Well, this escalated quickly.

The resulting action is wild, with GameStop's stock soaring nearly 145% in less than two hours Monday morning, only for the gains to disappear quickly afterward…. It closed Monday at $76.79, after swinging between $65.01 and $159.18 earlier in the day.

How quickly? $2.75 billion to bail out your buddy quickly.

Hedge fund titans Ken Griffin and Steve Cohen boosted Gabe Plotkin’s Melvin Capital, injecting a total of $2.75 billion into the firm after it lost about 30% this year…. In return, the investors will get a non-controlling revenue share in the six-year-old hedge fund. Melvin Capital may receive an additional $1 billion infusion from other investors on Feb. 1, according to a person familiar with the plans.

Unless you are Gabe Plotkin (or Andrew Left or Steve Cohen), though, don’t worry too much about things. The Redditor hordes aren’t quite at the gates yet.

Unlike some other major global equity markets, frenetic individual investors are far from the point where they are really disrupting the real purpose of equity markets—to help companies to raise capital…. Retail order flows have reached 20% of the U.S. stock market’s total, according to UBS research, twice what they were in 2010. Off-exchange trading, which includes but isn’t limited to retail, is up to a record 48% of the total, compared with 2019 levels of more like 35%. That is nothing though, relative to the over 80% that Chinese retail traders account for, according to recent research by U.S. and China-based academics.

That’s why even on the most frenetic days in the U.S., individual options traders may move single stocks, or even a bundle of heavily-shorted stocks, but they don’t have anything like the same impact on the overall market….

For the hedge funds shorting specific stocks, the prospect that day traders could disrupt that positioning for their own gain is a live-by-the-sword, die-by-the-sword sort of issue. If a surging stock has such a large effect on a short position that it threatens your business, you are playing at the high-stakes table and the risks are yours to bear.

And while you might not have much time for the degenerates on r/WallStreetBets, here’s someone with a track record who thinks you might well be out on a pretty significant limb with your GME shorts.

Michael Burry, one of the money managers highlighted in Michael Lewis’ book “The Big Short” for betting against the housing bubble, held more than 1.7 million shares of the video game retailer at the end of the third quarter, according to securities filings.

Citadel, Point72 Back Melvin With $2.75 Billion After Losses [Bloomberg]
Smaller investors face down hedge funds, as GameStop soars [AP via ABC News]
GameStop Day Traders Won’t Sack Wall Street [WSJ]
GameStop’s surge could be a big wine for Michael Burry of ‘The Big Short’ [CNBC Pro]

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