Reflation Misgivings and The GameStop Gamma Squeeze

Published on
January 25th, 2021
Duration
40 minutes

COVID-19 Spiraling Out of Control, Whipsawing Crypto, and the Coiled Snake of Macro


Reflation Misgivings and The GameStop Gamma Squeeze

Daily Briefing ·
Featuring Haley Draznin, Jack Farley, and Ed Harrison

Published on: January 25th, 2021 • Duration: 40 minutes

Real Vision managing editor Ed Harrison and editor Jack Farley break down the logic-defying price action in highly speculative stocks like Blackberry, AMC Entertainment Holdings, and, most notably, GameStop Corp, which surged over 160% to $159 before plummeting yet still being up on the day. Ed and Jack break down the “short squeezes” and “gamma squeezes” that are inflating those names, particularly GameStop, with Ed interpreting his Real Vision Live with Jim Bianco today and Jack sourcing info from volatility trader Kris Sidial. Lastly, Ed shares his thinking on how the different COVID-19 variants will impact re-opening as well as the reflation trade, which he thinks may have overstepped its bounds. In the intro, Real Vision’s Haley Draznin describes what happened with GameStop’s volatile trading today.

Comments

Transcript

  • TV
    Tyrell V.
    26 January 2021 @ 21:45
    Really great! And so timely!
    • TV
      Tyrell V.
      28 January 2021 @ 08:39
      Can confirm this daily briefing and its spot on schwerpunkt helped consolidate my thoughts into an executable strategy that yesterday paid off two years worth of Pro subscription... ROI = tick VG. Thanks Ed and Jack, spot on...
  • BD
    Ben D.
    26 January 2021 @ 02:52
    Since Ed is bringing back Richard Koo which I cant wait for. I was really hoping that RV could reach out to "Warren Mosler" from an older interview "Father of MMT" and ask him for his thoughts on how the world is currently. I feel Warren would be a massive Value add to today's views on the future. I remember when Wallstreet bets was founded and the biggest personality there was Martin Shkreli. Now it's short a massive group of people weaponizing free options to squeeze stocks.
    • CB
      Chris B.
      26 January 2021 @ 06:06
      "Free Options" ???? Have you checked out the implied volatility on some of these stocks. Priced higher than a speculative biotech. If price does not move significantly in your direction very quickly that IV drain gets very expensive very quickly
    • BD
      Ben D.
      28 January 2021 @ 03:33
      By free I ment that there is not a trading fee for options in the US unlike in canada where you still have to pay a flat trading fee each time you buy a contract. I didn't mean free money if you buy options
  • WG
    Wesley G.
    26 January 2021 @ 21:26
    Great job on this one guys. Loved the discussion.
  • SG
    S G.
    26 January 2021 @ 20:34
    Moto for 2020: "Speculate to accumulate"...(if only I had)...maybe it should be extended into 2021
  • CM
    Cory M.
    26 January 2021 @ 20:06
    Excellent. And Richard Koo returns: so excited. I looked at the GME puts and (1 day later) came to the exact same conclusion as Jack. Bite 'em Bears...
  • HR
    Hendrik R.
    26 January 2021 @ 19:46
    We all have the freedom of investing long or short as we like, and we are free to share our views in public. I can see no wrongdoing from Wallstreetbets. Otherwise any single stock report would be illegal.
  • RA
    Robert A.
    26 January 2021 @ 19:12
    With regard to the GME battle between the Shorts and the “swarm” I’m reminded of the old canard about the Bull and the Hound Dog...”The Hound dog bit the Bull on the nose and got the Bull to the ground, but then the Hound dog made the mistake of biting too hard and the Bull got up and stomped the Hound dog to death”...just saying.
  • IN
    I N.
    26 January 2021 @ 18:22
    Do you guys understand now why that platform of zero-cost retail trading (of option contracts as well) is called "Robinhood" ?
  • BD
    Bruce D.
    26 January 2021 @ 07:24
    You can buy a put, why do you have to short the stock?
    • CK
      C K.
      26 January 2021 @ 09:21
      My guess is path dependency and cost (its implied vol must be quite high I'd imagine). I would definitely choose Jack’s 3rd option and do nothing. There are plenty of other things to trade that won’t go nuclear on you. This brilliant thread perfectly sums it up: https://twitter.com/hedgedirty/status/1254767346784313344?lang=en
    • JF
      Jack F. | Real Vision
      26 January 2021 @ 15:40
      That is probably what the institutional shorts are doing as a 'naked' short is so risky. However, implied vol on the puts is sky-high for obvious reasons so the puts are priced very very richly
  • SW
    Suzanne W.
    26 January 2021 @ 13:28
    Great discussion today Jack and Ed. Thanks!
  • JC
    JAMES C.
    26 January 2021 @ 12:41
    Outcomes enabled (legally) through understanding mechanics of the "system" and use of the "system" against itself for individual benefit. Exasperated through (easy) debt, and enabled by: incremental pricing (last share traded sets price for all shares, against which you must M2M at end of day ), derivative leverage and exchange structure (a counterparty to all trades) forcing reflexive acts as a result of the unintended consequences associated with laws devised to prevent excess speculation..... resulting in the serpent (system) slowly eating itself???
