Long

CalculatedYOLO #1: Squeeze the Game ($GME)

Updated

More than 99%.

This is the current short interest of Gamestop . After years of revenue decline, a gloomy outlook on brick-and-mortar sales and now a pandemic headwind, who would bet on this company? What this figure tells me however is that market participants have priced in a major probability for Gamestop to go bankrupt. Almost all of the available float are betting against GME. This stat alone gives me enough reason to look into this company. Are we inside a neglect phase?

1) What if the bears are wrong?

I am a speculator by nature so by no means I'll speak about the "value" aspect of GME. But if there's anything worthy to mention, the simple question that needs to be answered is whether GME will go under or not?. If it will, then the 99% short interest is valid. If it won't and manages to turn around its situation, then there's an opportunity to trade a rare kind of short squeeze. It seems that I am oversimplifying this trade but I am aware that the outcomes are not binary in nature. The company could thrive in the next 12 months and yet the range of the stock price could remain unchanged. But since the odds are greatly asymmetric, the environment is highly sensitive to creating positive feedback loops which could reward the bulls greatly.

We'll have more visibility on the financials of this company and its Q2 performance on Sept 08. What gives GME layers of buffer to stay afloat are the following catalysts: a) console refresh in Q4 b) high cash reserves c) cost cutting measures of the management d) transition to digital channels.

Take these statements with a grain of salt since they are potential "catalysts." As legendary trader Paul Tudor Jones said: "prices move first and fundamentals come second." Price trumps everything.

Here's how I view GME's price structure.

a) Price: GME formed an impulse/corrective formation coming from the March 30 low. This sets up the stock for a possible continuation move. After going above and retested the channel, GME is now moving towards a heavy resistance at 5.50 area. If prices move above this concentrated level, volume analysis suggests that it's easier for the the stock to break through other technical resistances.
b) Trend: Although weekly trend is still down, price has slowly crept up and formed an emerging uptrend on the daily chart. Prices are looking to retest the upper part of the range at 6.50 - 7.00 levels.
c) Trend Strength: Trend indicators are starting to point upwards and emerging from a sideways reading.
d) Acceleration: rate of change of gains is almost double compared to losses the past 3 weeks.

2) What if they are right?

Lose small, win big. Enough said.

Sample trade below:

Average Price: $5.10 /share
Cut Loss level: $4.50
Position Size: 10% of portfolio
% of Portfolio Risk: 1-2%

If we are to use options instead, I think the sweet spot lies somewhere in buying the January 2021 out-of-the-money calls below $10 and limit exposure to 2% of portfolio.

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CalculatedYOLO is a way for me to journal my ideas and potentially add value to some traders. This is not an investment advice. Follow at your own risk.

Note

After trimming my position before earnings, I sold all of my position during the gap down after earnings was announced.

Now, I'm re-accumulating my position that will enable me to go for the home run and at the same time protect my exposure.

The thesis remains the same, the short float is higher than few weeks ago. But now there is variable change through the participation of Ryan Cohen.

It gives me conviction that an investor like Cohen will provide a fresh face to GMEs market position. Being the champion of CHWY, I believe Cohen has a high believability when it comes to providing value to this struggling video game giant.

As I read about Ryan Cohen, I learned the ff:
1) CHWY went head-to-head with AMZN in the pet space and came out on top
2) Ryan Cohen concentrates his bets. The other 2 bets that he made are AAPL and WFC. GME will be his third bet after his CHWY exit.
3) It's documented in several interviews that Cohen has been finding the next thing he's gonna focus on. It took him a while since "it's difficult to find a good company to invest in." But when he finds one, he's all in.
4) Cohen is not an enigmatic figure and appeared many times in public interviews. What puzzles me now is that 2 weeks after the disclosure of buying 9+% of GME, he still hasn't given any public updates. Maybe there's something goin on inside but I speculate that he's not yet done buying the stock.

I won't include any earnings analysis at this point since I think it's already priced in. In my view, it goes down to a simple question: will this company go under or it can turn itself around? At above 100% short interest, what is there to sell?

This trade could potentially be a value trade that could transition into a parabolic move.

Note

GME received series of upgrades which led to a gap up during the opening bell this week.

The short float remains elevated and even significantly increased to ~130% as bears took advantage of the negative figures reported last Sept 08. I think at this point, the short squeeze is imminent. The market already showed half of its hand.

How can a company with poor operational results got upgraded? Short answer: The potential catalysts are greater than the bearish narrative.

