It has >5,000 stores, primarily in malls, across North America, Europe, and Australia.
The business has struggled to modernize, hurting its financial and stock performance.
THREAD: The story of the week in finance is how a group of retail traders at @wallstreetbets, with assists from @ElonMusk and @Chamath, took down the establishment short sellers at GameStop.
A thread on the underlying mechanics of the $GME saga...
It has >5,000 stores, primarily in malls, across North America, Europe, and Australia.
The business has struggled to modernize, hurting its financial and stock performance.
It really came to the forefront after RC Ventures, an entity managed by Chewy founder @ryancohen, disclosed a large position and assumed three board seats.
"We are excited to bring our customer-obsessed mindset and technology experience to GameStop and its strategic assets...expanding the ways in which it delights customers and by becoming the ultimate destination for gamers."
Since then, the stock has surged to ~$200 per share and captured the public imagination.
But how did it happen?
There are two dynamics at play: a short squeeze and a gamma squeeze.
This occurs when short sellers (those betting against a stock, like Melvin Capital here), are forced to buy stock to exit/cover their shorts.
I wrote a primer on the short squeeze, which you can find below. https://t.co/xKDUscvQup
Short Squeeze 101
— Sahil Bloom (@SahilBloom) August 5, 2020
If you follow financial markets (or if you watch Billions), you've heard the phrase "short squeeze" used quite frequently.
But what is a "short squeeze" and how does it work?
Here's Short Squeeze 101!
\U0001f447\U0001f447\U0001f447
As usual, let's simplify it here for everyone to understand.
A gamma squeeze is all about options contracts and their indirect impact on the underlying stock.
For a primer on options, see my thread below. https://t.co/jU7gEt9sf7
1/ Options 101 - Call Options
— Sahil Bloom (@SahilBloom) July 14, 2020
Over the last few months, with the rise of Robinhood and the day trading boom, options trading has been featured prominently in the news (for better or for worse).
But what is an option and how does it work?
Here\u2019s Options 101 - Call Options! pic.twitter.com/wH6IijE7wf
You pay them a bit of money (the premium) and they make a commitment to deliver you the underlying stock at a future date for the strike price of the option.
It's a pretty simple transaction.
If $GME rises above your strike price, they will have to buy the stock at the market price and sell it to you for the strike price, incurring a (potentially large!) loss.
The amount of stock she buys is based on the "Delta" - a ratio of how much the option price moves relative to a $1 move in the stock.
As Delta and Gamma rise, the market maker gets more and more nervous!
She has to buy more stock to hedge the risk of the option being exercised in the money (i.e. with the underlying price above the strike price).
As call option purchasing volumes suddenly surged (thanks to @wallstreetbets @chamath and @ElonMusk), market makers had to purchase a lot of $GME stock to hedge.
This set in motion a self-fulfilling prophecy…
As the price of $GME went up, the Delta and Gamma of $GME call options rose.
This meant market makers had to buy more stock, further driving up the $GME price!
Reflexivity!
With $GME, we had both (1) a short squeeze - short-sellers frantically buying the stock to close/cover their shorts and (2) a gamma squeeze - call option market makers frantically buying the stock to hedge their exposure.
Result: 👇
For more on this topic, I highly recommend reading @matt_levine's "Money Stuff" newsletter on the topic. https://t.co/5nxzRyTaee
If you're out of the loop - this is the (hilarious) story of a subreddit (wall street bets) taking down a multi-billion dollar hedge fund... get your popcorn ready \U0001f37f
— Shaan Puri (@ShaanVP) January 26, 2021
1/ An Allegory of Finance
— Sahil Bloom (@SahilBloom) July 18, 2020
I have been posting a lot of educational (and humorous!) threads on finance, money, and economics.
My mission is simple: to demystify these concepts and make them accessible to everyone.
All of the threads can be found below. Enjoy and please share!
More from Sahil Bloom
More from Business
Introducing "The Balloon Effect"
Many businesses & creators have experienced a similar pattern of success.
From @MrBeastYT and @MorningBrew to @oatly and @Rovio.
Let's break down what "The Balloon Effect" is and examples of it in real life.
Keep reading 👇
1/ What is "The Balloon Effect"?
It is a particular pattern of growth.
It is not Instagram's growth trajectory.
It is not https://t.co/5axsTUKek6's growth trajectory.
"The Balloon Effect" is defined by several years of hard work & grit complemented by slow, linear growth.
2/ And then one day, one month, or one quarter...everything changes.
A business hits a tipping point and its trajectory shifts entirely.
Gradual growth turns to exponential growth & your brand and your size explode.
Like a step function.
3/ Now, you're probably wondering.
Why is it called "The Balloon Effect"?
Because filling/popping a water balloon follows the exact pattern I just described (and so many businesses experience).
Long unsexy slog 👉 Exponential tipping point.
4/ Initially, you turn on the faucet & water takes up space in the empty balloon.
Through effort you open the faucet, yet the results are unexciting.
But it's what must be done for water (or growth) to happen at all.
It's not sexy, but it's necessary.
Many businesses & creators have experienced a similar pattern of success.
From @MrBeastYT and @MorningBrew to @oatly and @Rovio.
Let's break down what "The Balloon Effect" is and examples of it in real life.
Keep reading 👇
1/ What is "The Balloon Effect"?
It is a particular pattern of growth.
It is not Instagram's growth trajectory.
It is not https://t.co/5axsTUKek6's growth trajectory.
"The Balloon Effect" is defined by several years of hard work & grit complemented by slow, linear growth.
2/ And then one day, one month, or one quarter...everything changes.
A business hits a tipping point and its trajectory shifts entirely.
