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Two of the top hedge funds investors have targeted on Reddit driving GameStop’s stock price higher have raised costly defeat flags and sold their investments, losing millions of dollars.
The stock price of GameStop (GME), the video game mall retailer, on Wednesday climbed 134%, a staggering 748% increase in just one week after Reddit investors launched a chaotic attack. compression short to raise the price and screw investors.
Wall Street hedge funds, including Citron Research and Melvin Capital, had bypassed the stock, meaning they had bet against it and needed the price to drop for their investments to be successful.
The internet investor hangout, the popular r / WallStreetBets (WSB) subreddit, gained a million additional members in just one day as its GameStop push garnered media attention and memes followed.
Andrew Left of Citron Research, who called editors an “angry mob” last week after trying to hack his Twitter account and harass his family after announcing GME would drop to $ 20, released a video statement Wednesday. He confirmed that Citron Research closed its short position in GME, which essentially means it sold its investment, choosing to cut its losses before the price rose further.
“I can’t answer another phone call,” Left says in the video. “How are you? Are you OK? Are you in business? And GameStop? Should I bypass it here? People I haven’t spoken to for 20-30 years – this has caught America’s attention. “
“I’m great. Citron Capital is great,” he says. “I hedged most of the shorts in the 90s at a loss, 100%, I had a small manageable position and left fall.
This means Left sold the majority of his investment when the stock was selling in the $ 90 range. It closed Wednesday at $ 330.
Left also says in the video that as a longtime activist investor, he respects the WSB and redditors taking up hedge funds, and recognizes that the market is changing.
“Even though we’ve been called baby boomers a number of times over the past week, we understand the changing dynamics of the market, and with that, we’ll become smarter when it comes to selling stocks,” Left says. . “It doesn’t mean the industry is dead, it just means you need to be more specific.”
Melvin Capital announced that it had sold GME on Wednesday morning. The Melvin Capital news was announced on CNBC by Andrew Ross Sorkin, who said he spoke with fund manager Gabe Plotkin.
“They came out of stock yesterday afternoon. They suffered a pretty huge loss, ”said Sorkin, who added that he did not know the total of the loss.
On Monday, Melvin received more than $ 2 billion in emergency cash to help stabilize the fund and allow it to close the sold position, the Wall Street Journal reported.
Still, some of the WSB editors did not believe Melvin had closed his position and encouraged investors not to sell GME.
After Wednesday’s spate of activity, TD Ameritrade, one of the free brokerage apps commonly used by young investors, briefly restricted trading in certain stocks, including GameStop and AMC (another WSB crowd target) “in the interest of mitigating risk to our business and our customers.” This frustrated many who saw the Wall Street businesses shut down preventing investors from making transactions that would enhance their personal wealth.
Adena Friedman, CEO of Nasdaq, said her exchange would temporarily halt trading so investors can “recalibrate” if any of the stocks were targeted online in the same way as happened with GameStop.
“While we’re seeing a significant increase in social media chatter,” Friedman told CBNBC, as Mediate reports, “we also compare that to unusual business activity, [and] potentially stop this action to allow us to investigate the situation, to be able to dialogue with the company and to give investors a chance to recalibrate their positions. “
Senator Elizabeth Warren, who has long fought to hold Wall Street accountable, called on big financial players to panic when everyday investors use the same techniques against hedge funds that companies use to build their own wealth.
“For years, the same hedge funds, private equity firms and wealthy investors appalled by GameStop transactions have treated the stock market like their own personal casino, when everyone is paying the price,” she said. declared.
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