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GameStop, other Reddit-favored stocks plunge as trading frenzy fizzles

Published 02/02/2021, 04:43 AM
Updated 02/02/2021, 06:11 PM
© Reuters. FILE PHOTO: Bars of silver are placed on wooden pallets at the KGHM copper and precious metals smelter processing plant in Glogow

© Reuters. FILE PHOTO: Bars of silver are placed on wooden pallets at the KGHM copper and precious metals smelter processing plant in Glogow

By Sagarika Jaisinghani, Thyagaraju Adinarayan and Lewis Krauskopf

(Reuters) - GameStop Corp (NYSE:GME) shares more than halved in value on Tuesday and silver prices retreated as the Reddit-driven trading frenzy that roiled stock and commodity markets appeared to fizzle, at least for now.

The videogame retailer's shares, whose wild gyrations have made or lost billions of dollars for hedge funds and other investors in recent weeks, closed down 60% at $90. They are now worth less than a fifth of their high of $483 last week.

Posters on the popular Reddit forum WallStreetBets, which was instrumental in fueling the rally, bemoaned the fall. "Our darkest hour," read one post https://www.reddit.com/r/wallstreetbets/comments/lb1jk5/our_darkest_hour by user name kigfik who said they were still holding the stock. Another user, Cinther, posted that they bought at $390 and "lost so much that I don't even care anymore" but were still holding.

"The rally is likely over (since) the short positions are pretty well taken care of," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

"That's the game you play when you do this thing. It can work for a while until it stops working and when it stops working, it reverses pretty quickly."

Short sellers saw paper gains of $3.39 billion during Tuesday’s session, according to S3 Partners. Year-to-date realized and unrealized losses for shorts recently stood at $9.2 billion.

"We have had a lot of shorts take their losses and walk away from the trade," said Ihor Dusaniwsky, S3's managing director of predictive analytics.

Spot silver prices, which became an alternative focus in the battle between small traders and Wall Street hedge funds last week, fell more than 8% after hitting an eight-year high on Monday. The main silver ETF was down 8.3%.

The retail frenzy in silver has left some dealers scrambling for bars and coins to meet demand.

Analysts said the silver pullback may show the limits of small investors' impact in a large and complicated market.

Online broker Robinhood, on whose platform much of the buying and selling has taken place, raised trading limits on GameStop Corp, AMC and other stocks, according to an update on its website on Tuesday.

'BIZARRE SITUATIONS'

Analysts predicted that the market frenzy, which has drawn the attention of regulators and politicians, was likely to fade, and said it was just a question of how soon.

"This is a pretty narrow strategy that likely creates some bizarre situations like GameStop and AMC but it's not broad enough to change how institutional investors are going to invest," said Rick Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

"The strength of the move was so severe that it really opened up people's eyes to the power of social media in the investment world. But having seen it and how short-term the nature of it is, I think it'll lose its surprise."

Broader markets appeared to be moving on. The Dow Jones Industrial Average rose 1.57%, the S&P 500 gained 1.39% and the Nasdaq Composite added 1.56%.[MKTS/GLOB] (N)

Other so-called meme stocks caught up in the Reddit rally also sold off. AMC Entertainment (NYSE:AMC) Holdings Inc and Koss Corp each dropped by more than 40%, Express Inc and Naked Brand Group Ltd lost about a third of their value, while BlackBerry (NYSE:BB) Ltd and Bed Bath & Beyond Inc (NASDAQ:BBBY) showed double-digit percentage losses. Nokia (NYSE:NOK)'s U.S.-listed shares fell 7%.

With hedge funds at the center of the market drama, the GameStop saga is likely to expedite a regulatory review of the ever-larger role played by non-bank firms in the financial markets, regulatory experts said.

Melvin Capital, one of the biggest funds betting on a drop in GameStop's share price, lost 53% in January. Other funds like billionaire investor Steven Cohen's Point72 Asset Management lost nearly 9%, investors in the funds said.

Point72 has opened to new cash and raised more than $1.5 billion in commitments, Bloomberg News reported on Tuesday, citing people familiar with the matter.

Meanwhile, Robinhood's app recorded more downloads than any other U.S. trading app last week, despite concerns its restrictions on transactions would alienate some users, according to market research data providers.

Robinhood, which raised $3.4 billion in emergency funds in the past week, plans an initial public offering later this year.

Chief Executive Officer Vlad Tenev said in a blog post that it was time to consider real-time settlement in U.S. equities trading, which currently follows a two-day settlement system.

"There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time. Doing so would greatly mitigate the risk that such processing poses," said Tenev.

CME RAISED SILVER MARGINS

One big drag on silver prices was a Chicago Mercantile Exchange margin hike on contracts for the metal, which makes speculative trade more expensive.

Mining stocks including First Majestic Silver (NYSE:AG) and Pan American Silver (NASDAQ:PAAS) fell.

Posts on Tuesday on WallStreetBets ranged from those giving up on the GameStop trade to calls to stick with the stock.

"Redditors are focused on meme stocks and that fight should continue - right now they think that silver is a distraction to their cause," said Ephraim Rinsky, a novelist who was one of the first Redditors to post about buying silver on WallStreetBets.

