31 January 2021

A Note To Journalists - And A Bit About Gamestop

This is a Public Service Announcement to SOME journalists.

Not all, mind you.

But definitely some.

Now hear this… Day traders are NOT driving the price of Gamestop [GME]... or any other price for that matter... for anything more than a single day.

I’ve been reading this nonsense all over the place for the better part of a week... and, in truth, for years.  Anytime there's a dramatic price move its "the big bad day traders did it."

Even when the dramatic move is sustained for multiple days.

Here’s a brief lesson about day trading.

Day traders are flat by the end of the day. We hold no positions overnight [thus the term day trader]. If we buy a security at any point during the day, we close it by selling the position before the close of business… the same day.

Thus, 
because the stock market auction process is a price discovery process versus a price control process, if day traders do drive a stock higher, there must be someone to buy said stock at the higher price [and carry it overnight] in order for the day trader to exit... with the price remaining at a high level.


If you watch the video linked above it will also help explain why brokers precluding traders from being on 1 side of a trade [i.e. Robinhood disallowing traders to buy GME] could lead to a dramatic move.

If you see a security skyrocket on any given day and hold the higher price levels, there are at least SOME buyers ready to not only buy, but to keep the stock for, at minimum, overnight.  
Gamestop Daily Chart

An example…

Let’s say my friend Roscoe bought 100 shares of GME at $300.00 on Friday. Clearly, he added to the existing upside pressure by virtue of joining the traders already looking to buy. However, now that he owns the shares and, given the fact that he’s a day trader, he needs to exit his position. In other words, he needs to sell.

Fortunately for Roscoe, there are plenty of bids at these prices, so he sells 100 shares on the close at $325.00 and goes on his merry way, happy to collect $2,500 profit without carrying risk into the weekend.

Gamestop Intraday [15m] Chart

However…

SOMEONE bought those shares… and by definition they took the shares and the consequent risk into the weekend.

Whomever bought the shares, they were not day traders.


And we'll thank you kindly to stop saying as much.



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