Steve Cohen Point72 loses big in GameStop’s short squeeze romp.
This one is a story to take to Hollywood. The one percent club, an exclusive elite club of Wall Street hedge fund moguls who have gamed the system, often tilting the level playing field to their advantage at the expense of so many suddenly find themselves a victim of their own game.
“Steve Cohen Point72 loses big in GameStop’s short squeeze romp”
WEALTH TRAINING COMPANY
How did Steve Cohen Point72 lose billions to a band of Reddit activist traders, many of whom had not much more capital to trade than their Stim checks?
The Centre of the story is Melvin Capital Management, partly bankrolled by Steve Cohen Point72, which had large short positions in GameStop, the world’s biggest video game retailer was on the verge of dying.
The company had been in steady decline for years, but the bottom dropped out of its stock price across the last year from $16 a share in January 2019 to under $5 by January 2020.
The company is “a melting ice cube,” Wedbush analyst Michael Pachter told Business Insider. “For sure it’s going to go away eventually”.
Many analysts believed that the console generation would buy their games through digital storefronts operated by Sony and Microsoft (PlayStation Network and Xbox Live, respectively).
In short, in the age of downloads and streaming GameStop’s retail model was outdated and hedge fund Melvin Capital Management sought to profit from the company’s demise by betting on the stock declining.
Melvin Capital Management believed that shorting the company’s stock, particularly in light of the pandemic enforced lockdowns would be a no brainer.
“the bottom dropped out of its stock price across the last year from $16 a share in January 2019 to under $5 by January 2020”
WEALTH TRAINING COMPANY
So, the hedge fund sold shares in the company while the price was high with the hope of buying them later at a much lower price. In other words, Melvin Capital was employing capital betting on the demise of a company, which provides work for 14,000 people full-time and 22,000 to 42,000 part-time (2019).
Meanwhile, Reddit activist traders noted the hedge funds’ large short position in the company and mounted a short squeeze. In defiance of the mogul hedge funds’ short positions, millions of small traders bought shares in the company, which push the stock price up forcing the hedge fund to cover their positions as prices spiked higher. The scenario above is described as a bear squeeze.
“Shares of GameStop finished last week 400% higher, bringing its total gain this year to an eyewatering 1,625%” – Wealth Training Company
In short Steve Cohen Point72 loses big due to a bear squeeze, which forced Melvin Capital out of their short GameStop position
Shares of GameStop finished last week 400% higher, bringing its total gain this year to an eyewatering 1,625%.
Melvin Capital started the year with $12.5 billion in AUM and lost almost 30% by the end of January, according to The Wall Street Journal.
But it was reported that the hedge fund lost 53% in January amid a record rally in Gamestop
and other short bets targeted by the Reddit activist traders.
Last week’s credit activist traders extended to other popular short targets, including Bed Bath & Beyond and AMC Entertainment, and most recently silver. Retail investors are going to Reddit’s WallStreetBets forum to target various trades. The forum has seen its members more than triple in just a week already above 7 million.
“Every trader, gambler, investor knows never to go all-in on one position” – Wealth Training Company
Steve Cohen Point72 loses big with his affiliated Melvin Capital hedge fund losing approximately $3.75 billion (other reports note the loss could be double to approximately $7 billion)
What could be the mother of all short squeezes coordinated by an army of retail traders.
But Steve Cohen Point72 loses big is a story within a story
The question that nobody is asking is how could the so-called hedge fund mogul, the king of Wall Street be associated with a hedge fund that blows up 30% of its capital AUM approximately $3.75 billions of capital in two blowout short-selling positions.
Every trader, gambler, investor knows never to go all-in on one position
Despite having a few Skeletons in his closet Steve Cohen has been put on a pedestal as being the one walking amongst the great titans of Wall Street. The mega-successful professional billionaire money manager.
But where was Melvin Capital’s risk management? How could just two mega short positions result in a 30% loss of AUM?
Steve Cohen Point72 loses big through his affiliate hedge fund Melvin Capital, which raises questions about the hedge funds risk management practices
A few days ago, Steve Cohen also called it quits on Twitter. The Mets owner appeared to delete his account Friday night. Apparently, the billionaire hedge fund manager deleted his account amid the GameStop backlash.
Finally, several other hedge funds have got torched by the wall street bets army, so Steve Cohen Point72 loses big together with other hedge funds
For example, Citron Capital threw in the towel recently, saying that they had closed most of the firm’s short position when GameStop’s stock traded at about $90 at a “loss of 100%.”
Moreover, as we write this piece, Greylock Capital Associates filed for bankruptcy protection in New York as investors pulled money from the hedge fund following three years of losses.