  • cw
    chris w.
    26 January 2021 @ 12:16
    Something a bit more exotic like a strangle/straddle of some kind would probably be what I would look at for gamestop in its current condition. Just trade the vol.
  • HS
    Han S.
    26 January 2021 @ 04:44
    Funds sometimes put on short positions on a stock just because other funds are piling up on it on the short side. Who knows how connected they are with each other with billions of buying power and skilled analysts on their team. So when retail traders pile up on the opposite side on a trade with what little resources that they have comparatively, and they beat the funds. And they're calling out for a SEC investigation? Sounds like a sore loser to me. They know the risk of shorting when they initiated a position. Even if r/wallstreetbets gets shut down, they're just going to make a new forum. They've already gotten the taste of it. Good for retail traders who made money on an epic GME short squeeze.
    • CB
      Chris B.
      26 January 2021 @ 06:00
      I agree with Han. What you're seeing with these short squeezes is the democratization of "getting run over". Wall Street insiders have relished the fleecing of dumb money retail since the beginning of time. It's funny, and so predictable, that when the tables are turned there are outcry's for an investigation and bans on this or that. Meanwhile, Wall Street is cranking out SPACs at the rate of 10 a day as firms do everything possible to cash in on the free money bonanza. I can assure you they'll be no investigation when down the road hoards of these SPACs implode. Speculative fervor from dumb money retail traders is most welcome on Wall Street as long as it aligns with their interests.
  • DS
    David S.
    26 January 2021 @ 01:41
    Hedge funds have been doing short and gamma squeezes for years. The derivative market is practically built for a gamma squeeze on thinly traded options. The market is not use to many, many individual investors playing the same game all at once. It certainly is not use to a player being proud of buying at the top. It is a game! DLS
    • JF
      Jack F. | Real Vision
      26 January 2021 @ 01:44
      Hi David, I agree with you. Hedge funds have been doing this for years. And even in the case of GameStop, I wouldn’t be shocked if institutional money is riding the wave to intentionally squeeze the shorts. r/WallStreetBets may have lit the spark but it’s not 100% of the fire - nor will they be the only ones responsible when this all burns to ashes.
    • DS
      David S.
      26 January 2021 @ 04:56
      Jack F. - Great comment. DLS
  • JD
    Jesse D.
    26 January 2021 @ 04:07
    I don’t know how “sophisticated” a trader is when they short a stock with %100+ short interest.
  • HC
    HIAN C.
    26 January 2021 @ 03:41
    I cant wait for Richard Khoo's interview as well!
  • JS
    John S.
    26 January 2021 @ 03:27
    I think that the story of short sellers getting crashed by a crowd like on GameStop is a real heroic scenario. The people against the sophisticated hedge funds and short sellers. The implications of this unknown, but one must start by saying that this is remarkable.
  • JR
    John R.
    26 January 2021 @ 03:20
    If you’d like to talk to someone in the trade about their reasons, I’ll be here all year. Cheers to your great work, as always.
  • RC
    Rich C.
    26 January 2021 @ 03:10
    Finally a solid real daily briefing instead of last Friday’s real daily bitcoin. Thanks guys!
  • DH
    David H.
    26 January 2021 @ 03:10
    Jack. You are getting better with time. It’s great to see Rauls human speculation payoff. Thanks to all.
  • PP
    Patrick P.
    26 January 2021 @ 02:45
    Ed .. sorry man but your explanation of short selling was like taking a plane around the world to cross the street for sandwich. The main thing you need to know about buying long is that the most you can lose is what you spent .. on the other hand if you buy short your loss can enormous. And better yet ...if you buy short on margin you might never recover. I'm sure some of the Game Stop shorts today blew up their life savings.
  • JA
    Jordan A.
    26 January 2021 @ 02:35
    I want in on the Ed Jack SPAC.
  • JC
    Jason C.
    26 January 2021 @ 02:31
    If buying puts is too expensive, you could also consider selling calls.
  • DR
    Derrick R.
    26 January 2021 @ 02:30
    I feel like Jack Farley is the casting choice for a movie about a movie in which he stars as a young Nicholas Cage who stars as a financial analyst of some kind.
  • KR
    Kim R.
    26 January 2021 @ 02:27
    Isle of Man might be worth a marketing visit from RV?
  • WN
    Weston N.
    26 January 2021 @ 01:47
    Excellent coverage as always from Ed, Jack and Haley! Meanwhile, the RV Exchange has been discussing/hitting these exact key points for the past few hours: • Newly listed GME $115 Calls & BBBY $45 Calls for Fri expiry - its the options exchanges listing new strikes who are influencing the "next leg up" w/ resources • Retail chase for furthest OTM strikes, the 100k volume, and gamma squeeze & pin explained • Melvin Capital, P72. • Winner? Citadel. Tradable winners: Virtu (VIRT +5%) + the exchanges themselves • Wallstbets community links Join the conversation on the Exchange → https://rvtv.io/3ccelGw
