Second Revolution
Let’s be honest, everyone was having a good time when the short squeezes in GameStop and AMC were taking place. That was the peak of the revolution, where retail took over and certain stocks were jumping 100 percent every day. Oh wait, I forgot about the Hedge Funds who were short. I mean, honestly, what were they thinking when they shorted more shares than available? I guess, when that happened, Hedge Funds learned not to short the absolute life out of a stock. It’s now May, about 3 months after it happened, and it looks like history is about to repeat itself.
To review, let’s revisit what happened at the beginning of February. Many Hedge Funds were short on stocks they felt were going bankrupt, the most notable one being GameStop. Unfortunately, they shorted too much to the point where GameStop’s short interest, or the percentage of shares being short, exceeded 100 percent. With this information, a swarm of retail traders entered GameStop stock by going long or buying calls, suddenly increasing the buying volume. This caused a spike in the share price, which initiated a short squeeze. When you go short on a stock, you borrow shares from your broker, but your losses are endless. Brokers often initiate a margin call when you are down 100 percent on your position, like how your position automatically gets closed at a loss of 100 percent on the Invstr Fantasy Finance platform. With GameStop suddenly jumping up, many Hedge Funds were down 100 percent, so they had to cover, or buy shares, to cut their losses. That now creates an endless amount of buying volume with shorts covering and retail continuing to buy shares, which makes the price graph on the stock exponential.
You might’ve heard the word “short” a lot, but that’s just how it goes with these stocks. This time, the focus is on AMC, the king of movie theaters before streaming and COVID happened. AMC witnessed a short squeeze in their stock, but it wasn’t to the scale of GameStop. Nonetheless, it helped the company as they announced on Thursday morning that they raised 428 million dollars through a stock sale, and with the short squeeze, they were able to sell their stock higher, which allows them to pay off debts. However, AMC rose by nearly 25 percent on Thursday, with famed subreddit WallStreetBets actively talking about it in the hopes of a short squeeze. After all, the current cost of borrowing shares sits at 220 percent, which signals a high short interest, so a retail push could send short sellers into the hole once again. Other familiar culprits also noticed this and joined the action on Thursday, with GameStop and Express up more than 10 percent. Do you think that another short squeeze is in the making here?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