The forum was in a sober mood on Tuesday.

"Guys. This only works (if) we work together. Buy the dip and hold. For all of us. The movement isn't over," said one post from "mwybert" that garnered more than 8,000 comments, most of them supportive.

© Reuters. FILE PHOTO: Bars of silver are placed on wooden pallets at the KGHM copper and precious metals smelter processing plant in Glogow

GameStop, AMC, Koss, BlackBerry and Bed Bath & Beyond have not responded to requests seeking comment.

Latest comments

Want to see whats going on get webull app and join the amc discussion.
j 27 mai
Great job on Gme but the silver squeeze is the way togo imo. But hey i like the metal silverbug
Tomorrow Amc moon
we will hold it to a new high which is 500. then we will see what will happen.
saxo = not possible to sell call  robinhood = limited buy IG = no buy so is that fair? GME is falling, because, they changed the rules.
this was a fools errand to begin with. ill just keep stacking physical silver... the cheaper the price the more i buy. unlike GME it will never go to zero
u serious? u playing silver? LMFAO
investing in silver would just recoup the hedge fund loses. they own a large portion of the industry and trying to create buzz to regain their losses
not if you're buying the metal. you may be right about the paper stuff
Media blitz abd Broker apps stopping transactions explains why the world needs decentralized funds like crypto.
crypto is slave money...someone still.going to run the game..
comment pending moderation. i bet censorship, lies and deceit. I'd post on reddit too. the masses are enraged. don't think its over!
The carnage in options of Gamestop options is probably in the billions and billions as Gamestop scraped down to $112.I'm Faxing my congressman a letter. For the Congressman's perusal. His is Minority leader. I'm asking for a claw back of profits from hedge funds to retail investors in All Reddit plays for Weds unequal treatment of investment groups. I estimate $30 billion.
i will never use Robbinghood because they had one chance to exercise free and equal trade. they showed where there alliance is and conveniently, after the damage is done they NOW all of a sudden can cover these situations with a 3 billion dollar loan from who?? give me a break. the next time this happens (its still happening) they're gonna ********them retail investors just the same. there should be a class action filed that will create a "claw" back to last Wednesday at noon when the retail investors got shut out of buying and refunded their moneys. use that $3bil to cover your investors, vlad? that i gotta see... you still need 10x + that to cover this. lies! its Hypocrisy in the highest degree. Robbinghood should be shut down immediately and in liquidating make all small holders whole to 488 on GME, Expr, Bb, Koss. They have violated their charter and instead taken from everyday investor and give back billions of reduced losses to billionaire hedge funds.
Free trade, as long as you put your money where they want you to
Their capital excuse doesnt explain why they cut off purchase of fractional shares. However, if did prevent a massive part of the population from partipating driving the price up in 5$ bites, more likely their motive
play the game..get stung by the bee...stonks only go up...everyone was suckered...thats the nature of the free market..it has always changed on a dime.cant you see the writing.the banksters keep creating more and more dispersion platforms. etfs. , micro etf..crypto..as the house expands their advantage to consistently manipulate sectors advances
Real question how does stock price go down after market hours when the volume doesnt change?
oh thats a whole new bag of mysterious worms we can open up now.
GME is down on low volume due to trading restrictions. An illegal scheme if I ever saw one.
Do you see how they lie to you? this time the lie is about the manipulation by the same people that own both the broker (AKA robinhood) and that are shorting the stocks (same people). That's what they (Reuters, CNN, etc) did about Trump. They lied, and you believed them. They manipulated you, and you let them. These "news" organizations think you're s.TuP.iD. and sadly, sometimes, they are right.
Melvin and hedgs are feeling the despair right now
you see how they los to you now? that's what they did about Trump. and you let them. these "news" organizations think you're s.TuP.iD.
haha , I Am Holding ! market manipulation not working anymore :)
It's going to explode !! GME trillion dollar company in a Year. 14000 per share minimum target GOGO Diamond HANDS.
I was wondering why some silver bullions sites were charging a 40 percent premium yesterday p.s. ripoff
as usual the ref blew the whistle on the side scoring goals and now has changed the rules.only allowing 1 goal a game.
2.1 billion fake ounces dumped on the comex yesterday if you're worried about hudge funds BlackRock the biggest of the biggest needs to be brought down along with JP Morgan physical silver is the way
I saw it and it makes the comex a fake price indicator but it's been going on for years just like the london gold pool.when it comes to a end there will be looks of increadeability as the price finds it's value
These stocks didnt cool. All of the brokers shut down peoples ability to buy. Thats a major difference.
im holding and buying more gme....l see a lawsuit soon for mulipilating the market....
I don't think lawsuit will work... let's say you go to a groceries to buy apples, if the store runs out of apples you can't sue them. And how could you prove that you wanted to buy more apples?
because people already paid for the apples ?
Gme is still a fight I think. Very suspect activity. The metals market not adding up based on price premiums on the ground at least in TX. Local brokers want 10% -20% over spot if they have it at all. I want to buy more but not above 10%
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