LONDON, Feb. 2 (Reuters) – The frenzied battle last week over GameStop that put retail traders against Wall Street hedge funds comes amid a long line of long-running investor blockbuster ‘by buying shares and those trying to turn a profit from’ short ‘trades.
Short trading involves borrowing shares and selling them on with the aim of buying them back later cheaper and pushing the difference. But it can be a dangerous bet.
Markets can go the wrong way and losses can hit if stocks go up, forcing short sellers to scramble to buy back shares so they can close their positions.
GamesStop, the US videogame series that targeted short sellers, was a prime example of ‘short press’. Retail investors rallied into the stock last week and at one point had driven their share price nearly 2,500% higher than at the end of 2020, leaving some hedge funds fostering great loss.
Other stocks on which summaries had also focused had a surge in the trading frenzy, prompted by chats on the Reddit online forum.
The biggest position in 25 years is called Goldman Sachs. IHS Markit said U.S. companies that were severely shortened were performing better than those of the lowest-cut ones by about 24% in January.
GameStop shares are now 75% lower than the high.
Here are some notable events of ‘short pressing’:
VAULT VALUE VW
The German manufacturer Volkswagen was introduced to the “mother of all short-lived pressure” in October 2008 when its share price fell in two days, making it short as the most valuable company in the world. -world.
Rival Porsche’s silent purchase of VW shares since 2005 has boosted VW’s valuation, attracting short sellers. By the time Porsche dropped his bomb and declared control of 74% of VW, about 12% of the shares were on loan.
Total hedge fund losses were approximately $ 30 billion.
Tragedy followed. Billionaire Adolph Merkle killed himself after his family pledged the wrong way in shortening a VW.
INCLUDING HERBALIFE
A $ 1 billion bearish bet on Herbalife nutritional products company with Pershing Square Capital by Bill Ackman resulted in a five-year duel with rival Carl Icahn.
Ackman announced the Herbalife pyramid scheme and it was short 20 million shares in 2012, making up more than half the short sum. But a 40% allotment was reversed when Third Point bought another hedge fund into Herbalife, raising the price by 76%. Icahn continued, as the largest shareholder in the company.
Ackman dropped his cut at a loss in 2018 after watching Herbalife shares rise more than 150%. The Wall Street Journal estimates the Icahn benefits from Herbalife at $ 1 billion.
AN CRUN KALOBIOS
In November 2015, entrepreneur Martin Shkreli ordered a brief push on the debt-packed biotech company KaloBios, adding its shares 10,000% higher. Following the price jump, KaloBios reported that a group led by Shkreli had acquired 50% of its shares.
In the stampede of short sellers trying to cover their positions, the stock climbed to $ 45 from just 45 cents before tightening. But just two months later, it had fallen below $ 2 when KaloBios was listed from the Nasdaq.
The tension put many small traders into hardship. One of them started a GoFundMe campaign to deal with trade losses.
PUNISHMENT PIGGLY WIGGLY
A U.S. grocer named Clarence Saunders, owner of the Piggly Wiggly store chain, was exposed by a short press he created in 1922 to punish those who opposed his company. .
Using borrowed money, Saunders accumulated large amounts of Piggly Wiggly stock, more than tripling its price. But the New York stock exchange halted stock trading and gave traders more time to cover their positions.
As the bears acquired shares from elsewhere, prices plummeted, forcing Saunders to sell. He finally called a break.
THE LONG VIEW OF SILVER
Inspired by their GameStop gambit, Reddit retail traders took money. But they found less success buying global commodities than when targeting individual stocks.
They may have learned a lesson from another ‘long’ move in the money market in 1980.
That year, tycoons Nelson and Herbert Bunker Hunt held two-thirds of futures contracts on the New York Commodity Trade, or more than $ 6 billion of exposure. In January 1980, they were sitting at a huge gain when money burned above $ 50 an ounce from $ 6 a few months earlier.
But their long bet returned. Rising supply caused prices to fall and banks issued margin calls on Hunts futures contracts. Unwilling to accept more money as collateral, lenders removed the metal. By March 27, “Thursday Thursday,” futures fell to $ 10.80 from more than $ 30.
The Hunts declared a breach in 1988. (Reporting by Sujata Rao; further statement by Sagarika Jaisinghani in Bengaluru; Editing by Tommy Wilkes and Edmund Blair)