The GameStop saga continues… Roaring Kitty aka u/DeepFuckingValue just posted on reddit this afternoon after market close. He no longer owns any GME call options and he now has nine million and one thousand shares of GME in his account!!!! Presumably, he sold 79,990 options and exercised the remaining 40,010 options. From his June 2nd post, his cost basis was ~$174.5M and as of today his GME holdings is worth ~$262.1M. He did use up some of his cash to exercise the options, but overall he is up $262.1M - $174.5M - $23M = $64.6M in 10 days!!! WOW! What a trading genius!!
On top of his insane gains, he also helped GameStop the company raise $2.137B, boosting the company’s cash balance by 100+%. Here is what the company said in a press release two days ago:
GameStop disclosed on June 7, 2024 that it filed a prospectus supplement with the U.S Securities and Exchange Commission to offer and sell up to a maximum amount of 75,000,000 shares of its common stock from time to time through the ATM Program. The Company sold the maximum number of shares registered under the ATM Program for aggregate gross proceeds (before commissions and offering expenses) of approximately $2.137 billion.
GameStop intends to use the net proceeds from the ATM Program for general corporate purposes, which may include acquisitions and investments.
WOW! Ryan Cohen (GameStop CEO) must love Roaring Kitty. I still don’t get GME’s fundamentals though. It’s a declining brick-and-mortar retail business. But we live in a time that attention and perception often drives markets more than fundamentals. Ultimately stock trading is about supply and demand. Everyone can literally buy and sell any stock with a click of a button these days. Stocks that attract traders’ attention and impulse can move mountains. What Roaring Kitty is doing here really showed us how much *investing in stocks* has changed over the years.
Currently, about 50% of equity funds in the United States are in passively managed mutual funds and ETFs and the share is growing. By definition, these index funds basically just blindly follow the market directions passively. The question now is who are the active buyers and sellers that are driving the price discovery? Active portfolio managers are gradually going out of business so their influence is waning. Retail traders often act more like compulsive gamblers than investors and many of them play options that make things even more complicated. There are also company stock buybacks and big quant funds like Citadel and Renaissance. Overall, I am not surprised that a small number of stocks like GME and TSLA went haywire due to retail investors' FOMO behavior incited by colorful characters like Elon and Roaring Kitty. Short Sellers can easily get slaughtered in this kind of environment. Most of my public investments are in index funds. I do worry about what will happen once the passive investing share grows to say 70+%. Will the price discovery be driven by retail investors who are heavily influenced by colorful personas or online forums like reddit or TikTok? This frankly sounds like a disaster to me. Can someone tell me this is not true and the market will still mostly be driven by fundamentals?
