In this week's episode of Reformed Millennials, we're talking the importance of Biden’s CIA/Treasury/Trade/NSA appointees, the Game Stop WallStreet Bets saga and Facebooks secret weapon... This is one of our best episodes.🔥
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
The indexes remained range bound while Wall Street bets and the Reddit tripe went WILD
$AMD and Microsoft reported earnings after the close. $MSFT popped to all-time highs after hours. See more below.
Here are the closing prints:
S&P 500 3,849 -0.15%
Nasdaq 13,626 -0.07%
Russell 2000 2,149 -0.62%
Dow Jones 30,937 -0.07%
Who cares about the index’s, RM? Gimme that gamestop juice.
GameStop has’t stopped going up— it strangled the shorts yesterday. Elon, Chamath and their respective armies took $GME and the shorts for another round of pain and gained another 100+% today. The stock is up double-digits after hours. 🃏🔥 God bless the shorts. 🙏
🚀GAME STOP MOONING!🌍
If you want to understand how Game stop went from $3 per share to over $200 you must first read this piece from Matt Levine of Bloomberg view - the 3 stories of Game Stop.
However, if you’re more interested in figuring out how a stock could possibly go up that much so fast you need to understand the power of options and leverage!
A TECHNICAL STORY:
How a stock like GME with a 65%+ short interest unwinds itself and causes Chaos:
A lot of people are short a lot of GameStop stock. (Notoriously, they are short more than GameStop’s entire float; Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding.) They are short for the fundamental reasons: dying mall retailer with huge valuation, etc. When you short a stock, you borrow shares and sell them, promising to return them later. You have to pay a fee to borrow shares, you have to post collateral based on the value of the borrowed shares, and you (generally) have to return the shares you borrowed if the lender asks for them back. When the stock goes up a lot, short-sellers start feeling “squeezed”: Their borrow costs go up, they have to post more collateral, and lenders might asking for their stock back. Some short sellers might have to capitulate, and they will close their positions by buying back stock. There is a feedback loop: The stock goes up, short-sellers give up, they buy stock to surrender, and their buying pushes the stock up more.
A lot of people (on Reddit) who like GameStop don’t buy stock; they buy call options. If you are a retail trader looking to gamble on a stock, you can buy call options to get leveraged exposure to the stock. For instance, last Tuesday (Jan. 19), you could have bought a $50-strike call option on 100 shares of GameStop stock expiring this coming Friday (Jan. 29). Bloomberg tells me this option would have cost you about $3.35 per share or about $335 for a 100-share option contract; the stock closed that day at $39.36. If you sold the options on Friday (Jan. 22), when the stock closed at $65.01, they were worth $18.16 per share. You put in $335 and got back $1,816; you made a 442% return in four days. If you had just bought 100 shares of stock instead, you would have had to put in $3,936 to get back $6,501, a 65% return. Of course if the stock had stayed flat instead of going up to $65.01, you’d have lost 0% by buying shares and 100% by buying the options. So options are great if you have a relatively small amount of money and want to take a lot of risk with it. If, for instance, you are a retail trader on WallStreetBets.
Meanwhile, the market maker who sold you the options would have hedged its option exposure by buying about 40 shares of GameStop stock, for about $1,575. (This—the fraction of the underlying shares that the market maker buys to hedge the option—is called “delta.”) Your $335 of option premium caused $1,575 of stock buying. More important, as the stock goes up, the market maker will adjust its hedge by buying more stock—by the end of the day on Friday, the market maker would have owned about 80 shares. (The change in delta as the stock price changes is called “gamma,” and people who like this sort of technical explanation love talking about “gamma.”) You haven’t done anything else—you bought the options on Tuesday, and then stopped trading—but the market maker kept buying hundreds of dollars more stock as the stock went up to keep the option hedged. Multiply that by the extreme popularity of GameStop options, and you get a lot of stock being bought as the price goes up—which, of course, pushes the price up more.
🌊RM - Earnings Roundup👾
$MSFT — Microsoft crushed Wall Street’s expectations thanks to tremendous growth from its Intelligent Cloud business segment, which is up 23% YoY.
Here are the numbers:
EPS: $2.03 vs $1.64 est.
Revenue: $43.08B, +17% YoY
Following earnings, $MSFT gapped 4% after hours. Here’s the daily chart:
🌊Best Links of The Week☔
Cannabis! We’ve written often that fast money bought US cannabis into the election but smart money was and remains focused on the killer fundamentals. That’s where we land, not that we’re smart: we’re here for expanding TAM + eastern seaboard adoption; the fed arbs of SAFE / Cap markets / 280E are gravy.
MOAR Cannabis - Several Nations Could Legalize Adult-Use Cannabis In 2021 - Which Could Be Next?
Twitter announced its acquisition of the email newsletter startup Revue, a move that’ll help users who want to make money from followers. 🤑 Twitter will make Revue’s premium features free for all Twitter users. The platform also plans to lower Revue’s newsletter fee, giving more back to writers per subscription.
Pfizer, Covid, & The Flu 💉 A change in the vaccine’s label now permits 6 doses from each vaccine vial rather than 5, allowing Pfizer to provide an additional 20M doses in Q1 2021
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