to 1B off of it.

They always had the right to sell these shares since December (and note that they didn't sell any, at price points of 300, 400, 500), now they just said "oh, we actually will raise the cap on what we can make on it, and guarantee a cap on the number of shares sold."

When the price rockets, they'll be able to make some cash on it.

None of that is a bad thing for people long the squeeze.

And regarding this...

They finished the sale.

https://finance.yahoo.com/news/gamestop-completes-market-equity-offering-203900459.html

Raised 500M, so extra cash on their  books, and no debt (more than makes up for the 216MM debt they paid off early recently).

Not a financial advisor, but I like the stock.

[MustacheAndaHalf]

They finished the sale.

https://finance.yahoo.com/news/gamestop-completes-market-equity-offering-203900459.html

Raised 500M, so extra cash on their  books, and no debt (more than makes up for the 216MM debt they paid off early recently).

Not a financial advisor, but I like the stock.

The announcements of stock offerings sounded bearish when I heard them... now they announce after diluting just 5%, they're done.  Earlier in this thread I was expecting closer to 42% dilution, giving them billions to transform the company.  So this makes a nice dent in one of my favorite bearish points for GME.

But GME is still very overpriced compared to the underlying company.  It's a retail chain with a 25 price/book, as if they're online meeting leader Zoom.  Revenue growth, return on assets and profit margins are all negative.  The numbers suggest a bear case long term.

They don't even rank in the top 10 for online game selling ... yet their market cap puts them as more valuable than the leader, Steam.  And Steam is a website owned and run by Valve, which also makes games.  I don't see any way for them to break into the Apple or Google store market - those are monopolies.  I think most consoles have their own built-in online store, making competition harder.  To me, their prospects as a leading website for selling games look bleak.

That said, I still want to see what happens to GME stock in June, when Ryan Cohen takes control of the board.  I believe the big January buying attack was motivated by the takeover story, so I expect more activity like that as the story unfolds.

[bwall]

@MustacheAndaHalf : If you think GME is overpriced, you could always short it. :) :)

[MustacheAndaHalf]

Anyone reading my posts on GME should know my up/down with GME.  When people were still panicking in the first GME wave (late Jan), I sold calls right as hedge funds applied selling pressure.  I used proper risk assessment, checked that predictions matched the moves of the stock price, and had a very profitable move.  After that, instead of cashing in, I ignored risk assessment and stopped caring if predictions mattered.  And then late February I closed lots of GME positions at big losses (2000% type losses).

I hope my views on GME aren't shaped by my losses - because that's dangerous.  Back then I blamed GME for a day or three, then realized I can't make this personal with a stock.  It could care less.  Focusing on GME rather than my own mistakes is also the wrong perspective - I'm to blame, not the stock.  I had a great approach, and I ignored every aspect of it.  And it's not even the best stock to short - I think AMC put options are much more likely to do well, for numerous reasons.  Focusing on GME clouds judgement and thwarts the search for better targets.


@bwall - I have a few negative calls on GME, so I'm still short the stock.  I will not be adding to my short position, per mistakes made.  But when the calls are in a cheap range I'll close the position.  Besides that, I have bear put spreads on GME, and some put options.  I'm essentially leaving GME alone at this point, and waiting to see what happens with what I've already got.

Also, I think I was too subtle:

That said, I still want to see what happens to GME stock in June, when Ryan Cohen takes control of the board.  I believe the big January buying attack was motivated by the takeover story, so I expect more activity like that as the story unfolds.

What I meant was I might buy call options on GME.  I expect volatility and a price spike in June, when Ryan Cohen takes over the company.  So if GME and short term call options are cheap enough in May, I might buy a small number to see if I'm right.  Then when the June spike arrives, it will be time to cash in and switch to put options.

So... short term bullish, medium/long term bearish.  But I should really start another thread about my other bear picks, as I'm much more interested/invested in those.

