The ‘Gamification’ of Wall Street?

When college kids start enthusiastically discussing short interest activity in a particular stock, maybe there has been a fundamental shift in market behavior? Rather akin to one of the game ploys sold within its outlets, gamers, enabled by social media platforms and game-like brokerage technology, appear to have wrought havoc on one of the biggest short plays established by hedge funds, Gamestop (GME). Seemingly urged on by the CEO of one of the largest targets of the short side, Elon Musk, at first sight it would appear to be a classic case of a short squeeze causing hedge funds to buy back their shares at a loss because of lack of inventory to establish more short positions. However, is it as simple as this?

Certainly, on the face of it, the securities lending statistics seem to prove the point. The chart below shows that 100% of the institutional shares available to lend have been borrowed (source: FIS Astec Analytics). Add to this the meteoric rise of the share price and the rapidly increasing cost of borrowing fee as shown by the HT Enso Community rate below, then maintenance of large short positions would seem to be almost untenable for some of the players.

As with all games though, for losers there are also winners who have taken the contrarian view. Whereas 6 months ago, the numbers of long holders were nowhere to be seen, over the past few months, there has been a slow but steady increase in long holders amongst the hedge fund community (source: Hazeltree Data Analytics) who will have benefited from the market price increase.

It remains to be seen how this plays out over the coming weeks. Will the stock remain a high flying one causing more and more of the short position holders to close their positions at a loss and the small but significant long holders to maintain their gains? Or, is it really a low flying stock being supported by a random gust of wind enabling the longer term short holders with deeper pockets to declare ‘game over’!