Author Topic: GME deathwatch - how to profit?  (Read 74752 times)

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #600 on: March 30, 2022, 09:18:36 AM »
I'm doing my "short via post" of GME at 187.12 / share.  I haven't done anything in my brokerage accounts, I'm just pretending to short 1 share of GME here, in this thread:
Consider me to suddenly have $187.12 cash and -1 GME share.

It's a bit better if you keep me honest by quoting me - then I could in theory edit this post later, but not the quoted post by someone else.

I'll take the $187.12 and "buy via post" a fractional share of VTI at it's value as of the same date and time as the above post.  I now "own" $231.32 / $187.12 = 1.236 shares of VTI.

I'll reinvest dividends into more VTI; I'm not sure what margin rate @MustacheAndaHalf is "paying".
If I really sold short 1 share of GME at IBKR, they would charge me an interest rate based on the cost to borrow that stock from someone else, which can be expensive.  My guess would be 25%/year, rather than the very cheap 1.83% margin rate IBKR Pro charges.

You have $187.12 cash and VTI is $231.85/share... so putting in fractional shares:
0.807073534 shares of VTI

I guess I'll follow your idea with a different level of aggression, and go with 3 shares of ARKW at $92.33/share.
2.02664356 shares of ARKW

Both of which are funded by -1 GME share, which requires us to buy it back later.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4223
Re: GME deathwatch - how to profit?
« Reply #601 on: March 30, 2022, 09:23:41 AM »
If the past is any guide, the recent peak might be a good time for a bear spread in GME. We're in another short squeeze, but I seriously doubt it is anything like the magnitude of 2021 and I seriously doubt many people have moon ambitions for GME. They have short term gain ambitions because getting out in time is what worked last time. I wonder how quickly GME management can act to issue more shares into the squeeze like they did last time, undermining their own diamond hand fans.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28476
  • Age: -999
  • Location: Seattle, WA
Re: GME deathwatch - how to profit?
« Reply #602 on: March 30, 2022, 09:24:41 AM »
Upper management is buying more for their personal holdings, not selling.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #603 on: March 30, 2022, 09:38:19 AM »
Upper management is buying more for their personal holdings, not selling.
More precisely: "GameStop Stock Skyrockets After Billionaire Ryan Cohen Buys Another $10 Million In Shares"
https://www.forbes.com/sites/jonathanponciano/2022/03/23/gamestop-stock-billionaire-ryan-cohen-buys-shares/?sh=2961d9511d67

Ryan Cohen invested $11.1M, and another board member invested a rounding error of that amount.  Most of the board members ("upper management") bought nothing - the only reason this made the news was Ryan Cohan's purchase of 100,000 shares of GME.
https://finance.yahoo.com/screener/insider/COHEN%20RYAN

More importantly, why is a Ryan Cohan putting 1% of his wealth into GameStop stock worth a +45% jump in the stock price over 1 week?  It's more evidence GameStop trades on hype, not substance.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4539
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: GME deathwatch - how to profit?
« Reply #604 on: March 30, 2022, 09:47:53 AM »
I'm doing my "short via post" of GME at 187.12 / share.  I haven't done anything in my brokerage accounts, I'm just pretending to short 1 share of GME here, in this thread:
Consider me to suddenly have $187.12 cash and -1 GME share.

It's a bit better if you keep me honest by quoting me - then I could in theory edit this post later, but not the quoted post by someone else.

I'll take the $187.12 and "buy via post" a fractional share of VTI at it's value as of the same date and time as the above post.  I now "own" $231.32 / $187.12 = 1.236 shares of VTI.

I'll reinvest dividends into more VTI; I'm not sure what margin rate @MustacheAndaHalf is "paying".
If I really sold short 1 share of GME at IBKR, they would charge me an interest rate based on the cost to borrow that stock from someone else, which can be expensive.  My guess would be 25%/year, rather than the very cheap 1.83% margin rate IBKR Pro charges.

You have $187.12 cash and VTI is $231.85/share... so putting in fractional shares:
0.807073534 shares of VTI

I guess I'll follow your idea with a different level of aggression, and go with 3 shares of ARKW at $92.33/share.
2.02664356 shares of ARKW

Both of which are funded by -1 GME share, which requires us to buy it back later.

