Who are the real winners of the "Robinhood'" phenomenon?

In reality, the Robinhoods are not the ones who stand to gain the most from all this commotion...and let's not forget that now they will have to sell... Strong gains in shares of GameStop Corp and other stocks this week have been described as popular market revolts. But among the winners are some of Wall Street's biggest asset managers, who stand to profit both from their holdings and from lending shares to short-sellers.

Other beneficiaries include market makers and trading systems that benefit from the huge volumes.

Many investors have yet to realize their profits by selling shares, and some platforms may later face disillusioned retail customers who bought into the rally too late.


Wednesday's explosive rallies


Last Wednesday, January 27, 2021, when the rest of the market plunged, with all three major indexes down between 2% (DOW) and 2.6% (Nasdaq), the worst day since October, putting even the Dow and S&P 500 in the red for 2021, in regular trading hours, a group of stocks were among those that soared. And not all of this stock market madness occurred in the shortest stocks.

There was the case of a tiny Chinese insurance broker, Tian Ruixiang Holdings [TIRX], who’s American Depositary Receipt (ADR) went public on the New York Stock Exchange on Tuesday at $4 a share in an IPO that raised $11 million, and began trading on Wednesday, and amid several trading halts, soared more than 1,000% intraday and closed up 538%.


These are the 22 stocks that, by the end of Wednesday's trading day, had risen between 31% and 538%. The names labeled "ADR" are American Depositary Receipts of foreign companies whose actual shares are traded overseas.


Now the Reddit traders who have driven hedge funds off the cliff are presented with a problem: They have to sell their shares to get out of their positions, and if short-sellers no longer panic-buy those shares, Reddit traders, by pumping those shares, will have to induce others to buy them at those insane valuations.

But for now, the big traditional investors who already held GameStop stock have the upper hand; the big institutions going long are the big winners.

That contrasts with short sellers who have bet against GameStop in the expectation that the stock price will fall, borrowing shares in the hope that they can later buy back shares at a lower price to repay their loans and pocket the difference.

Shares of GameStop and other stocks heavily pressured by sellers, such as AMC Entertainment and BlackBerry, soared this week as traders on Reddit and other social media platforms pushed them higher, though they pulled back on Thursday.


You can see in the chart the price of GME in 1-hour intervals and that when trading volumes are high (green arrows) these precede strong rises in the price. However, the trading volume has decreased significantly (red arrow). Which reflects that perhaps the price has lost momentum to continue rising (red box), but the latter will be ruled out if there is another strong rebound in volume.

Thanks to the "Google Trends" tool, you can see the interest over time for the search term "Gamestop" and it peaked on Thursday, January 28, 2021 (as you can see in the graph). This could portend that perhaps the company is losing interest (momentum) of the common people.

This AMC chart shows that the high valuations reached on Wednesday were thanks in part to high trading volume (green box). However, this trading volume, as well as the price, declined by Friday.



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