Government Monitoring Trade Activity of AMC and GameStop

Individual investors are savoring their win over hedge-fund investors of GameStop, AMC Entertainment, BlackBerry and other companies perceived to be failing. As stocks go through the roof, individual investors gather on Reddit, Discord, Facebook and Twitter to encourage each other and brag, while investors lose the money they bet on short-selling stocks of troubled companies. Treasury Secretary Janet Yellen and her economic team are monitoring the situation. The SEC revealed it was “evaluating the extreme price volatility of certain stocks’ trading prices over the past several days” and would “review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”

The Wall Street Journal reports that, “GameStop, AMC and BlackBerry have … vaulted into the ranks of the most traded stocks in the U.S. market … forc[ing] money managers to dump bets that the stocks would fall, magnifying the rally.”

According to S3 Partners, investors who took short positions lost $23.6 billion alone this year on GameStop, “including $14.3 billion on Wednesday when the stock price jumped 135 percent, its largest percentage increase in history, to a record $347.51.” The stock later hit $380, “briefly giving the video game retailer a market value of $26.5 billion.”

Likewise, AMC’s stock “soared 301 percent on Tuesday to $19.90, recording its biggest one-day move in history.” One small investor, Atlanta resident Noah Williams, said he “earned close to $150,000 in cash from his GameStop options positions over the past two weeks, allowing him to pay off more than $43,500 of outstanding student loan debt.”

“I think the big takeaway is, fundamentals do not apply to retail traders,” said Williams. “It’s all about sentiment. The only reason why Tesla is worth what it is is because people believe in that company.”

Fidelity Investments and Vanguard Group experienced “disruptions and technical glitches” while Charles Schwab, Ameritrade Holding and Robinhood Markets have increased the amount investors can borrow to execute trades. Nonetheless, “AMC has been the most actively traded stock in the entire market in recent sessions, replacing Apple” which is 350+ times its size.

On Reddit forums beginning in 2019, an increasing number of users realized that investor Michael Burry was attempting to short GameStop’s stock and started buying it up as a way to “confront institutional money.”

Hedge fund Melvin Capital Management “lost nearly 30 percent for the year through Friday due largely to its array of bets against companies including GameStop,” and founder Gabe Plotkin had to orchestrate an “emergency deal … in which Citadel, its partners and Point72 Asset Management would immediately invest $2.75 billion into Melvin’s fund to help stabilize it.”

Variety reports that, “the frenetic activity around AMC shares triggered no less than six ‘circuit-breaker’ halts that stop trading for 15 minutes at a time in an effort to calm extraordinary trading volumes.” On Reddit’s WallStreetBets community, “users share stock tips and option trading … [and] the hashtag “#SaveAMC” was the top trending topic on Twitter and other social media platforms early Wednesday.”

Reddit cofounder Alexis Ohanian described the skyrocketing shares of GameStop and AMC as “the public doing what they feel has been done to them by institutions.”

In response, the Securities and Exchange Commission said today “that it will investigate why certain online trading platforms blocked users from purchasing highly volatile stocks and if illegal market manipulation spurred the recent surge in stocks such as GameStop,” reports The Hill. “The SEC has faced growing demands from politicians and investors as shares of struggling companies soar, spurred largely by coordinated efforts among online communities of stock traders.”

In addition, notes Reuters, the “House Financial Services and Senate Banking committees said on Thursday they will hold hearings on the stock market after users of investment apps faced trading limits following the ‘Reddit rally’ that put a charge into GameStop and other volatile stocks that were touted in online forums.”

Related:
AMC, GameStop Stock Swings: Reddit’s ‘Insane’ Campaign Becoming a ‘Train Wreck’, CNET, 1/29/21
Google Salvaged Robinhood’s One-Star Rating by Deleting Nearly 100,000 Negative Reviews, The Verge, 1/28/21
The GameStop Reckoning Was a Long Time Coming, The New York Times, 1/28/21
Robinhood, Other Brokerages Restrict Trading on GameStop, AMC, The Wall Street Journal, 1/28/21
Wall Street Hedge Funds Stung by Market Turmoil, The Wall Street Journal, 1/28/21
WallStreetBets Founder Reckons With Legacy Amid Stock-Market Frenzy, The Wall Street Journal, 1/28/21
Robinhood, and Its Role in the GameStop Saga, Explained, Vox, 1/29/21