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In today’s trading, things for GameStop (GME) have gotten even frothier. The stock closed at $145, traded after-hours mostly in the $200-220 range, opened this morning at $312, and is currently set to close at about $350 a share.<\/p>\n\n\n\n
The mania has now spread to another stock, AMC Entertainment (AMC), which is up 300% today, quadrupling in price. Like GME, it was a popular short play, with short interest being about 33% of shares in the market, also called the float. And like GME, about 1\/3 of its shares available to trade are not on the market, but held by the company’s treasury.<\/p>\n\n\n\n
With so many shares in reserve, this might seem like a good time for the companies to cash in themselves, dribbling out reserve shares at a hyper-inflated price. In my last post, Stop the Games, I mentioned that it would be difficult for a company to do that, and I’d like to expand on that a little.<\/p>\n\n\n\n
Right now, the situation is that a self-organized, relatively leaderless mob has decided to pull a bull raid on a couple of stocks. They’ve done this on their own, which is different from how these runs usually happen. It doesn’t appear to be simply a case of greater fool trading.<\/p>\n\n\n\n
But by their nature, such groups could<\/em> be manipulated by a savvy operator. It appears that in both cases, AMC and GME, the stocks were discussed for a while before the group decided to move. <\/p>\n\n\n\n If a company were to start monitoring social media, and subtly encourage the group to begin a bull raid. The company would then be able to execute the strategy outlined above, selling shares into the market, at a slow enough rate to rake in some cash, but perhaps not enough to move the price down.<\/p>\n\n\n\n Doing that would be a clear SEC violation, and obvious fraud, but it might not be all that easy to detect in the flood of messages, at least not at first.<\/p>\n\n\n\n And even if the company were completely innocent, participating only passively in the group and selling once the price spiked, they’d almost certainly have to undergo a painful SEC investigation anyway. So the price of even honest opportunism is a federal investigation into all the company’s electronic communications.<\/p>\n\n\n\n That’s why they can’t take advantage of this spike, even if they wanted to.<\/p>\n\n\n\n It is, however, a good reason for these chat rooms to remain open, as long as they’re just traders bandying about comments and information and even rumor. They can provide a company a heads-up on when such a mob might start taking an interest in its stock, and help keep them apprised of what people are saying in general.<\/p>\n\n\n\n Once such a forum becomes a place to actively coordinate an attack on the stock, however, it needs to be closed down.<\/p>\n\r\n