Get GameStop Corp. Class A Reportbulls (or rather, apes, as they are known) and bears is far from over. Lately, GameStop and other meme stock firms have been handing it to those who have been betting against them.
After a disappointing quarter, here is the perfect example of a capital management corporation that holds short positions in GameStop. They have recently revealed their long-short fund investment thesis and their next steps.
Short Sellers Aren''t In A "Comfortable Position" Figure 1:GameStop Stock
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Inside A Short Sellers Mindset
The Amalthea fund, founded by Bronte Capital, an Australian capital management firm, has a long and short strategy. On the short side, they have taken positions betting against almost every major meme stock, including GameStop and AMC.
The fund subsequently published its Q1 performance statistics to investors. Although the fund did not do as badly as global markets in general, it dropped 5.57%, while the MSCI All Country World Index (ACWI) - Get iShares MSCI ACWI ETF Report fell 12%, the funds manager said they were dissatisfied with the quarter''s results.
When it comes to this rally, Amaltheas'' poor performance was reflected in a meme stock rally in March. The fund expresses its bearish GameStop position.
Bronte Capital believes that GameStops'' valuation is ridiculous, even if one factor in the modest success that the company has had in reinventing itself. GME''s recent financial results have been terrible, and that the company''s market cap doubled in March was foolish.
The firm also admits that it is aware that GameStop''s "absurd" valuation may still double in the near future.
"[GameStop''s] valuations are absurd, but if you double the price, they aren''t twice as absurd. They''re just identical to the reality."
The bear analysis from Bronte Capital on GameStop adds stability as well. Fund managers believe that retail mania is becoming more complex, and that recent volatility remains in comparison to the previous year''s squeeze.
Hard Times Ahead For Short Sellers?
Bronte Capital has offered some opportunities for GameStop and, perhaps, other meme stocks.
GameStop has announced a stock split proposal that will be discussed in early June. Although a stock split, theoretically, adds no value to a company''s fundamentals, Bronte Capital claims "not accepting that stock splits add value is a recipe for losing money."
The value of a stock split is evident in the options market, where a standard put or call contract leverages 100 shares of an underlying asset. Options, therefore, tend to be more costly when the underlying shares themselves are more expensive.
A near-term, slightly out of the money (OTM) GME call option contract is currently worth $800. If GameStop offers a 3-for-1 split, similar near-term OTM calls may sell for $266. A reduced GME share price would make basic GME options more accessible to the general public (i.e., retail traders).
Bronte Capital has therefore been warning about the impact of a stock split on the GME options market. Originally, they were skeptical; they believed options trading was driven mostly by professionals with substantial capital at their disposal, not "retail weirdos. However, the equity firm has come around to discovering that retail traders are often the primary drivers of options pricing, which in turn may impact stock - especially meme stock - performance.
Bronte Capital is in a self-described position of limited pleasure due to the threat of options.
The GME is still very short, so a squeeze might be imminent.
Short sellers are still playing with fire to sum up, and to repeat what we have written in many of our GME articles in the past few months. Currently, GameStops short interest is at 21% of its float, with about 14.13 million shares being shorted. This number is higher than the previous month, when 12.35 million shares were being shorted.
A high short interest may be correlated with a company''s poor foundations. Nevertheless, a short interest above 15%, which is considered to be quite high, may help bolster a stock''s potential downside. Especially if there''s significant buying pressure triggered by a stock split.
This is not investment advice, according to the authors. The author may be long one or more stocks listed in this report, but the article may also contain affiliate links. These partnerships do not influence editorial content. Thank you for assisting Wall Street Memes)