I'm disqualifying myself, for two reasons:

A.  I can't math.
B.  I don't want to own -1 GME; I thought it was just a free $187.12.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4223
Re: GME deathwatch - how to profit?
« Reply #605 on: March 30, 2022, 09:57:40 AM »
Upper management is buying more for their personal holdings, not selling.
More precisely: "GameStop Stock Skyrockets After Billionaire Ryan Cohen Buys Another $10 Million In Shares"
https://www.forbes.com/sites/jonathanponciano/2022/03/23/gamestop-stock-billionaire-ryan-cohen-buys-shares/?sh=2961d9511d67

Ryan Cohen invested $11.1M, and another board member invested a rounding error of that amount.  Most of the board members ("upper management") bought nothing - the only reason this made the news was Ryan Cohan's purchase of 100,000 shares of GME.
https://finance.yahoo.com/screener/insider/COHEN%20RYAN

More importantly, why is a Ryan Cohan putting 1% of his wealth into GameStop stock worth a +45% jump in the stock price over 1 week?  It's more evidence GameStop trades on hype, not substance.

Maybe because Cohen and co. saw an opportunity to trigger a short squeeze and then issue more shares at the inflated prices?

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #606 on: March 30, 2022, 09:58:30 AM »
...
I'm disqualifying myself, for two reasons:

A.  I can't math.
B.  I don't want to own -1 GME; I thought it was just a free $187.12.
Fair enough.  Many fans of GME talk about the short positions being too high, so it might be useful for me to mention some of what happens when someone really shorts the stock.

In my IBKR account, I would select "GME" and action "sell short", entering "1" for the shares.  Doing that yesterday would show a position of -1 GME in my account, and $187.12 more cash in the account.  I'm selling first, and buying later.

IBKR allws clients to loan their shares, so another client might have GME shares they're willing to loan.  IBKR takes 1 GME share from that client and sells it on the market, meeting the need to sell one share of GME short.  That other person's account will not show a change: they are owed 1 GME share, and if they sell it IBKR will begin the search anew.

I think something similar happens outside IBKR if they lack shares - they to go institutions or other brokers in search of shares to borrow and sell short.

If you sold 1 share GME short yesterday, and changed your mind today, you would then select that position and "buy to close".  The $187.12 cash would drop by the market price of GME $177.18 now, and you would have 0 GME shares and $9.94 cash left from shorting the stock.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #607 on: March 30, 2022, 10:04:50 AM »
Upper management is buying more for their personal holdings, not selling.
More precisely: "GameStop Stock Skyrockets After Billionaire Ryan Cohen Buys Another $10 Million In Shares"
https://www.forbes.com/sites/jonathanponciano/2022/03/23/gamestop-stock-billionaire-ryan-cohen-buys-shares/?sh=2961d9511d67

Ryan Cohen invested $11.1M, and another board member invested a rounding error of that amount.  Most of the board members ("upper management") bought nothing - the only reason this made the news was Ryan Cohan's purchase of 100,000 shares of GME.
https://finance.yahoo.com/screener/insider/COHEN%20RYAN

More importantly, why is a Ryan Cohan putting 1% of his wealth into GameStop stock worth a +45% jump in the stock price over 1 week?  It's more evidence GameStop trades on hype, not substance.
Maybe because Cohen and co. saw an opportunity to trigger a short squeeze and then issue more shares at the inflated prices?
I wonder what the SEC would do in that case.  All he did was buy shares - not recommend the stock, and then he hurt his own position by diluting the stock.

I believe GameStop's Chairman has over 1.3 million shares of GME stock, or somewhere between 1/5th and 1/4th of a billion dollars worth.  If he prints more shares, he loses a lot of money.

There's also this weird dynamic between people like him and Elon Musk, where their fans follow their hints.  So Ryan Cohan has more power making hints about NFTs than he does if he breaks that relationship by diluting shares.

I recall when GME was up in the $300 - $450/sh range, he didn't do anything.  So it seems like something he won't do, and reflects his belief in turning the company into something other than a retail chain.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4223
Re: GME deathwatch - how to profit?
« Reply #608 on: March 30, 2022, 10:26:08 AM »
Upper management is buying more for their personal holdings, not selling.
More precisely: "GameStop Stock Skyrockets After Billionaire Ryan Cohen Buys Another $10 Million In Shares"
https://www.forbes.com/sites/jonathanponciano/2022/03/23/gamestop-stock-billionaire-ryan-cohen-buys-shares/?sh=2961d9511d67

