Sept 1 2020 - GameStop Short Squeeze: Part II
I look at current events.
I also look at optimal option pricing.
This is a historic squeeze.
Intro
This is a brief follow-up to my original article: GameStop Short Squeeze.
I felt GameStop's sudden price movement (and Ryan Cohen's involvement) warranted an update. The probability of a short squeeze has increased dramatically. Here are some useful sources for what's going on.
- GameStop Short Squeeze
- GameStop's Volkswagen Moment
- Anatomy of a Short Squeeze
- Priced for Bankruptcy
- Courage & Conviction
- Justin Dopierala
Thesis
GameStop's (GME) share price is extremely undervalued and heavily shorted at ~99% of the float. GameStop is likely to rally as the console cycle kicks off. The non-zero probability of a dramatic short squeeze has created a situation in which OTM calls are fundamentally undervalued.
Ryan Cohen / RC Ventures Update
Ryan Cohen (in conjunction with RC Ventures) has acquired 6,215,326 shares as of Aug. 31, or roughly ~9% of the company.
Cohen's involvement is a big deal. Ryan was the founder of Chewy (NYSE:CHWY) and beat Amazon (NASDAQ:AMZN) in the e-commerce vertical. I'm not sure what Cohen's intentions are yet - but the fact that he bought such as large percentage of GameStop indicate he may try to take an active role. Additionally, Cohen's prior experience in e-commerce are crucial to GameStop proving future viability.
Short Interest
Company Name | Ticker | Short Int. (% Outs.) | Short Int. (# Shares in millions) | Sector |
GameStop Corp. | GME | 85.99 | 55.69 | Consumer Discretionary |
Bed Bath & Beyond | BBBY | 58.45 | 72.54 | Consumer Discretionary |
Ligand Pharm | LGND | 55.53 | 8.93 | Health Care |
Mallinckrodt Plc | MNK | 53.77 | 45.48 | Health Care |
Macerich Company | MAC | 50.52 | 75.51 | Real Estate |
Tanger Factory Outlet Centers | SKT | 49.17 | 45.96 | Real Estate |
Macy's Inc | M | 41.64 | 129.18 | Consumer Discretionary |
(Source: Koyfin)
Share Price
Data by YChartsOwnership
(Source: Courage & Conviction)
Catalysts
(Source: Myself)
Option Pricing (Current)
(Source: Myself)
(Source: Myself)
(Source: Myself)
Option Pricing (Expected)
(Source: Myself)
(Source: Myself)
(Source: Myself)
Conclusion
We're in the first innings of a major short-squeeze situation. Option prices are still undervalued, and I'm hoping for a >50x return.