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Hedge fund Melvin sustains 53% loss after Reddit onslaught

arstechnica.com

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Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#241

Post by [deleted] »

takklz wrote: post #213
fairity wrote: post #163

Earlier quoted context omitted.

You can avoid the borrowing fee and margin call risk by purchasing PUT options. The $320 PUT expiring in 1 year costs $240. I purchased 2 contracts on Wednesday bc I don't see a scenario where the price doesn't crash back down below $60 within a year. Expected ROI of 10-20%. Not a large return, but also a pretty safe bet imo considering their ATH prior to this squeeze was $60, and that was back in 2007.

The put options im seeing for 1 year out at $320 currently cost $24,000. (1 contract at 100 shares) what are you looking at that I am not? Am I looking at the wrong thing? Edit: (sorry I’m not an expert in options)

[deleted]

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#242

Post by briefcomment »

tedunangst wrote: post #188
briefcomment wrote: post #170

Earlier quoted context omitted.

That's fine if market makers stick to the rules. What do you make of some of what Citadel has done before? https://www.bloomberg.com/news/articles/2020-07-21/citadel-s... https://www.sec.gov/news/pressrelease/2017-11.html

I think if you had started with "sometimes they don't offer as much price improvement as they promised" that'd have been more accurate.

The upshot of this is that Citadel is selling retail GME at slightly elevated prices for profit. This will certainly contribute to higher GME prices. If Melvin is still short, Citadel is in a predicament. If they want the price as low as possible for Melvin’s sake, they need to actually provide the best price. I thought that was funny.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#243

Post by ogre_codes »

fractionalhare wrote: post #225
ogre_codes wrote: post #214

Most stunning thing in this article to me: "The GameStop saga marks a fall from grace for Melvin, which gained 52 percent last year, ranking it among the best performing hedge funds ." This is kind of surprising. I personally know a few retail investors who crushed that number. Not with fancy day trading, just owning a few good companies. I know it's a lot harder for institutions to get outsized returns, I just didn'…

This is why we have the term, "capacity constraints." Melvin accomplished those returns in a year where they would have started off with $10B or close to it. The retail investors you know did it on what, $100k? $1M? The liquidity available to retail investors is completely different from the liquidity available to firms with an 11 digit book. Assuming those retail investors actually have a working strategy, they can…

Sure, but I'm not talking about complex strategies here. If you can't beat a retail investor with a straightforward portfolio of middle of the road stocks like "AMZN, AAPL, BRK, DIS", what is the point of a hedge at all? Particularly when their tactics put them in such a high risk category.

All of what I'm talking about would have scaled perfectly fine with a $10b portfolio, these are giant corporations with a combined market cap around $4 trillion.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#244

Post by jcfrei »

robbomacrae wrote: post #91
kyrieeschaton wrote: post #29

How much evidence is there that the "reddit onslaught" actually moved the price, as opposed to them being the stalking horse for more sophisticated actors with more capital exercising a vanilla short squeeze strategy?

So many conspiracy theories on both sides these days. Don't forget Ocram's razor. I don't think there are many sophisticated actors here at all. I'm speaking as one who did DD on GME back in September and throw some money in (thought it was a great opportunity mainly because of Cohen + the upcoming console super cycle with a tiny chance of squeeze thrown in) It was a smart discovery by WSB and got a bit more than ave…

It's virtually guaranteed that this stock popped up on the radars of the funds who run momentum trading strategies. And it would be very weird for a lot of them not to jump on that bandwagon (at the very least because it's their mandate to do so).

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#245

Post by Uehreka »

dragonwriter wrote: post #203
Uehreka wrote: post #195

Earlier quoted context omitted.

So, my layman’s understanding is that if there are 10 million shares, and you borrow 1 million of them (a 10% short position) from their owners, then sell them to new owners, both the old owners and new owners count as owning stock, and so 11 million shares “are owned”. My understanding is that then when the end of the quarter comes around, the owners of all 11 million shares are owed dividends. 10 million of those r…

> So, my layman’s understanding is that if there are 10 million shares, and you borrow 1 million of them (a 10% short position) from their owners, then sell them to new owners, both the old owners and new owners count as owning stock, and so 11 million shares “are owned” The old owners don't strictly own stock, they own a future claim due on a certain date against you for the borrowed quantity of stock plus a claim a…

Ah OK. So in the context of my 10million-14million-24million example, which of those numbers would be called “shares outstanding”? I keep hearing that word a lot, but don’t want to use it until I’m sure of what it means.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#246

Post by motohagiography »

tpmx wrote: post #226
motohagiography wrote: post #204

Earlier quoted context omitted.

If you must know, I now use them interchangeably because on my android keyboard the % symbol is two meta options deep, so i am now in the habit of using it first because I don't want to risk typing additional characters triggering the auto-correct.

I suffer with you; it must be bad not being able to type what you want. If only there was a solution to your troubles...

If only there were!

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#247

Post by galimaufry »

takklz wrote: post #213
fairity wrote: post #163

Earlier quoted context omitted.

You can avoid the borrowing fee and margin call risk by purchasing PUT options. The $320 PUT expiring in 1 year costs $240. I purchased 2 contracts on Wednesday bc I don't see a scenario where the price doesn't crash back down below $60 within a year. Expected ROI of 10-20%. Not a large return, but also a pretty safe bet imo considering their ATH prior to this squeeze was $60, and that was back in 2007.

The put options im seeing for 1 year out at $320 currently cost $24,000. (1 contract at 100 shares) what are you looking at that I am not? Am I looking at the wrong thing? Edit: (sorry I’m not an expert in options)

Options prices are usually quoted per share even though you buy them in increments of 100 shares. So GP paid $25,000 per contract.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#248

Post by fairity »

takklz wrote: post #213
fairity wrote: post #163

Earlier quoted context omitted.

You can avoid the borrowing fee and margin call risk by purchasing PUT options. The $320 PUT expiring in 1 year costs $240. I purchased 2 contracts on Wednesday bc I don't see a scenario where the price doesn't crash back down below $60 within a year. Expected ROI of 10-20%. Not a large return, but also a pretty safe bet imo considering their ATH prior to this squeeze was $60, and that was back in 2007.

The put options im seeing for 1 year out at $320 currently cost $24,000. (1 contract at 100 shares) what are you looking at that I am not? Am I looking at the wrong thing? Edit: (sorry I’m not an expert in options)

Sounds like you're looking at the right contract. Option contracts are written to give the buyer the right to buy/sell 100 shares. So, the minimum investment for the $320 PUT is ~$24K. Contracts with lower exercise prices will be less expensive, but carry more downside risk.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#250

Post by [deleted] »

wrkronmiller wrote: post #5

> On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. The firm moved to reduce risk in its investments following a turbulent start to January when it lost 30 percent in the first three weeks. Melvin’s leverage ratio is at the lowest it has been since the firm’s founding in 2014, said a source familiar with the firm. The news of Melvin’s January performance was first reporte…

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