Ryan Cohen invested $11.1M, and another board member invested a rounding error of that amount.  Most of the board members ("upper management") bought nothing - the only reason this made the news was Ryan Cohan's purchase of 100,000 shares of GME.
https://finance.yahoo.com/screener/insider/COHEN%20RYAN

More importantly, why is a Ryan Cohan putting 1% of his wealth into GameStop stock worth a +45% jump in the stock price over 1 week?  It's more evidence GameStop trades on hype, not substance.
Maybe because Cohen and co. saw an opportunity to trigger a short squeeze and then issue more shares at the inflated prices?
I wonder what the SEC would do in that case.  All he did was buy shares - not recommend the stock, and then he hurt his own position by diluting the stock.

I believe GameStop's Chairman has over 1.3 million shares of GME stock, or somewhere between 1/5th and 1/4th of a billion dollars worth.  If he prints more shares, he loses a lot of money.

There's also this weird dynamic between people like him and Elon Musk, where their fans follow their hints.  So Ryan Cohan has more power making hints about NFTs than he does if he breaks that relationship by diluting shares.

I recall when GME was up in the $300 - $450/sh range, he didn't do anything.  So it seems like something he won't do, and reflects his belief in turning the company into something other than a retail chain.

There's a lot more scrutiny applied when insiders sell shares vs. when they buy shares, so maybe this explains why Cohen didn't sell high when he had the chance. It's possible that a lot of GME's executive compensation is tied to the stock price, so he wins money on the side any time he can pump the stock.

Also, IDK if execs are able to hedge their stock purchases. E.g. if the insiders could sell a bunch of ITM call options right now, they might not be going as all-in as first appears.

Lastly, if the executives can set off a short squeeze and pump GME's stock from $80 to $170 just by buying a few million dollars worth of shares at $80, and then GME can issue a few tens of millions of dollars in stock at $170 before the price falls back to $80, then the dilution would have less an effect on their stock values than the new cash on the balance sheet. That is to say, the -10% impact on my price per share due to 10% dilution might be less than the impact of the enterprise value increasing 15% due to all the new cash collected at the top of a short squeeze.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4539
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: GME deathwatch - how to profit?
« Reply #609 on: March 30, 2022, 12:09:10 PM »
...
I'm disqualifying myself, for two reasons:

A.  I can't math.
B.  I don't want to own -1 GME; I thought it was just a free $187.12.
Fair enough.  Many fans of GME talk about the short positions being too high, so it might be useful for me to mention some of what happens when someone really shorts the stock.

In my IBKR account, I would select "GME" and action "sell short", entering "1" for the shares.  Doing that yesterday would show a position of -1 GME in my account, and $187.12 more cash in the account.  I'm selling first, and buying later.

IBKR allws clients to loan their shares, so another client might have GME shares they're willing to loan.  IBKR takes 1 GME share from that client and sells it on the market, meeting the need to sell one share of GME short.  That other person's account will not show a change: they are owed 1 GME share, and if they sell it IBKR will begin the search anew.

I think something similar happens outside IBKR if they lack shares - they to go institutions or other brokers in search of shares to borrow and sell short.

If you sold 1 share GME short yesterday, and changed your mind today, you would then select that position and "buy to close".  The $187.12 cash would drop by the market price of GME $177.18 now, and you would have 0 GME shares and $9.94 cash left from shorting the stock.

Lolz.  I know how short sales work, thanks.  I'm just scatterbrained and really not paying attention much to GME, since I don't short, don't do options, don't buy individual stocks, don't try to time the market, and don't play with meme stocks.  I'm mostly just here for the entertainment value with a 1% chance and effort to set my friend rebs straight. ;-)

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28476
  • Age: -999
  • Location: Seattle, WA
Re: GME deathwatch - how to profit?
« Reply #610 on: March 30, 2022, 12:09:44 PM »
I'm mostly just here for the entertainment value with a 1% chance and effort to set my friend rebs straight. ;-)

<3

I appreciate you. :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

clifp

  • Pencil Stache
  • ****
  • Posts: 723
Re: GME deathwatch - how to profit?
« Reply #611 on: March 30, 2022, 03:00:26 PM »


There's a lot more scrutiny applied when insiders sell shares vs. when they buy shares, so maybe this explains why Cohen didn't sell high when he had the chance. It's possible that a lot of GME's executive compensation is tied to the stock price, so he wins money on the side any time he can pump the stock.

