My Thoughts on the GameStop (GME) Mania

[Recyclersteve]

For those who don’t follow the stock market closely, GameStop (Ticker: GME) has been going nuts again lately. This is the one which went from roughly $3 to $385 about 3 years ago when meme stocks (like this one, AMC (AMC), Carvana (CVNA) and a few others) had huge moves in a very short period of time.

The same guy who sparked the mania last time is back again. His name is Keith Gill and he is also known as Roaring Kitty on social media. On another venue he is also known as "Deep F-ing Value".

After some wild moves recently I tried posting my thoughts on Yahoo Finance and they wouldn't accept my post, even after I softened the language. Here are my honest thoughts...

Imagine seeing a beat up old trailer (home- not vehicle) for sale. The price is $1 million. It has broken windows, isn't a double-wide, and is in an area with lots of crime. And, no, there are no rumors of a stash of gold coins left inside or buried by the eccentric former owner.

I know a certain stock (yes, GameStop) that is that trailer. Would you buy it because you might make a buck? A P/E (Price to Earnings) ratio of over 2,000 is sky high versus a normal P/E of perhaps 15-35. The higher the P/E the LESS PROFITABLE the company. In other words, this stock could go down 98-99% and then be considered roughly fair value.

I'm basically saying this isn't an investment at all. If you are buying short-term hype and holding for the long-term, I feel truly sorry for you. Most people in that category are either true novices and/or really gullible. Sorry to sound harsh, but that's the way I see it.

I obviously think this is going much lower- the issue is that you might get an ulcer on your way to a profit by either shorting it or trading options. I've traded it quite a bit this year (both long and (mostly) short and with options) and have done really well so far, BUT I'm not taking large size positions and have somewhat of a cast iron stomach. I've had plenty of very sizable potential losses (GME-related and elsewhere) that I escaped by monitoring things really closely, doubling and tripling down, and by saying the serenity prayer plenty of times.

GLTA but please wear a seat belt. Friday (with Roaring Kitty talking live to the public at 12pm EST) and the very near future (earnings are next Tuesday the 11th) will be VERY INTERESTING. Oh yeah, then you have over 100,000 call contracts that Roaring Kitty (and his cartel- I don't think this is just his money) have which expire on June 21st. The end of that week should be epic as well.

P.S. If I was known as "Deep F-ing Value" and I was hyping a stock with a P/E of over 2,000, many would likely think I was a total fraud. I don't know how I could possibly dispute that without some really creative explanation that would make even a politician jealous.

P.P.S. I wonder if the stock will be halted Friday leading up to the media event by Roaring Kitty. (If someone can post a link to the event here, that would be most appreciated) It is currently trading actively in the pre-market session at $62+, up 34%+ from Thursday's close. Be prepared that if you buy this leading up to the conference, it could be halted (where NO TRADES OF ANY KIND ARE ALLOWED TO HAPPEN) and you might have to wait til after the conference to get out and at a MUCH DIFFERENT price from what you were expecting originally.

[shinnosuke]

How much cash is on the balance sheet?

How much debt?

Roaring Kitty going live in about 20 minutes from now.
https://www.youtube.com/watch?v=U1prSyyIco0

[shinnosuke]

How much cash is on the balance sheet?

How much debt?

Roaring Kitty going live in about 20 minutes from now.
https://www.youtube.com/watch?v=U1prSyyIco0

461,000 YT accounts now waiting for him to appear.

[Recyclersteve]

There ended up being over 600,000 people online for the event. Hey, there aren’t that many cities in this country with more than 600k population!

Obviously, I was expecting something really big. I’d give Roaring Kitty fair credit if he had some clever ways of valuing GME stock and the big potential growth he’d see or expect. I had a sheet of paper to take notes and the only thing I wrote down was that he didn’t even start til 12:25pm EST, a full 25 MINUTES LATE. And I didn’t hear any apology from him about being so tardy. Just being that late wasted over 300,000 man hours that could have been spent more productively. Oh well…

I figured Keith had 3 years to get ready for his presentation and a staff of advisors and lawyers, as he kept asking questions like “Can I legally say this?”, etc.

In fairness to Keith, he was thrown a curveball by none other than GameStop before the event began. The curveball was that they were supposed to announce company earnings on Tuesday the 11th. Instead, they jumped the gun and announced crappy earnings just a few hours before the online event. Not only did they announce lousy earnings, but they announced a stock offering of 75 million more shares on top of the 300 million they already have. This instantly means your shares are worth roughly 20% less (not 25% as some would figure) than they were before.

In Thursday’s after hours session and Friday’s pre-market session, GME stock was trading as high as roughly $64-65 a share. Keep in mind that Thursday before the online event was announced, GME was trading in the high $20’s. So it more than DOUBLED in a few hours Thursday. I figured I absolutely MUST watch this event if this one man has that much power to move the stock.

12:00- Show supposed to start. Stock, which was $64-65 a few hours earlier, is now down all the way to $37.75.
12:28- Show just started 3 minutes ago and nothing has really happened yet. Stock now $31.63.
1:14- Show ending and stock now $27.65.

So, in less than one day, the stock went from the high $20’s to the mid-$60’s and back down to the high 20’s. WOW!

For someone like me willing to accept the risk, this was a stressful, yet profitable trade. Whew! Time to enjoy the weekend.

[Recyclersteve]

For anyone wondering about the future direction of the stock, look at my comment at the top of this thread where I discuss the proverbial $1 million trailer. You can say with absolute confidence that the trailer even under the wildest of circumstances isn't really worth anywhere near $1 million. But, when manias occur, sometimes there is the old irrational exuberance factor.

One way I take advantage of that (definitely NOT for the average person) is to SELL (not buy) options when the premiums are sky high. I then buy them back at lower prices when sanity prevails and pocket the difference.

An example can be made using GME stock. The stock closed Friday at $28.22. There are call options expiring on June 28th that have prices all the way from $5 to $128- that is an ABSOLUTELY HUGE range of possible prices. I looked at the $120 call. If I sell it, I have to be willing to sell the stock to a potential buyer anytime between now and the June 28th expiration at $120 a share, even if the stock is worth, say, $200.

First, it would be unusual to have strike prices above even $50-60, so a price of $120 is (in and of itself) very unusual. If I saw a premium of, say, 20 cents a share for this option, I'd normally think that is a very large premium. I ended up selling and getting a whopping $2.10 a share, more than 10 times what I'd normally expect. This is beyond ridiculous. And, after the unimpressive event Friday, I expect these premiums to drop sharply between now and expiration. Note that you need a high level of option approval to sell naked call options.

For someone willing to take some time to study, this is a potentially lucrative trade for the right person under the right set of circumstances. If you just want easy trades, this is one that a lazy person who doesn't study carefully can get absolutely annihilated on.

[Recyclersteve]

Ok- I finally got out of my naked call options for GME. Above you will see that I sold $120 calls for $2.10 each- 13 options total. Bought them back today for 55 cents each, so I almost quadrupled my money in 8 days.

Total profit was a bit over $2,000.

Keep in mind that I was probably LOSING about $15,000 early on. That shows you how wild options can be.