The endgame could be near for the squeeze trade


Peak GameStop?

GameStop’s volume and volatility were much lower this week than the previous six days. This also applies to other heavily short-circuited names like Bed Bath and Beyond, Express, and AMC.

What’s happening?

Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group, has ticked the signs that the endgame may not be far off for GameStop: “Lately, more puts have been traded than calls. The open interest in call options is Much less. There is a decline in volatility. There are signs that Reddit flows are moving like silver elsewhere. These are definitely signs of a peak from GameStop. “

GameStop shares fell 54% on Tuesday after losing 30% on Monday. The stock traded 37 million shares on Monday, up from a high of nearly 200 million on Jan. 22 and the lowest volume in seven days.

Just like the GameStop shorts they supposedly brought out, many in the Reddit community have already made money and are out. Some are ideologically committed, but stay long. Others are looking for new opportunities, but Dan Egan, director of behavioral finance and investment at Betterment, says it will be more difficult to rally the troops.

“The human brain craves stimulus through change,” he said on the CNBC podcast “ETF Edge”. “One of the real challenges to these kinds of things is that they have to keep the attention on themselves by doing bigger and more unusual things. And that’s really hard. … That kind of attention gets broken onto other things that could have this opportunity to move up. So you are looking at silver, other commodities, etc. “

The problem, of course, is that there is no investment committee – even the silver debate is split into groups for and against groups.

And this is where attention begins to unfold, Egan said, “A lot of people think that this was a profound change in how the market works, as long as a message board or community of people can bring attention to a particular stock – they really can move, it’s going to happen again. But it’s going to be harder because people will understand that it’s a bit of a mania, a Ponzi scheme thing, you have to get in at the right time and get out at the right time … And if you remove that ability to focus everyone on the same stock, the ability to drive price up decreases. “

Does broken attention mean the Reddit community’s impact is wearing off, or can they come up with a new idea that engages a large enough group to make an impact? Silver, assuming such a choice, could have been a very bad move.

Eric Balchunas, who covers ETFs for Bloomberg, noted in a tweet that the Silver ETF (SLV) had strong volume but an overwhelming price movement: “The SLV was trading just over $ 7 billion today (as predicted), a Monster amount and 3rd overall. But shy and not nearly $ GME last week. He kind of ran out of steam by the second half of the day … “

UBS’s Art Cashin also noted that the same passion for GameStop was lacking in Silver: “Did we break the short squeeze? Not entirely obvious yet. If the continued sale in GameStop continued, it would indicate that it was broken. So The collaboration to squeeze the shorts collapsed when they turned their attention to splinters. Where I think they may not be successful at all. “

The lack of leadership remains a critical issue, Egan said, “I think they have a few people who you consider leaders but are not necessarily there to lead. They were random leaders. They lose their sense of FOMO, the fear of missing out on something that has already happened. That’s a big driver of bubbles, people who don’t want to regret attending some kind of social event. So that’s going down too. “

After all, the intense attention the Reddit community has generated means Wall Street knows exactly what it is doing, he added, “These message boards are mostly public and their ability to target a lot of people and focus depends on that attention from being public. But that also means that you can be an analyst at a bank and you can read these message boards just as often. The ability to surprise professionals has dropped dramatically now that it has happened . “

What does it all mean? For Murphy, this means a likely return to the status quo ante: “The endgame is GME is going back to a more realistic level.”

Note: The Susquehanna Financial Group is a market maker for GME and SLV securities. The SFG and / or its affiliates advantageously own 1% or more of the securities of GME.

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