Also, IDK if execs are able to hedge their stock purchases. E.g. if the insiders could sell a bunch of ITM call options right now, they might not be going as all-in as first appears.

Lastly, if the executives can set off a short squeeze and pump GME's stock from $80 to $170 just by buying a few million dollars worth of shares at $80, and then GME can issue a few tens of millions of dollars in stock at $170 before the price falls back to $80, then the dilution would have less an effect on their stock values than the new cash on the balance sheet. That is to say, the -10% impact on my price per share due to 10% dilution might be less than the impact of the enterprise value increasing 15% due to all the new cash collected at the top of a short squeeze.

Generally, speaking CEO, need to plan their stock sells months in advance.

I don't think SEC rules prohibit outright hedging with options but I know most big companies, put restrictions at the VP/corporate officer level and above. Selling covered calls is ok, but any type of net short position would be prohibited.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #612 on: April 02, 2022, 01:32:10 PM »
Many fans of GME talk about the short positions being too high, so it might be useful for me to mention some of what happens when someone really shorts the stock ...
Lolz.  I know how short sales work, thanks.  I'm just scatterbrained and really not paying attention much to GME, since I don't short, ...
I didn't mean to talk down to you, sorry about that.  I was mostly aiming at anyone else who didn't know how it works.


Maybe because Cohen and co. saw an opportunity to trigger a short squeeze and then issue more shares at the inflated prices?
... If he [Cohen] prints more shares, he loses a lot of money.
... I recall when GME was up in the $300 - $450/sh range, he didn't do anything. 
There's a lot more scrutiny applied when insiders sell shares vs. when they buy shares, so maybe this explains why Cohen didn't sell high when he had the chance.
...
Cut out some sections to focus on the context of my comment: I was saying GameStop didn't print more shares when Cohen could have encouraged the board to do that, so I suspect he won't be creating a new share offering.

AMC took the other route, issuing shares to obtain much needed cash it needed to continue operating.  AMC later allowed people to buy AMC movie tickets with Dogecoin, so I don't think the share offering was a cynical move - AMC needed the lifeline.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4539
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: GME deathwatch - how to profit?
« Reply #613 on: April 02, 2022, 01:36:10 PM »
Many fans of GME talk about the short positions being too high, so it might be useful for me to mention some of what happens when someone really shorts the stock ...
Lolz.  I know how short sales work, thanks.  I'm just scatterbrained and really not paying attention much to GME, since I don't short, ...
I didn't mean to talk down to you, sorry about that.  I was mostly aiming at anyone else who didn't know how it works.

No worries, thanks for the reply!

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #614 on: April 07, 2022, 09:32:37 AM »
I'm doing my "short via post" of GME at 187.12 / share.  I haven't done anything in my brokerage accounts, I'm just pretending to short 1 share of GME here, in this thread:
Consider me to suddenly have $187.12 cash and -1 GME share.

It's a bit better if you keep me honest by quoting me - then I could in theory edit this post later, but not the quoted post by someone else.
GME has dropped over 8% today, falling below it's average for the past year.  Since I can't predict WSB, I'm closing this "short via post position.  According to Yahoo finance right now:

Quote
143.73  -12.91 (-8.24%)
As of 11:25AM EDT. Market open.
https://finance.yahoo.com/quote/GME/

I owe $0 of short interest thanks to this being a fake thing.  So I take the original $187.12 from the short position, and close my -1 share of short GME stock by purchasing one share at $143.73, leaving me with $43.39 (fake) profit from the short position.

I did a fake short sale, waited for 23% of drops, and closed the position - all in this thread: no actual GameStop shares were harmed.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4539
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: GME deathwatch - how to profit?
« Reply #615 on: April 07, 2022, 09:46:26 AM »
I'm doing my "short via post" of GME at 187.12 / share.  I haven't done anything in my brokerage accounts, I'm just pretending to short 1 share of GME here, in this thread:
Consider me to suddenly have $187.12 cash and -1 GME share.

It's a bit better if you keep me honest by quoting me - then I could in theory edit this post later, but not the quoted post by someone else.
GME has dropped over 8% today, falling below it's average for the past year.  Since I can't predict WSB, I'm closing this "short via post position.  According to Yahoo finance right now:

Quote
143.73  -12.91 (-8.24%)
As of 11:25AM EDT. Market open.
https://finance.yahoo.com/quote/GME/

I owe $0 of short interest thanks to this being a fake thing.  So I take the original $187.12 from the short position, and close my -1 share of short GME stock by purchasing one share at $143.73, leaving me with $43.39 (fake) profit from the short position.

