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Melvin Capital Management has been betting against GameStop Corp. since 2014 and still believes online video game downloads will overtake the retailer’s business model, the hedge fund founder said in a draft copy of his testimony to Congress released on Wednesday.
Gabe Plotkin’s Melvin Capital lost more than 50% of its investments in January as losses piled up from its short bets against GameStop and other companies. GameStop had been touted on the Reddit WallStreetBets forum and other social media platforms, with soaring stock prices damaging the returns of several high-profile companies, including Steven A. Cohen’s Point72 Asset Management and Daniel’s D1 Capital Partners. Sundheim.
The action in GameStop has been fueled in part by an army of bullish individual traders pressing each other on platforms like Reddit to buy stocks and options and squeeze Melvin, a particular target of the posters. GameStop’s seemingly relentless bull march also created what traders have described as a kind of contagion effect. The managers lost confidence in their short positions and hedged these bets while reducing their holdings in other companies in order to reduce their portfolio risk.
GameStop’s seemingly relentless surge to the upside also created what traders described as a kind of contagion effect, with managers losing confidence in their short positions and hedging those bets. These managers have also reduced their holdings in other companies in order to reduce the risk of their portfolios.
The episode sparked questions about market integrity and triggered federal polls on possible market manipulation. Prosecutors have subpoenaed information to brokers such as Robinhood Markets Inc., the popular online brokerage that many individual investors use to trade GameStop and other stocks.
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