    • JF
      Jack F. | Real Vision
      26 January 2021 @ 01:51
      ^do it!
  • JS
    James S.
    26 January 2021 @ 01:44
    Jack & Ed, You guys REALLY need to interview Jim Rickards about his new book, The New Great Depression. He makes a bunch of cogent points about how slowly output gaps have been filled historically after pandemics. In addition to creating long periods of labor slack, Rickards asserts pandemics have a habit of depressing trend economic growth for decades after they occur. The potential impact of this long term growth reduction on fiscal deficits, particularly in a period where we are in the extended part of Ray Dalio's long term debt cycle has me watching treasury issuance very closely, particularly because services data and retail data has been very soft relative to the manufacturing data. In my mind the only thing that can save the reflation trade is MMT printing machine.
  • ML
    Michael L.
    26 January 2021 @ 01:15
    Another new phenomenon in market dynamics. Thanks for shedding light on this—lots to think about.
  • MC
    Mark C.
    26 January 2021 @ 01:10
    Great job everyone. This was a fun and entertaining RVDB. Jack and Ed had great chemistry. Great explanations.
  • MC
    Mark C.
    26 January 2021 @ 01:10
    Great job everyone. This was a fun and entertaining RVDB. Jack and Ed had great chemistry. Great explanations.
  • NL
    Nikola L.
    26 January 2021 @ 00:48
    First thank you to all 3 of you, it was another great brief. Hey Ed – are you aware if Brazilian variant of the virus has entered US?
    • EH
      Edward H. | Real Vision
      26 January 2021 @ 01:06
      Thanks Nikola. https://www.marketwatch.com/story/brazilian-coronavirus-variant-found-in-u-s-for-first-time-in-minnesota-01611620727 It’s in the US now and the US has cut off travel to and from Brazil.
  • mf
    massimo f.
    26 January 2021 @ 00:48
    You know what I think is funny about these short squeezes, if it were the other way around (institutions manipulating markets to such a degree to the detriment of retail investors), everyone would be talking about the evils of capitalism and/or the 'elites'. I find it amazing that anyone can see what's happening there as anyway good.
  • TC
    Tim C.
    26 January 2021 @ 00:47
    It would be great to have someone on that can talk in details about the elements of a GAMMA squeeze. I would love to understand more along with more data sources to use to model potential GAMMA squeezes. From what I've read and in some analysis I've done, GAMMA squeeze is complicated (except maybe in the extreme cases). Seems like the right set of conditions need to exist (there can be multiple mixes of conditions) for a GAMMA squeeze to occur. It basically requires a cascading pull of GAMMA to essentially start snowballing which overruns liquidity (to keep it simple). It also begs question of: What does the liquidity function of a stock look like given the combination of passives and derivatives.
  • CD
    Chris D.
    26 January 2021 @ 00:39
    Hey Ed, keep on with the quotations from Prince! ;-)
  • RM
    Russell M.
    26 January 2021 @ 00:14
    Shorts make a juicy target for long investors to force a short squeeze. A lot of short sellers are sleazy. They make all sorts of outrageous claims about a stock on bulletin boards or in conjunction with biased publications without regard to the truth to spread fear, uncertainty and doubt (FUD) in retail holders' minds so that when the shorters start borrowing and dumping the stock at say $10, retail investor panic and sell driving the price even lower to maybe $5 so the short sellers can buy back the shares making a $5 profit while covering their borrowings. If you don't believe me, take a look at the Yahoo CYDY bulletin board conversations.
    • JF
      Jack F. | Real Vision
      26 January 2021 @ 00:22
      Interesting thanks for sharing your views. My question - what happens when there's a "LONG SQUEEZE"??
  • JF
    Jack F. | Real Vision
    26 January 2021 @ 00:21
    Hi all, I want to clarify something I said. I stated "over 100,000 contracts [for weekly GME 115 calls] were bought today... that's more call options than in-the-money options for Apple stock." What I meant to say was that they were more than the volume for ANY INDIVIDUAL STRIKE PRICE for Gamestop. Here is the comparison: https://twitter.com/JackFarley96/status/1353859270052372480 In addition to Kris Sidial, I'd also like to thank Weston Nakamura (king of the "hive mind") for helping me understand the mechanics of this highly technical and chaotic squeeze
  • CC
    Charlie C.
    26 January 2021 @ 00:17
    Excellent as usual
  • JL
    Jason L.
    25 January 2021 @ 23:51
    What happened with GameStop today is wild. Haley, thank you for that articulate narrative explaining what went down and why. It sounds like that subreddit forum colluded, which is illegal in securities markets, which should, as you pointed out, force the SEC to shut that down. GameStop is the modern-day BlockBuster...bound to go bankrupt which is why so many funds are (were) short. I can't believe a bunch of kids using RobinHood successfully colluded to create a short squeeze.
    • JH
      Jeanie H.
      26 January 2021 @ 00:09
      Crazy, right? They could do this with other loser businesses.