Wall Street Bets vs. Melvin Capital
In recent weeks, the stock market has seen an unprecedented battle between two powerhouse groups. The first being a hedge fund by the name of Melvin Capital and the other a group of rag tag reddit traders known as Wall Street Bets. Melvin Capital was attempting to perform what is known as a “short” on GameStop’s stock (GME). Essentially, this is the hedge fund betting that the stock’s price will fall, allowing them to profit. However, Wall Street Bets was able to take advantage of this move and attempt a “short squeeze”. In order to do this, the reddit group began encouraging mass purchasing of GME in order to skyrocket the price per share of the stock. Following the squeeze, GME’s price per share had risen from around $50 to almost $500. This resulted in a massive loss for Melvin Capital, forcing them to attempt to cover while reddit traders continued to buy up the stock. Fundamentally, the reddit traders believed this to be stand against the market practices of hedge funds, emphasizing the need to hold their stock no matter the cost or loss. If they were to sell, the hedge funds could still end up winning in the end. Ultimately, this battle has exposed the power of strength in numbers when it comes to market manipulation. There is no telling where the next attempt at a short squeeze will occur until it begins, but publicly traded biotech companies may prove to have vulnerability to this type of manipulation due to their volatility. Often times, biotech and pharmaceutical companies are targeted for shorts by hedge funds due to their lack of revenue. If Wall Street Bets were looking to pick another fight with hedge funds, it is very possible that it may occur within the biotech sector. The implications of these events are only beginning to be realized, and it will be very interesting to see how it will playout in the market as a whole.
Written by: Mackeyan Martin, PharmD Candidate Class of 2023