Things looked bad today, and truthfully I’m surprised and proud that it took this long for us to have a red day. At one point last week the stock plummeted to $120 and everyone seemingly forgets that detail simply because it quickly rebounded. It dropped all the way down nonetheless when trading restrictions were imposed.
Now, let’s talk about that day. Why did it go down? That is easy, insane trading restrictions especially on RH where the majority shareholders place trades.
But what’s interesting to examine is…why did it go back up? My thesis is this was, in fact, Melvin covering. Retail investors were completely locked out of trade yet the price skyrocketed.
Melvin is not the only short in the game, in fact many new short positions were opened. Some intentionally, others unintentionally due to lacking the funds required to cover the calls that were sold. Some people were selling calls with an $80 strike price others upwards of $400. Many of these calls were executed and people who never thought it would surpass $80 were now stuck holding the bag with a $320 strike price on Friday.
One of two things can happen to these people:
- T+2, they will have two business days to cover their losses if able
- If unable, they will have to open a short position to borrow the shares that they promised to cover.
This logic is what led to new short positions opening last week and certainly will mean more short positions opened this week.
So what happened today? Well, loads of people were still locked out of trading and a price drop happened. Naturally this was some longs taking profits but the volume is key here. The extremely low volume compared to the price drop simply doesn’t add up. Instead it looks like a series of ladder attacks and ping ponging between hedge funds to drive the price down without any buyers to counter their progress.
Now, why would they do this? This is a very interesting question.
If shorts have covered, and there is no more fear of losses then why are they still trying to drive the price down, shift attention to Silver, and having the media run amuck with countless baseless claims?
Normally, I am a fan of logic and reasoning and like to break things down to multiple situations…but this one only has one answer: they haven’t covered.
If they were covered and out of this, then all this other manipulation exists for no reason.
Another question to consider:
If shorts were covered or short interest was extremely low, then why is trading still restricted if there is no danger of a squeeze that would put brokers out of business? Again this has but one answer: there is still a danger for a massive short squeeze.
The final thing to consider, if people are willing and want to buy and hold a stock, its price should go up…right? Well, all of WSB and many retail investors are still adding on this dip.
Now, tomorrow will be an interesting day to monitor. If the price is maintained or lifted it will lead to another gamma squeeze due to all of the contracts that finished ITM on Friday. So all contracts that were sold to expire 1/29 with a strike price of $320 or lower will need to be covered by tomorrow. Technically T+2 is actually 2.5 so they might extend into Wednesday. A gamma squeeze will lead to the final short squeeze and in previous posts I would laugh at $1000 price target, but truthfully…I would now call that a minimum. Despite what today looked like, price decrease + low volume = bullish.
Now, there is always possibilities but luckily this is one we can control:
- If the stock keeps getting purchased and held, then regardless of squeeze mechanics, the price will rise. With the squeeze, $1000 is a fair and minimum assumption.
- If we cannot outlast the short attacks or trading gets restricted further (which at that point will have no merit), then GME will remain one of the most interesting stocks now that their are tons of longs on it and short int won’t be immediately squeezed, it’s interesting to consider a PT when the squeeze is complete.
TL;DR: If shorts truly covered and there is no more squeeze left, why is trading still restricted? What are they are afraid will happen? With millions of people still buying more, then this price has no reason to go down…yet it is. That is due to trading restrictions and hedge funds taking advantage of the fact that no one could trade. A ladder attack that can’t be interfered with is a perfect attack. Volume has been far to low to justify price action or even half of shorts covering.
I am not a financial advisor, I’m just a guy that loves logic and reasoning.
EDIT: For people claiming the liquidity defense, please tell me why trading on TSLA was not blocked during its insane short squeeze. If that sounds aggressive I’m sorry, I’m truly trying to find an answer to this question.
EDIT2: This all speculation, no one knows what comes next, no one. We just do our best to guess.
EDIT3: Revolut has set AMC and GME to sell only today. I can’t wrap my head around these moves, but the squeeze is over? Not likely…something simply doesn’t add up here
EDIT4: Today’s volume already blows away yesterday’s and Fridays giving more merit to my thesis. Trading restrictions still have complete blocks on GME but RH opened the flood gates an hour ago. My God this stock is exhilarating.
EDIT5 – 02/03 08:17 I know everyone wants an update to my option and I would love to give one. Sadly the transformer in my building has blown and the power is out on my entire side of they building. This means no heat and no electricity. My dog and I are freezing and worse than that I work from home.
A quick update on my personal opinion, I’m still bullish. Yesterday was expected, I didn’t think it would go under $100 but we figured it would be bloody. Today is very interesting with T+2 definitely being over that means we are starting to get some Failure To Delivers. GameStop getting listed on the short restriction list makes things interesting as well. Apparently Warren is also pushing for an emergency meeting, just speculating but it could result in a 30 day trading halt. Moral of the story, I’m still bullish, Im still holding, this is all speculation, anyone who pretends it isn’t speculation is full of shit. You ultimately have to decide. If you want Mark Cubans insight on the whole situation check out his Ask Me Anything. Good luck, make the best decision you can make and don’t regret it. Hindsight is always 2020 in the stock market.
** EDIT 6:** New requested post, mods keep removing it from this sub so put it on mine https://www.reddit.com/user/hooman_or_whatever/comments/lbucej/gme_short_squeeze_what_comes_next_part_2/?utm_source=share&utm_medium=ios_app&utm_name=iossmf