I did a fake short sale, waited for 23% of drops, and closed the position - all in this thread: no actual GameStop shares were harmed.

I would have hedl ( ;-) ) on to VTI, but if I closed it out at about the same timestamp (11:32 ET), I'd have lost about $7 or so.

bacchi

  • Walrus Stache
  • *******
  • Posts: 6199
Re: GME deathwatch - how to profit?
« Reply #616 on: April 07, 2022, 10:27:00 AM »
I have some short April 220 calls that I'll let expire. Things were looking grim last week when the after-market spiked because of the stock split announcement but the exuberance settled.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #617 on: April 07, 2022, 11:00:11 AM »
I have some short April 220 calls that I'll let expire. Things were looking grim last week when the after-market spiked because of the stock split announcement but the exuberance settled.
Keeping positions small is really important, and somthing I screwed up earlier.

Taking my 10 day profit and assuming that happened 36 times in a row, you get an annualized gain of +172,319%.  Which is to say 23% is an amazing return for a year, let alone 10 days.

bacchi

  • Walrus Stache
  • *******
  • Posts: 6199
Re: GME deathwatch - how to profit?
« Reply #618 on: April 07, 2022, 12:13:06 PM »
I have some short April 220 calls that I'll let expire. Things were looking grim last week when the after-market spiked because of the stock split announcement but the exuberance settled.
Keeping positions small is really important, and somthing I screwed up earlier.

Taking my 10 day profit and assuming that happened 36 times in a row, you get an annualized gain of +172,319%.  Which is to say 23% is an amazing return for a year, let alone 10 days.

Yes, I'm only short 3 calls. And I wasn't pleased when it looked like I was going to buy them back at ~$3000 each.

I need to stick to spreads. Less profit but far less stress.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4223
Re: GME deathwatch - how to profit?
« Reply #619 on: April 07, 2022, 01:12:48 PM »
It's an interesting dynamic watching the broader markets fall due to interest rate hikes and the meme stock markets rise due to the expectation of short squeezes. If the short squeezes didn't last in the banner year of 2021, it would be bold to suggest they would last in 2022 with the headwind of rising rates.

jim555

  • Magnum Stache
  • ******
  • Posts: 2890
Re: GME deathwatch - how to profit?
« Reply #620 on: April 07, 2022, 06:10:43 PM »
It's an interesting dynamic watching the broader markets fall due to interest rate hikes and the meme stock markets rise due to the expectation of short squeezes. If the short squeezes didn't last in the banner year of 2021, it would be bold to suggest they would last in 2022 with the headwind of rising rates.
Meme stacks are going to get crushed in a Fed QT.  They went up in the froth of the gigantic QE of 2020.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #621 on: April 08, 2022, 09:10:39 AM »
I have some short April 220 calls that I'll let expire. Things were looking grim last week when the after-market spiked because of the stock split announcement but the exuberance settled.
Keeping positions small is really important, and somthing I screwed up earlier.
Yes, I'm only short 3 calls. And I wasn't pleased when it looked like I was going to buy them back at ~$3000 each.

I need to stick to spreads. Less profit but far less stress.
Unfortunately I don't need to imagine that scenario.... -2075% returns, anyone?

This was just over a year ago.  My starting position was small and had a 90-95% profit before I picked up nickels in front of the steamroller.  In the chart below, I closed it out with +30.68% profit instead, taking substantial losses on everything else.

Here's the numbers to go with the mistakes I mentioned above:

   The Fad Fund         price      orig price      gain / loss   
   AMC $22 call 2023         $458.00      -$199.56      -129.50%   
   GME $800 call Mar 12         $1,926.00      -$144.63      -1231.67%   
   GME $800 call July 16         $5,000.00      -$229.90      -2074.86%   
   GME $950.00 call 2022         $4,713.00      -$6,799.12      30.68%   

The most dramatic first: the July 16 calls at a -2075% loss.  I canceled my stop loss to lose more... I mean buy more calls.  That's a really bad combination.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #622 on: April 08, 2022, 09:31:18 AM »
Even as I closed my positions, I was confident it wouldn't last - but I was not 100% confident, and had already screwed up getting to that point.  With appropriately small positions, I would have just waited it out.

