Why Investors Should Bet $100 on GameStop (GME) Stock
What’s fascinating about video-game retailer GameStop (NYSE:GME) stock is that its price moves aren’t always related to video games. There’s an ongoing battle between the “diamond hands” and the short sellers, and the amateur traders could prevail in the end. So, a small $100 wager is worthwhile, as the risk is minimal and the potential returns could be swift and substantial.
How did GameStop do, financially speaking, during the company’s past few fiscal quarters? The correct answer in the 2020s is: It doesn’t matter. The share-price calculus has shifted from fundamentals to a power struggle between the haves and the have-nots, and you must choose a side. There’s no middle ground here.
Or, maybe you can simply hedge your bets by, well, literally hedging your bet. A $100 wager can go far if GameStop’s loyal following stands firm. It could also go to zero, but that’s both unlikely and manageable. Before you attempt this, though, ask yourself: Are you ready to play a game of chicken with the hedge-fund whales?
GME Stock Has Strong Appeal to Young, Bold Investors
More than anything else, the short squeezes in GME stock represent opportunities for amateur investors to “stick it to the man.” In this instance, the “man” is the institutional traders who place short-sale bets against GameStop.
A prime example is a hedge fund called Bireme Capital, which acknowledged a short position in GameStop shares. As expected, Bireme Capital based its bearish bet on GameStop’s falling revenue, gross margins and cash flow. However, the hedge fund even went so far as to declare, “We find it unlikely that Gamestop books a GAAP profit ever again.”
That type of assertion might rub some people the wrong way. After all, hedge funds represent old-fashioned values, while GameStop represents the future to some traders.
As you may recall, the company launched a non-fungible token (NFT) marketplace and announced a partnership with cryptocurrency exchange FTX. In doing so, GameStop is directly appealing to younger, more open-minded investors. Perhaps, if they work together, the amateurs might be able to beat the professionals at their own game.
The Short Interest Against GameStop Presents a Squeeze Setup
Not long ago, I checked out InvestorPlace Assistant News Writer Eddie Pan’s excellent article on five big investors short-selling GME stock. It became clear to me that Bireme Capital isn’t the only financial whale taking a huge position against GameStop.
Then, I dug deeper and discovered that the recent short interest against GameStop was nearly 54 million shares, according to Fintel. Not only that, but the short interest float against GameStop was 21.25%. As Pan put it, “That’s more than enough to drive a significant squeeze to the upside.”
My due diligence also revealed that the vast majority of analysts on Wall Street are bearish on GME stock. When this happens, just remember that if everybody is on one side of a boat, that boat can tip over quickly.
For a different analogy, think of a tightly coiled spring. Consider the snapback effect that such prevalent pessimism and the weight of such large institutional short positions, could have if a short squeeze commences. If enough Reddit users band together and command the troops to buy GameStop shares, the upside could be truly epic.
So, Here’s Why Investors Should Bet $100 on GME Stock
Short sellers face the possibility of unlimited losses for limited potential returns. Meanwhile, if you were to wager $100 on GME stock, that’s the most you could lose.
Moreover, that $100 long position could double, triple or more. It’s a right-sized position for a risky but exciting trade. And you never know — just one short squeeze could turn your small bet on GameStop into a big win.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.