[ChpBstrd]

I just can't foresee what digital transformation Ryan Cohen has in mind for GME when he takes over. He wouldn't be doing this if he didn't have some sort of plan, but what makes sense?

Middleman role? Won't work. Too many closed ecosystems.
Internet gaming cafe model? Won't work. Go to a mall to play a video game? This isn't 1985.
Game developer? Starting from scratch with zero expertise?
Intellectual property license resale brokerage? Against the interest of external stakeholders who can torpedo any such plan.
Subscription service for online gaming? Maybe, but even Netflix eventually had to start producing their own content b/c content owners asked for so much.

If Cohen comes out and says phase 1 is to re-create Ebay for old disc games, or comes up with some plan that requires the cooperation of external entities against their best interests, the stock will die. It all comes down to one's assessment of whether Cohen is a genius or an egomaniac intent on reinventing the wheel and claiming credit for it.

[MustacheAndaHalf]

I just can't foresee what digital transformation Ryan Cohen has in mind for GME when he takes over. He wouldn't be doing this if he didn't have some sort of plan, but what makes sense?

Middleman role? Won't work. Too many closed ecosystems.
Internet gaming cafe model? Won't work. Go to a mall to play a video game? This isn't 1985.
Game developer? Starting from scratch with zero expertise?
Intellectual property license resale brokerage? Against the interest of external stakeholders who can torpedo any such plan.
Subscription service for online gaming? Maybe, but even Netflix eventually had to start producing their own content b/c content owners asked for so much.

If Cohen comes out and says phase 1 is to re-create Ebay for old disc games, or comes up with some plan that requires the cooperation of external entities against their best interests, the stock will die. It all comes down to one's assessment of whether Cohen is a genius or an egomaniac intent on reinventing the wheel and claiming credit for it.

I doubt anyone stands in his way, since he's the largest shareholder (13%), with most others being index funds (Fidelity, Vanguard, iShares, etc).
https://news.gamestop.com/stock-information/institutional-ownership

I'm also curious about his plan for GameStop:

"But now Cohen has to deliver. The company is seeking a new chief executive officer, with the goal of going head-to-head with Amazon.com Inc. and other e-commerce sites. And Cohen looks to forge new partnerships with video-game publishers and tech giants, potentially increasing the number of services GameStop can offer online."
https://news.yahoo.com/gamestop-turnaround-artist-ryan-cohen-110014940.html

At Chewy he focused on customer service and selection.  But with computer games, a specific game is only available from one company.  So selection requires he establish relationships with companies that already have their own platforms for online sales.

I expect 0% market share in smart phone gaming.  Google and Apple are not sharing their respective monopolies, and will warn users against possible viruses from third party stores/websites.

Consoles from Nintendo and Microsoft presumably have their own store built into the console, and also their own online store.  Right now they view GameStop as a way to make additional money from people who like to buy games in retail stores.  As GameStop mostly/totally closes those stores, they turn from partner to competitor.  Nintendo and Microsoft will see a drop in retail sales, and then the cause of that loss will ask for their help competing with them.  I don't expect that to work out well.

Steam, gog.com (Good Old Games) and Amazon have all been doing online game sales for years.  Someone with a library of steam games will want to buy their next game on steam, to have everything conveniently in one place.  Same with Good Old Games and their library.  Although Amazon is last in that list, they are planning a big push, which will probably crowd out GameStop's entry into the market.

If GameStop manages to have some new games, why won't people just keep buying games at Steam / gog / Amazon?  Why split their library between a hundred games on steam, and buying a new game on GameStop?  There is a real switching cost to those who built up libraries at existing websites, and I think that will translate to customers who are reluctant to switch.  Pet owners don't have to do anything to switch, so I think it will come as a surprise to outsiders trying to compete in the gaming industry.

Having reviewed my bear positions, I actually think GameStop is in my top 5.  But it might take longer for people to see that GameStop's long term prospects are bleaker than expected.

@arebelspy - Serious question - If GameStop does nothing, how long will you be enthusiastic about the stock?  If Ryan Cohen announces interesting things, but there's no money coming in or no customers, what is your time frame?