When I originally sold a GME call (a short call position), nobody here thought that would end well.  Ironically, that's the +31% profit.  During the weekend when GME was nationwide news, I was confident every hedge fund and institutional investor would know about it by Monday.  I predicted that GME stock would try to rise Monday, and get hit back down by selling - which is what I saw when I watched the markets that day.  So I acted, and $850 strike calls with an appropriate position size.  I limited my risk with "stop loss orders" to close my position if I was wrong.  And then I dropped the discipline.

Later I assumed institutional investors were permanently watching GME stock, and would respond to any short squeeze with selling.  But I can't point to any evidence in the stock market - unlike my earlier disciplined approach.  I just thought selling GME calls was free money, backed by instituional selling.  But the biggest mistake would definitely be position sizing.

That was spoiled by the second short squeeze in GME, where the price never even reached $400/share, let alone my $800 strike price.  But the volatility make these $800 calls go up 10x in price, which convinced me to close positions at huge losses.  If I had appropriately sized my earlier position, I could have done it again in the second short squeeze.  That's the other problem: my large position meant I was taking losses during anoter opportunity to short a small position in GME calls and wait.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 4223
Re: GME deathwatch - how to profit?
« Reply #623 on: April 08, 2022, 11:34:54 AM »
Even as I closed my positions, I was confident it wouldn't last - but I was not 100% confident, and had already screwed up getting to that point.  With appropriately small positions, I would have just waited it out.

When I originally sold a GME call (a short call position), nobody here thought that would end well.  Ironically, that's the +31% profit.  During the weekend when GME was nationwide news, I was confident every hedge fund and institutional investor would know about it by Monday.  I predicted that GME stock would try to rise Monday, and get hit back down by selling - which is what I saw when I watched the markets that day.  So I acted, and $850 strike calls with an appropriate position size.  I limited my risk with "stop loss orders" to close my position if I was wrong.  And then I dropped the discipline.

Later I assumed institutional investors were permanently watching GME stock, and would respond to any short squeeze with selling.  But I can't point to any evidence in the stock market - unlike my earlier disciplined approach.  I just thought selling GME calls was free money, backed by instituional selling.  But the biggest mistake would definitely be position sizing.

That was spoiled by the second short squeeze in GME, where the price never even reached $400/share, let alone my $800 strike price.  But the volatility make these $800 calls go up 10x in price, which convinced me to close positions at huge losses.  If I had appropriately sized my earlier position, I could have done it again in the second short squeeze.  That's the other problem: my large position meant I was taking losses during anoter opportunity to short a small position in GME calls and wait.

^ Solid advice. The bigger one's position, the easier it is to be forced out on a temporary move. Small positions have a certain optionality to them if you can let them ride to the bitter end, or maintain enough buying power to roll them if worse comes to worse. The logic of small speculative positions butts up against our mind's tendency to seek certainty. It's the high conviction plays, as the gamblers call it, that sink ships.

One more lesson should be learned from @MustacheAndaHalf 's experience: Never, ever, ever write naked short calls. Plenty of money can be made and lost in spreads without the reverse-lotto-ticket effect that would wreck an entire portfolio. At least with short puts the stock can only go to zero.

MustacheAndaHalf

  • Walrus Stache
  • *******
  • Posts: 5224
Re: GME deathwatch - how to profit?
« Reply #624 on: April 08, 2022, 11:48:08 AM »
...
Later I assumed institutional investors were permanently watching GME stock, and would respond to any short squeeze with selling.  But I can't point to any evidence in the stock market - unlike my earlier disciplined approach.  I just thought selling GME calls was free money, backed by instituional selling.  But the biggest mistake would definitely be position sizing.
...
One more lesson should be learned from @MustacheAndaHalf 's experience: Never, ever, ever write naked short calls. Plenty of money can be made and lost in spreads without the reverse-lotto-ticket effect that would wreck an entire portfolio. At least with short puts the stock can only go to zero.
No, the lesson is position sizing, which is what I stated and another poster confirmed.  In a book about volatility I saw 300% listed as extreme... GME calls reached 4,000% volatility - an order of magnitude beyond anything expected.  And even then, with a small position you could just wait.

You could also have a "stop loss order", which I mentioned earlier.  You specify the price at which you consider losses too great, and that "stop loss" becomes a market order to limit losses.  Small position sizes with stop loss orders can be used to limit the impact, and limit the losses in someone's overall portfolio.