Gradual growth turns to exponential growth & your brand and your size explode.
Like a step function.
3/ Now, you're probably wondering.
Why is it called "The Balloon Effect"?
Because filling/popping a water balloon follows the exact pattern I just described (and so many businesses experience).
Long unsexy slog 👉 Exponential tipping point.
4/ Initially, you turn on the faucet & water takes up space in the empty balloon.
Through effort you open the faucet, yet the results are unexciting.
But it's what must be done for water (or growth) to happen at all.
It's not sexy, but it's necessary.
1/An interesting thing happened tonight. I was scrolling through clubhouse and found WileyCEO, Godfather of Grime (kicked off Twitter in July for antisemitic tweets) speaking. So I tweeted this (and included a screen shot, later deleted as I found out TOS don't allow it ...
2/ ... and several folks also asked me to remove it which I promptly did afterwards).... Coming into the CH room, I fully intended to confront him about how hurtful his comments in July were. But as I listened to the folks in the room, I decided to go a different direction ....
3/ the conversation jumped around, covered many topics and there were between 8-14 people up on stage. But a recurring thread was discussion of racism, bigotry, comparison of it in the US vs UK vs elsewhere.
4/ when I got a chance to speak, I had 5 bullets written down: a) we should harness technology and capitalism to make reparations for what America did to Black people. I gave https://t.co/SlrW8zCd58 (a project a couple friends co-started) as an example) ...
5/ b) capitalism and product know-how and technology can be harnessed for social justice c) historically oppressed minorities need to stick together and lastly, d) "Wiley, how could you say such hurtful things about Jews as a people?" That's what I had ready to say, anyway.
2/ ... and several folks also asked me to remove it which I promptly did afterwards).... Coming into the CH room, I fully intended to confront him about how hurtful his comments in July were. But as I listened to the folks in the room, I decided to go a different direction ....
3/ the conversation jumped around, covered many topics and there were between 8-14 people up on stage. But a recurring thread was discussion of racism, bigotry, comparison of it in the US vs UK vs elsewhere.
4/ when I got a chance to speak, I had 5 bullets written down: a) we should harness technology and capitalism to make reparations for what America did to Black people. I gave https://t.co/SlrW8zCd58 (a project a couple friends co-started) as an example) ...
5/ b) capitalism and product know-how and technology can be harnessed for social justice c) historically oppressed minorities need to stick together and lastly, d) "Wiley, how could you say such hurtful things about Jews as a people?" That's what I had ready to say, anyway.
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MASTER THREAD on Short Strangles.
Curated the best tweets from the best traders who are exceptional at managing strangles.
• Positional Strangles
• Intraday Strangles
• Position Sizing
• How to do Adjustments
• Plenty of Examples
• When to avoid
• Exit Criteria
How to sell Strangles in weekly expiry as explained by boss himself. @Mitesh_Engr
• When to sell
• How to do Adjustments
• Exit
Beautiful explanation on positional option selling by @Mitesh_Engr
Sir on how to sell low premium strangles yourself without paying anyone. This is a free mini course in
1st Live example of managing a strangle by Mitesh Sir. @Mitesh_Engr
• Sold Strangles 20% cap used
• Added 20% cap more when in profit
• Booked profitable leg and rolled up
• Kept rolling up profitable leg
• Booked loss in calls
• Sold only
2nd example by @Mitesh_Engr Sir on converting a directional trade into strangles. Option Sellers can use this for consistent profit.
• Identified a reversal and sold puts
• Puts decayed a lot
• When achieved 2% profit through puts then sold
Curated the best tweets from the best traders who are exceptional at managing strangles.
• Positional Strangles
• Intraday Strangles
• Position Sizing
• How to do Adjustments
• Plenty of Examples
• When to avoid
• Exit Criteria
How to sell Strangles in weekly expiry as explained by boss himself. @Mitesh_Engr
• When to sell
• How to do Adjustments
• Exit
1. Let's start option selling learning.
— Mitesh Patel (@Mitesh_Engr) February 10, 2019
Strangle selling. ( I am doing mostly in weekly Bank Nifty)
When to sell? When VIX is below 15
Assume spot is at 27500
Sell 27100 PE & 27900 CE
say premium for both 50-50
If bank nifty will move in narrow range u will get profit from both.
Beautiful explanation on positional option selling by @Mitesh_Engr
Sir on how to sell low premium strangles yourself without paying anyone. This is a free mini course in
Few are selling 20-25 Rs positional option selling course.
— Mitesh Patel (@Mitesh_Engr) November 3, 2019
Nothing big deal in that.
For selling weekly option just identify last week low and high.
Now from that low and high keep 1-1.5% distance from strike.
And sell option on both side.
1/n
1st Live example of managing a strangle by Mitesh Sir. @Mitesh_Engr
• Sold Strangles 20% cap used
• Added 20% cap more when in profit
• Booked profitable leg and rolled up
• Kept rolling up profitable leg
• Booked loss in calls
• Sold only
Sold 29200 put and 30500 call
— Mitesh Patel (@Mitesh_Engr) April 12, 2019
Used 20% capital@44 each
2nd example by @Mitesh_Engr Sir on converting a directional trade into strangles. Option Sellers can use this for consistent profit.
• Identified a reversal and sold puts
• Puts decayed a lot
• When achieved 2% profit through puts then sold
Already giving more than 2% return in a week. Now I will prefer to sell 32500 call at 74 to make it strangle in equal ratio.
— Mitesh Patel (@Mitesh_Engr) February 7, 2020
To all. This is free learning for you. How to play option to make consistent return.
Stay tuned and learn it here free of cost. https://t.co/7J7LC86oW0