I guess I should do more research than just asking one person, but it's a start!  :)

[arebelspy]

@arebelspy - Serious question - If GameStop does nothing, how long will you be enthusiastic about the stock?  If Ryan Cohen announces interesting things, but there's no money coming in or no customers, what is your time frame?

You mean the stock doing nothing (flat) or the company doing nothing?

I don't really see the latter happening. They're already making moves, such as yesterday announcing they're leasing a new 700,000-square-foot fulfillment center for their online transition: https://www.msn.com/en-us/entertainment/gaming/gamestop-opening-fulfillment-center-in-e-commerce-transformation/ar-BB1gjwa4

They're clearly making a transition, not just sitting.

[ChpBstrd]

@arebelspy - Serious question - If GameStop does nothing, how long will you be enthusiastic about the stock?  If Ryan Cohen announces interesting things, but there's no money coming in or no customers, what is your time frame?

You mean the stock doing nothing (flat) or the company doing nothing?

I don't really see the latter happening. They're already making moves, such as yesterday announcing they're leasing a new 700,000-square-foot fulfillment center for their online transition: https://www.msn.com/en-us/entertainment/gaming/gamestop-opening-fulfillment-center-in-e-commerce-transformation/ar-BB1gjwa4

They're clearly making a transition, not just sitting.

Seems they are doubling down on hardware and physical accessories for PC gaming. I wonder if the next generation of gamers will be sitting in a gaming chair, at a gaming desk, running a water-cooled desktop PC, with controllers, big curved 4k monitors, etc. ... or if they will be using cell phones, tablets, or Facebook's Occulus VR? I suppose they could find a niche as a competitor to Newegg or Tiger Direct, but there's something old school feeling about building a $2500 custom gaming desktop computer every 3 years.

[MustacheAndaHalf]

"... it will open a more than 630,000 square foot distribution center (DC) in Shepherdsville, Kentucky ... The DC will also be used as a fulfillment center for its e-commerce orders and for the repair and refurbishment of pre-owned video game hardware and software, and electronic products that customers trade-in at any GameStop store."
https://news.gamestop.com/news-releases/news-release-details/gamestop-open-new-distribution-center-kentucky

Wow, doubling down on physical fulfillment (literally: going from about 270k sq ft to over 630k sq ft).  Now it all makes sense: Ryan Cohen took over GameStop because he wanted more of what GameStop already did, with greater efficiency.  On the plus side, Microsoft and Nintendo will see this as helping their sales in a non-competitive way.  So GameStop can keep using it's existing approach and relationships.

On the negative side, they are going to miss the switch from physical to digital.  A growing percentage of laptops don't have CD-ROM drives, because people download software instead of physically putting a CD in the drive.  I believe consoles have their own online stores, which are more convenient than shopping online and waiting for the physical CD to arrive.

Target adapted to online sales very well, and it's stock has gone +65% above it's pre-pandemic high.  Since early 2019, it's stock has almost tripled.  GameStop has done far less than Target, and since early 2019 it's stock has risen +1300% (thirteen hundred percent, not a typo).  Seems overvalued for where it is, and even where it's headed.

[MustacheAndaHalf]

@arebelspy - Serious question - If GameStop does nothing, how long will you be enthusiastic about the stock?  If Ryan Cohen announces interesting things, but there's no money coming in or no customers, what is your time frame?

You mean the stock doing nothing (flat) or the company doing nothing?

I don't really see the latter happening. They're already making moves, such as yesterday announcing they're leasing a new 700,000-square-foot fulfillment center for their online transition: https://www.msn.com/en-us/entertainment/gaming/gamestop-opening-fulfillment-center-in-e-commerce-transformation/ar-BB1gjwa4

They're clearly making a transition, not just sitting.

That's a lease agreement.  It's not nothing, but it's not much.

I expect GameStop to be judged on their online success.  How many additional customers will shop on GameStop's website and Google store app?

