Because Icahn, the American figure of the highest paid hedge fund managers, is betting against GameStop. And on a large scale. He’s not the only one either. According to sources close to the video game store company, which attracted retail investors from the Reddit WallStreetBets forum in early 2021, a fifth of the shares available for trading are now sold short. After its peaks, at more than 483 dollars, the action lost 70% of its value.
On WallStreetBets precisely, the case revealed by the site Fortune does not yet make too much noise but many wondered about a recent tweet published by the boss of GameStop, proudly displaying alongside Car Icahn. Irony? Frustrated? The activist investor has become a specialist in betting on the fall in the prices of companies in difficulty. In addition to managing his own hedge fund, he has long offered his advice to other hedge funds. The same as Melvin Capital, which ended up closing shop last year after being ruined by GameStop’s short squeeze.
A new squeeze shorts
As a reminder, a short squeeze defines the excitement around a share largely affected by downward bets, when its price increases and investors find themselves forced to buy back shares themselves to hedge. Last year, GameStop’s stock price explosion was propelled this way (to be rediscovered in this Netflix series), as hundreds of thousands of retail investors continued to buy and hold shares of the company without ever giving up.
Today, the volumes are no longer the same and it would take even more willpower than a year ago to change things. After splitting its stock (4 for 1) this year, the company is still worth more than $8 billion. The economic environment is also much less favorable as inflation explodes and many individuals have also lost significant sums with the market correction. The collapse of FTX certainly hasn’t helped and the trend is instead to turn away from risky investments – in crypto as well as in trading.
Fortune recalls that at present, “Carl Icahn’s position is unclear”. Neither GameStop executives nor hedge fund management Icahn Enterprises would comment. Up this Tuesday by 4.93% at mid-session, the GameStop action lost 5.48% on Monday, however. The American media recalled, however, that it was rare to see Carl Icahn realize such a short on a company among the “same stocks”, these actions prized by private investors at prices disconnected from reality.
“Anything can happen” says GameStop boss
The volumes traded on Wall Street for the GameStop action are not very significant if we rule out a peak on October 31st. In one year, the proportion of shares sold short has however doubled, and the positions are very solid to drag the company down. It remains to be seen if the members of the Reddit forum will be tempted by a last run.
“Anything can happen in the financial markets”, said Ryan Cohen, the boss of GameStop. After nearly two years without a public appearance, he filmed himself in a remote interview with the founder of the channel specializing in GameStop action investment advice, GMEdd.com. The opportunity for him to motivate the troops. He answered the question of his investments in the company:
“I invested in GameStop because I thought it was cheap and the intrinsic value of the business was worth more than the price I paid. There was an awful lot of skepticism around GameStop and those are the things I love…watching things while no one else is watching them”. When will he be when his eyes meet those of hedge funds? There’s powder, under the GameStop action.