Politics

Here’s How Much Money Some Reddit Trolls Cost the Hedge Funds, and It’s Going to Get Worse

The story of some Reddit investors on a board called Wall Street Bets crushing a hedge fund has tapered off as the weekend has carried on, though they are promising to resume their mission when trading opens on Monday. RedState has covered the story extensively, including how they targeted GameStop (among other stocks) after Wall Street got way out over their skis shorting the stock in hopes of profiting off its demise (see Reddit Trolls Beat the Stock Market, and the Elites Are Really, Really Mad).

Whatever your moral opinions on short sellers and hedge funds may be, watching a bunch of internet trolls turn the system on its head was legitimately funny. It was also somewhat cathartic to see elites that have rigged the system in their favor have it used against them. Things got so bad that trading apps moved to shut down trading on the targeted stocks in order to manipulate the markets and protect the positions of the hedge funds.

Now, we are starting to learn just how successful the retail investors on Reddit were, with the standard of success here being how much it hurts the hedge funds, not all the retail investors ultimately making money.

Melvin Capital Management, the hedge fund that has borne the brunt of losses from the soaring stock prices of heavily shorted stocks recently, lost 53% in January, according to people familiar with the firm.

Melvin was founded by Gabe Plotkin, a former star portfolio manager for hedge-fund titan Steven A. Cohen. It started the year with about $12.5 billion and now runs more than $8 billion. The current figure includes $2.75 billion in emergency funds Citadel LLC, its partners and Mr. Cohen’s Point72 Asset Management injected into the hedge fund last Monday.

As part of the deal, they got noncontrolling revenue shares in Melvin for three years. So far, Citadel, its partners and Point72 have lost money on the deal, though the precise scope of the loss was unclear Sunday.

Melvin Capital lost 53% of it’s value in one month. That comes out to about $3.5 billion. Hardly enough to crush the system, but certainly enough to send a message about predatory short selling.

Things got so bad that Melvin Capital had to be bailed out by Citadel and other sources. Even still, all those involved are still losing money hand over fist. That’s because the Reddit users are “holding,” something that has become their rallying cry. As long as they don’t sell, and the price of GME and other targeted stocks stay high, the hedge funds will have to keep floating their shorts or eventually just take the massive loss.

I would assume that the manipulation by the trading sites late last week, including forcing the sale of GME stock by retail users, allowed enough of a reposition by the hedge funds to limit their future losses. Despite that, the game is still on, and there is likely blood left to the drawn.

 




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