[ChpBstrd]

Target adapted to online sales very well, and it's stock has gone +65% above it's pre-pandemic high.  Since early 2019, it's stock has almost tripled.  GameStop has done far less than Target, and since early 2019 it's stock has risen +1300% (thirteen hundred percent, not a typo).  Seems overvalued for where it is, and even where it's headed.

The justification for software companies to have higher valuations is that the software business model has very low variable costs. Once they pay their fixed costs, the additional cost to sell and distribute the next 1,000 units of product is nearly nothing. Thus, their net margins could continually increase as their sales go up.

If GameStop's business model is to run warehouses doing refurb work on vintage hardware and software discs, and direct shipping from an online catalog, that's a model where variable costs would go up 1:1 with sales volume. It might be a great business, as many smokestack industries are, but there's not the potential for surprising, explosive, exponential growth to justify the high valuation. Had they gone a more radical direction, such as starting their own VR software ecosystem or creating a Netflix for gaming emulator app for mobile devices, I could justify a lotto-ticket valuation. But it appears the answer has arrived; GameStop will remain a niche hardware/software middleman with higher variable costs than a purely online business.

Now might be the time to grab a bear spread. Wall Street Bets' attention has already shifted to Microstrategy and crypto.

[MustacheAndaHalf]

My earlier short-term optimism for GME stock depended on Mr Cohen becoming Chairman of the Board, and GameStop pushing into digital e-commerce.  They plan to keep doing more of the same, but with greater speed and service.  I have no idea if that combination lifts the stock up, since it seems underwhelming compared to expectations.

Just to expand our echo chamber:
"Shorts only control 15% of GME stock now, says S&P Global Market Intelligence "
"Wall Street analysts who follow the stock closely warn it's worth much less than retail investors think it is. The average 12-month price target is just 17.92"
"GME stock's fundamentals are a story of steady decline."
https://www.investors.com/research/gamestop-gme-stock-buy-now/

I still have a very small number of unprotected short calls on GME.  Meaning someone speculated that GME will go above a certain price, and I sold them the call option.  Looks like I'll want to watch and see what happens this month before making a decision.  I no longer thing buying calls before the board meeting makes sense.

[arebelspy]

I'll continue to politely disagree, and am excited to see what's coming.

I think the transition to online sales will be good in terms of fundamentals, but more importantly I think there's still a huge squeeze opportunity. I think the reported short interest is not accurate.

Happy to wait and hold.

Now might be the time to grab a bear spread. Wall Street Bets' attention has already shifted to Microstrategy and crypto.

WSB was compromised (mods sold out, lots of bots/shills) and the GME holders left for other subs (/gme and /superstonk).

Their sentiment on anything now is suspect.

[frugalnacho]

I sold my last 0.12 shares yesterday at a loss.  Up about $100 overall. 

[MustacheAndaHalf]

I'll continue to politely disagree, and am excited to see what's coming.

I think the transition to online sales will be good in terms of fundamentals, ...

Since they already have online sales, I don't see the transition.  You can search for "game stop controllers", and see Xbox One controllers in the results.  Their website already lists video games, controllers, and accessories.  The things they claim to be moving towards already seem to be on their existing website.

Maybe they improve service and speed, but they're still operating in the retail sales of physical items related to computer games and consoles.  Consider how little stock they sold this year - I think that's proportional to the cash they need.  They aren't changing so dramatically that they need billions.

...  but more importantly I think there's still a huge squeeze opportunity.  I think the reported short interest is not accurate.

According to Yahoo Finance's data, the short interest is under 16%.  I'd rather have more sources of information.  Do you have a source that contradicts that?

Short % of Shares Outstanding (Apr 14, 2021) 4   15.70%
https://finance.yahoo.com/quote/GME/key-statistics?p=GME

[Financial.Velociraptor]

I'll continue to politely disagree, and am excited to see what's coming.

I think the transition to online sales will be good in terms of fundamentals, ...