For the record, both sides of the camp have argued a strong case as to whether GME will thrive or go under. But the odds are greatly kinked towards the bulls' favor having this massive short interest.

I'm not interested in holding the company for years and watch it succeed. I'm only speculating after the short squeeze thesis. We don't know when will this explode but the fuse was already lit up.

My best guess is that when Ryan Cohen substantially increases his stake and publicly reports it along with his intentions, bears will realize 2 things:
1) available float to cover shares shrinks
2) bearish narrative dwarfed by the positive outlook w/ Cohen on the bulls' side.

The volume last August 31, 2020 should have alerted most pro players in this space. It's interesting to watch what will unfold the next few weeks/months.

Note

My trading heroes and senseis, I haven't seen anything like this before. The last time I went ALL IN was during the crypto bull run in '17. I think there's significant evidence to go for the jugular on this trade. I hope I will make you all proud one day.

Note

Feedback loops IF the squeeze materialize:

Bulls:
1) bulls piling on the story
2) day traders trading the parabolic move
3) gamblers as GME hits mainstream news
4) institutional participation

Bears:
5) 120% short float bears covering their position
6) new shorts opened as it reaches new highs... then eventually gets covered

Once the squeeze starts, the whole jungle will be here.

Note

The question shifts from

"WHEN will the bears cover?" to "HOW will the bears cover?"

120% short interest against a company w/ a visionary e-commerce icon as its largest shareholder... with a turn around story and business re-modelling in place.

"Once I get my shot, I will be ready. I will take advantage of that." - Tom Brady

Note

Money is made both in the sitting and the selling.

"A" game mode.

Trade active

Last week, I shared to a friend how a "Ryan Cohen above 10%" scenario could affect the narrative of GME. Today, that possibility becomes reality as Cohen increased his stake to 12.9%.

It doesn't matter if this is a mate in two, a mate in three, or a mate in seven moves. All I know is that Cohen has been the fearless white knight in this play and this will end up into an interesting smothered mate.

Note

From here on out, the price becomes my compass. When price tells me to get out, I will. Our thesis already materialized and was picked up by traders from wall street to r/wallstreetbets. As mentioned in my earlier post, the whole jungle is here now.

But that is not the highlight of this trade. Idea is cheap, execution is gold. I am really proud how I identified a risk-reward scenario that is so asymmetric, it pushed me to bet the farm on a single trade. Mr. Soros will be proud.

It sounds like too good to be true but... my whole equity curve reached more than ten times this year -- quadruple digit returns in 2020. But the real joy does not come from reaching this unchartered territory but by being the main catalyst for others to reach their own portfolio milestones. From family members, clients to trader friends, this trade will tell a lot of stories as to how it changed and will change their lives.

Note

So I just learned that Roaring Kitty is also u/deepfuckingvalue on reddit. I have been watching the live stream of RK on youtube since September. And the only logical reason that he was able to keep up streaming 3-6 hours, 3x/per week to less than 50 people is that he's too deep on this trade.

In this post bit.ly/2WLlKDF , I talked about how great investors correlated the right temperament to investing success. I still don't fully understand what they mean notwithstanding my experience and superperformance.

The past few months observing the attitude of RK during a volatile ride in , I slowly understood what it means to have that "proper temperament." I experienced it myself but I can't still put it into words.

Breaking out to be a supertrader and maintaining that status are two different things. After 6+ years, triple-quadruple digit returns, double-digit drawdowns, becoming investing competition winner and professional money manager, I still have a lot to learn about the game.

Note

Goodluck, everyone. What a trade. I'm out.

Trade closed manually

Note

I think I am obliged to have an update on why I sold in tranches and was fully out before $65.

It’s quite rare for someone to buy at the bottom and to sell at the top. You better run away from those who claim that they consistently can. The goal of my trading style is to just ride the heart of the move.

The Achilles heel of going all in is that it gives you unnecessary mental and emotional pressure. I mentioned the concept of having the proper temperament in an earlier post. Sitting on this trade for 5 months was new to me. I am a trader.

Maybe I shouldn’t have bet the farm in the first place but the odds were too asymmetric at that time.

Now that is trading at $300 levels, it’s easy for someone to look at the rearview mirror and measure the gains that could have been earned. But what if there’s some sort of tail risk event that happened last weekend that was out of my control which forced the stock to open back to 20 bucks or to not open at all?

I cannot afford that. Trading maturity comes when you know when to stop and take profits. A wise trader once said, you sell when you can and not when you want to.

animanima

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