The epic Wall Street battle over GME and AMC

Since I’m covered by freedom of speech, I will go on and write an article according to my opinion about what has happened with GameStop (GME) and AMC Entertainment Holdings Inc (AMC) in the last couple of days. This is not the usual way that other websites write articles. This is coming from a retail investor that happens to be a writer at FDGT academy. If you are a retail investor you should keep on reading.

This goes out to all of you, all of us that joined this “fight” and have purchased GME or AMC stocks or even watching from the side lines. This is a battle between Wall Street and the retail investor.

Explanatory terms:

Why did GME get so much traction?

Last April, GameStop announced massive closures of their stores and the stock price fell to $3.25 per share. This was viewed as an opportunity for small investors to jump in and buy a cheap stock. However, this wasn’t the case with Wall Street that saw this as an opportunity to short the stock and bet that the stock will crash.

The story goes like this, wallstreetbets a group of average investors on Reddit have decided to unite and buy the stock in order to short squeeze the “men in suits”. This group had approximately 2.3 million members until two days ago that Elon Musk tweeted their link with the headline Gamestonk!! The group has now approximately 5.3 million members. Investors like you and me who bought the stock and united, managed to make the stock rise to $395 at the time of writing. This has proved to be very costly for the professional financiers with one of the biggest victims Melvin Capital a hedge fund that started the year with $12.5 billion in AUM (assets under management) and has lost 30% according to The Wall Street Journal. The Wall Street Journal article also states that the hedge fund announced an emergency of $2.75 billion funding from other hedge funds such as Citadel and Point 72.

According to Investopedia, GameStop has the highest percentage of float shorting in the world. According to the S3 Partners report, the short interest is currently $5.5 billion compared to $276 million a year ago. The report also mentions that the percentage of the float sold short is 139% making it the highest level worldwide. Shorting a stock can be very risky since it involves borrowing a company’s shares and selling them with the intention of buying them back at a lower price. For example, shorting a stock at $10 and let’s say the stock goes to $1, you have made $9 profit on each stock. Then you go and buy the stock at $1 returning the borrowed shares. I assume this is how Wall Street has made part of its fortune.

Shorting a stock is risky because losses can be limitless since the stock price can keep rising indefinitely while a price drop on a stock price can be limited to up to 100% in an extreme case of a stock price going to zero.

The battle goes on in Reddit where users are not willing to give up their positions until the “men in suits” give up theirs. This is a unique situation between a new generation of traders and established players. On a live interview on CNBC with Mark Cuban, he was asked from the reporter “If you are manipulating the market prices I don’t see how that’s a good thing in any scenario”, his response was “How is this any different from what every brokerage firm does?”. This is one of many examples of people that sided with the average investor.

Melvin Capital is not the only loser; Citron Research has also taken a sharp lesson and gave up its short position on the stock.

As someone who started trading many years ago, I would like to remind you and remind myself that I have seen many retail investors losing money while bigger players were eligible to benefit. Why does the media point the finger at the retail investors and keep repeating that an SEC Investigation needs to take place on the matter now that the tables have turned?

After the battle has spread, a Reddit user posted to CNBC open letter “Your contempt for the retail investor (your audience) is palpable and if you don’t get it together, you will lose an entire new generation of investors”. Then CNBC went live with a header lawmakers’ side with retail investors against Wall Street Institutions. Again, a testimony of the power of unity. In my opinion, this is no different than mass protests taking place in Washington in the 60s to change the world order.

White House involvement

Yesterday, many big brokerages suspended the purchase of GME and AMC from the platforms leaving only the option for selling the stock while Robinhood completely removed the stock from its search according to sources on Reddit. Retail investors went mad and turned to brokerages that didn’t have similar restrictions. Robinhood was one of the brokerages that cause anger to investors that filled a lawsuit against the brokerage. Some others deleted their app, closed their accounts, and even changed Robinhood’s description on Wikipedia.

Source: Wikipedia

WeBull CEO Anthony Denier told Yahoo Finance, “It wasn’t our choice. Our clearing firm gave us a call and said we’re going to have to stop allowing you from opening positions due to high volatility. It takes two whole days for brokerages to fund trades with central clearing houses, and because of the volatility of these stocks, the clearing houses have made the cost of collateral for the holding period extremely expensive. We also cannot use customer funds to front that cost due to regulation.”

Robinhood raises $1 billion according to New York Times, to reopen halted trades on GameStop and AMC after the whole mess with the upset audience. JP Morgan (JPM) and Goldman Sachs (GS) are among its lenders according to Bloomberg.

Today, the purchase of these stocks has been reopened from other brokerages that follow similar methods.

We at FDGT support the common man and have changed our services to be completely free in the try of creating a community of united traders. What we believe in is the power of unity that can cause a $10.2 billion (until August 2020) worth company like Robinhood to change its core activities in order to satisfy the retail investor. This is the power of unity, it’s not about GME or AMC it’s about the power of being in place to demand. You are welcome to join our community and grow together while learning from real analysts. 

Natalia C. - Junior Analyst at FDGT Academy

Natalia C. - Junior Analyst at FDGT Academy

I am a stock analyst/investor with prior experience and knowledge to BSc Accounting and Finance. After completing my degree and exposure to the accounting firms I decided that the direction I should choose is towards the Investment world. I completed my masters in Investment Management where it gave me solid fundamentals to build my career on. I have examined a lot of different aspects of investment, from REITS, derivatives, currencies, bonds, equity and hedge funds. I never stopped learning about the market which is why I can analyze and write articles for FDGT community always personally opinionated. My passion are green energy and electric vehicles stocks as a whole. I also had my share of analyzing the work form home stocks that are coming to take over in the upcoming years.