Since they already have online sales, I don't see the transition.  You can search for "game stop controllers", and see Xbox One controllers in the results.  Their website already lists video games, controllers, and accessories.  The things they claim to be moving towards already seem to be on their existing website.

Maybe they improve service and speed, but they're still operating in the retail sales of physical items related to computer games and consoles.  Consider how little stock they sold this year - I think that's proportional to the cash they need.  They aren't changing so dramatically that they need billions.

...  but more importantly I think there's still a huge squeeze opportunity.  I think the reported short interest is not accurate.

According to Yahoo Finance's data, the short interest is under 16%.  I'd rather have more sources of information.  Do you have a source that contradicts that?

Short % of Shares Outstanding (Apr 14, 2021) 4   15.70%
https://finance.yahoo.com/quote/GME/key-statistics?p=GME

My understanding is the only way to see real time short interest is with a Bloomberg Terminal.  Retail investors only get an update twice a month.

[MustacheAndaHalf]

...  but more importantly I think there's still a huge squeeze opportunity.  I think the reported short interest is not accurate.

According to Yahoo Finance's data, the short interest is under 16%.  I'd rather have more sources of information.  Do you have a source that contradicts that?

Short % of Shares Outstanding (Apr 14, 2021) 4   15.70%
https://finance.yahoo.com/quote/GME/key-statistics?p=GME

My understanding is the only way to see real time short interest is with a Bloomberg Terminal.  Retail investors only get an update twice a month.

I would assume people at bloomberg.com have access to a Bloomberg terminal, yet when their article from early Feb mentions other sources than themselves:

"Short interest in the video-game retailer plummeted to 39% of free-floating shares, from 114% in mid-January, according to IHS Markit Ltd. data. Data from S3 Partners, another market intelligence firm, showed a similar pattern, with GameStop’s short sales having fallen to about 50% of its total stock available to trade, down from a high of roughly 140% reached earlier this year."
https://www.bloomberg.com/news/articles/2021-02-01/gamestop-short-interest-plummets-in-a-sign-traders-are-covering

[ChpBstrd]

...  but more importantly I think there's still a huge squeeze opportunity.  I think the reported short interest is not accurate.

According to Yahoo Finance's data, the short interest is under 16%.  I'd rather have more sources of information.  Do you have a source that contradicts that?

Short % of Shares Outstanding (Apr 14, 2021) 4   15.70%
https://finance.yahoo.com/quote/GME/key-statistics?p=GME

My understanding is the only way to see real time short interest is with a Bloomberg Terminal.  Retail investors only get an update twice a month.

I would assume people at bloomberg.com have access to a Bloomberg terminal, yet when their article from early Feb mentions other sources than themselves:

"Short interest in the video-game retailer plummeted to 39% of free-floating shares, from 114% in mid-January, according to IHS Markit Ltd. data. Data from S3 Partners, another market intelligence firm, showed a similar pattern, with GameStop’s short sales having fallen to about 50% of its total stock available to trade, down from a high of roughly 140% reached earlier this year."
https://www.bloomberg.com/news/articles/2021-02-01/gamestop-short-interest-plummets-in-a-sign-traders-are-covering

One issue with the short interest ratio is that the average daily trading volume is the denominator. For a “peaky” meme stock this average could fluctuate a lot as the volume fluctuates a lot. The short/float metric is probably more reliable for meme stocks, but even it has issues due to things like derivatives not counting or double-loaning of shares.

[arebelspy]

Lots of GME/AMC action in the last week or so.

I expect a lot more from GME (I don't follow AMC much) soon.

I think, due to the massive shorting, the company will receive more votes for their shareholders meeting than there are outstanding shares. This will be problematic.

Shareholder's meeting is 6/9. We'll see what happens.

I wouldn't want to be short these stocks.

[MustacheAndaHalf]

I think, due to the massive shorting, the company will receive more votes for their shareholders meeting than there are outstanding shares. This will be problematic.

Shareholder's meeting is 6/9. We'll see what happens.

I wouldn't want to be short these stocks.

Your investment relies on "massive shorting", which I don't see in the data.  Yahoo shows lower short interest, and the failure to deliver numbers have dropped dramatically.  If you're wrong about massive shorting, can the stock go higher?


I think more and more people are going to realize GameStop has an improved plan, but not a dramatically different one.  Their plan is more warehouse space, faster shipping, better response times to phone calls.  I don't view that as worth +900% gain YTD, so I'm waiting for GME to drop down to $50/share.

[theoverlook]

I think, due to the massive shorting, the company will receive more votes for their shareholders meeting than there are outstanding shares. This will be problematic.

From my brief reading, short sellers do not inherit voting rights when selling shares short.

https://www.investopedia.com/ask/answers/05/shortsalevotingrights.asp

"The investor that retains voting rights for corporate actions is the registered owner of the security, known as the holder of record.
In a short sale, the investor that shorts the shares never owns the shares and is, therefore, never the holder of record."

[arebelspy]

I think, due to the massive shorting, the company will receive more votes for their shareholders meeting than there are outstanding shares. This will be problematic.

Shareholder's meeting is 6/9. We'll see what happens.

I wouldn't want to be short these stocks.

Your investment relies on "massive shorting", which I don't see in the data.  Yahoo shows lower short interest, and the failure to deliver numbers have dropped dramatically.  If you're wrong about massive shorting, can the stock go higher?

As I've mentioned, shorts are being hidden in massively item calls and massively otm puts. I'm not sure what other explanation there is for buying a put at 0.50 right now. Or buying a bunch of $10 calls (why not buy shares or closer to ITM)?

The data is purposefully wrong because the hedge funds are manipulating the numbers to not show the true short percentage.

I think more and more people are going to realize GameStop has an improved plan, but not a dramatically different one.  Their plan is more warehouse space, faster shipping, better response times to phone calls.  I don't view that as worth +900% gain YTD, so I'm waiting for GME to drop down to $50/share.

I think it will, in time. Not soon.

I think, due to the massive shorting, the company will receive more votes for their shareholders meeting than there are outstanding shares. This will be problematic.

From my brief reading, short sellers do not inherit voting rights when selling shares short.

https://www.investopedia.com/ask/answers/05/shortsalevotingrights.asp

"The investor that retains voting rights for corporate actions is the registered owner of the security, known as the holder of record.
In a short sale, the investor that shorts the shares never owns the shares and is, therefore, never the holder of record."

Right. But all those people who own the shares do.

Short seller sells makes shorts to 20 people, who all vote, and the votes come in higher than there are outstanding shares, there's a problem.

The short hedge funds don't wanna vote... but the people holding GME sure do.

[ChpBstrd]

Kinda changing the subject here, but staying on the topic of three-letter stocks starting with G and containing E. I wonder if GEO could be the next GME?

Short % of float on 4/30/21:
 GME: 28.96%
 GEO: 48.68%

Short % shares outstanding on 4/30/21:
 GME: 16.7%
 GEO: 31.47%

Number of shares short Mar-Apr change:
 GME: decreasing
 GEO: increasing

P/E:
 GME: negative and negative for the foreseeable future
 GEO: 5.38 (forward PE is around 6)

1 year price performance:
 GME: 2710%
 GEO: -46%

The story with GEO is they are a leveraged (D/E = 316%) private prison operator structured as an REIT (and big Republican donor) facing both pandemic costs and Joe Biden’s calls to abolish the use of private prison contractors. Already they’ve lost several contracts for the federal Bureau of Prisons, and BOP work accounted for 14% of revenue. Prisons aren’t exactly like apartments, so GEO is looking at years of vacancy - while paying the debts on these facilities - before they can sell them at a loss or contract with a local jurisdiction who will have a negotiating advantage as monopolistic buyers against a seller whose back is against the wall. GEO recently cut their 10% dividend to try and de-leverage, and they may change out of their REIT status soon to obtain more financial flexibility, as competitor CoreCivic did.

My question, which I don’t have time to research, is how much of their revenue comes from reliable sources, such as red-state state governments, versus how much could be cut in the next two years? Is GEO a falling knife with questionable ethics and a suddenly untenable debt burden or a compelling value play that will double by the next election season, when prison outbreaks of COVID-19 are a historical footnote? In the meantime, I think GEO has a much better chance of being a short squeeze candidate near the point of maximum pessimism, like where GME was several months ago. Additionally, GEO might be seen as a portfolio hedge against social chaos; their services might be sought after and their political critics muted in the event of rising crime or conspiracy-theory-led outbreaks of insurrection, ethnic conflict, or terrorism. Thoughts?

[chasesfish]

Not GME, but I'm going to have to break down and buy puts in AMC...four days in the last six I haven't been able to get shares to borrow and short..

They were readily available in March and the company continues to issue equity.  Where the heck are the shares!?!?

[MustacheAndaHalf]

arebelspy - I think I replied earlier that massively in the money calls make no sense at all.  They cost just as much as the stock, and nullify holding a short position.  If you are both bullish and bearish on the same stock, you pay fees and get no profits.

ChpBstrd - It doesn't look like a Covid sensitive stock.  If you look at a graph of Macy's stock, there's a huge drop when the pandemic starts.  On GEO's stock price graph, it's hard to spot.  The first year of the Trump Presidency was more dramatic for the stock than the pandemic.  If Biden follows through with not renewing any contracts with private prison companies, GEO will keep losing business.  Would it make sense to wait 2-3 years for the next Presidential election cycle?

chasesfish - Even though they issued 350m more shares (total 450m), it doesn't seem to have pushed the stock price much lower.  I think current investors are ignoring the dilution.  Maybe summer will see an increase in moviegoing, but it won't be 5x more than last year - especially with streaming services on the rise.

But I'm getting a bit bored with predicting AMC.  I thought the stock would drop Tuesday, and it dropped Wednesday.  Looking at stock price patterns reminds me I'd rather be index investing.

[arebelspy]

arebelspy - I think I replied earlier that massively in the money calls make no sense at all.  They cost just as much as the stock, and nullify holding a short position.  If you are both bullish and bearish on the same stock, you pay fees and get no profits.

Agreed.

I think this is one of the clear pieces of evidence the short interest is much higher than reported, as they're using these massively ITM calls and massively OTM puts to roll out their FTD times on short positions to not be showing failure to delivers and not have to deliver or report on how short they actually are.

Some of the other evidence involves the buy/sell ratios on major brokers, activity reported from various international brokers, etc.

[MustacheAndaHalf]

arebelspy - I think I replied earlier that massively in the money calls make no sense at all.  They cost just as much as the stock, and nullify holding a short position.  If you are both bullish and bearish on the same stock, you pay fees and get no profits.

I think this is one of the clear pieces of evidence the short interest is much higher than reported, as they're using these massively ITM calls and massively OTM puts to roll out their FTD times on short positions to not be showing failure to delivers and not have to deliver or report on how short they actually are.

Some of the other evidence involves the buy/sell ratios on major brokers, activity reported from various international brokers, etc.

Maybe I'm misunderstanding the short position + deep in the money calls, because it makes no sense to me.  Someone shorts 100 shares of GME stock at $175 ($17,500 worth) and then buys 100 shares (1 contract) call option with a $60 strike for $12,200.  How can they possibly profit?


https://finance.yahoo.com/quote/GME/options?p=GME
Looking at May 21 and May 28 call options, there isn't many deep in the money.  Calls expiring tomorrow aren't that popular below $90 strike - the most is 23 "open interest" at $35 strike.  23 means 2,300 shares, or 1/30,000th of total GME shares.  There's the May 28 calls, where $50 and $60 stick out with 100 contracts each.  But even 20,000 shares is 1/3,500th of the overall 71M shares of GME.

If there's deep in the money calls used for some purpose... where are they?