Wall Street’s Weekly Wrap Up 6/11/21

The stock market had a rollercoaster of a week but ended Friday afternoon on a positive note. The S&P 500 rallied this afternoon to set a new record price of 4,247.44 at the closing bell. The Dow and NASDAQ both also ended the day in positive territory.

Meme stocks had a meltdown this week. After some incredible gains over the past two weeks for meme stocks like AMC (AMC), GameStop (GME), and Bed Bath & Beyond, most of the hot meme stocks ended the week down from their earlier highs. But all of these meme stocks are trading much higher than they were prior to the WallStreetBets crowd pumping these stocks up. Some financially stable companies like Wendy’s and Clover Health received some unexpected attention from retail investors as the meme stock revolution moved focus away from AMC.

Earlier this week, the FBI recovered a little more than half, or approximately $2.3 million of the Bitcoin ransom that was paid to individuals in the criminal hacking group DarkSide. Joseph Blount, CEO of Colonial Pipeline Co., told The Wall Street Journal that the company paid hackers the $4.4 million ransom because the extent of the intrusion was unknown along with how long it would take to restore operations. The news that the FBI was able to recover part of the ransom caused the price of Bitcoin to fall on Tuesday and Wednesday. People have always assumed cryptocurrencies were untraceable but using the blockchain and the public ledger actually helped confirm the FBI’s investigation. This fact may have scared some shadier investors but I’m sure it was actually something institutional investors liked hearing and knowing there are ways to recover stolen cryptocurrencies.

In other Bitcoin news, the 401(k) provider company ForUsAll Inc., will start a new program in July which will let workers in the retirement plans it administers to invest up to 5% of their contributions in the leading cryptocurrencies through Coinbase. This is a huge step for institutional adoption of cryptocurrencies. People are curious about crypto and they want to invest in it after seeing its incredible growth over the past year.

I know the S&P 500 hit a record closing price, but I feel that inflation concerns and the inevitable rise of interest rates is going to cause a big downturn in the stock market soon. Popular meme stocks appear to be on the decline, does that mean some other stocks will start to be pumped like Wendy’s and Clover Health did? Bitcoin seems to be gaining traction with institutions in the US and I think this is the time to buy because I believe cryptocurrency prices will have a nice rebound soon from their current slump.

Those are my thoughts anyways. What are your thoughts? Leave me a comment below. Don’t forget to check out my YouTube channel, Vance Alm, where I post videos related to investing and finances.

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More Investing Terms & Phrases (Video)

This is a continuation of my last video: “Stock and Cryptocurrency Investing Phrases Defined” https://www.youtube.com/watch?v=cFDdL…

In this video, I give you the quick definitions for the following:

Meme stocks: A meme stock is any stock that experiences excessive trading volume from retail investors who have targeted it on social media, especially the Reddit subgroup WallStreetBets. Examples are AMC, GameStop, BlackBerry, and Bed Bath and Beyond.

Retail investors: are simply regular people who are non-professional investors. Retail investors usually invest less than institutional investors and hedge funds. Examples are you and me.

Apes: dedicated meme stock investors. The term originated from a meme based on the movie “Planet of the Apes”.

#NotLeaving: popular hashtag with meme stock investors and the ape community. This comes from the movie “the Wolf of Wall Street”

Naked shorting: the illegal practice of short selling shares that have not been actually confirmed to be available or even exist. Normally, traders must actually borrow a stock or determine that it can be borrowed before they short sell it.

Brokerage companies: A brokerage company primarily acts as a middleman to connect buyers, like retail investors, and sellers, market makers, to facilitate a transaction. Examples are Robinhood, Webull, Fidelity, and Charles Schwab.

Market Makers: aka brokerage houses. They buy and hold large quantities of shares to sell to the market. Examples are Citadel, Goldman Sachs, Credit Suisse Securities, and Susquehanna Capital Group.

Hedge fund: a limited partnership of investors that uses pooled investment funds to utilize higher risk trading methods in hopes of making large profits. They typically require a large minimum investment to join a hedge fund. Examples are Bridgewater Associates, Renaissance Technologies, Tiger Management, and Two Sigma.

Blue-chip stocks: refers to established companies that have a long history of good earnings, stable dividend payments, and a solid balance sheet. This term is thought to have come from blue gambling chips which are generally the highest denomination of chips used in casinos.

Commodities: raw material that can be bought and sold. Examples of commodities include agricultural (wheat, soybeans), metals (gold, silver), and energy (oil).

Volatility: refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks or cryptocurrencies are those with extreme shifts up and down within short periods of time.

Hopefully you have a better understanding of these popular terms and phrases. Don’t forget to like this post and leave me a comment.

The Meme Stock Revolution is Growing

AMC Entertainment and GameStop have been the main companies in the spotlight for the meme stock revolution that is currently unfolding in front of our eyes. But there have been quite a few other companies that have experienced similar rises in their stock prices thanks to Reddit, WallStreetBets, and the Ape revolution. The fast-food restaurant chain Wendy’s has become one of the latest companies to have the spotlight on it and experience a meteoric rise in their stock price.

BlackBerry, Workhorse, Sundial Growers (SNDL), and Bed Bath & Beyond were all meme stocks involved in the original short-squeeze events that happened at the end of January and beginning of February this year, 2021. GameStop led the way during this time in January because was in the news the most for having the largest jump in price. GameStop (GME) was trading around $17 at the beginning of the year in January and experienced an incredible meteoric rise that saw its peak price of $347 on January 27th. The price experienced an immediate drop in price and by the end of the following week, it was trading around $60. Like GME, all of these meme stocks saw explosive growth followed by an immediate drop in price but they have all been trading much higher than they were prior to the January short-squeeze.

The fast-food chain that’s home to the Frosty and Baconator, Wendy’s (WEN), and Clover Medical (CLOV) are the newest companies to be added to the meme stock watchlist. Unlike its fellow meme stocks, Wendy’s has not really been struggling and has enjoyed a fairly stable stock price. According to Yahoo Finance, Wendy’s only had about 4.64% of its outstanding shares being sold short. This counters the meme stock norm where they have been the targets of hedge funds short selling and trading options on them betting that their stock prices will go down.

This recent retail investor revolution has done more than make some people a lot of money. This fight against the hedge funds for their extreme short selling of companies has exposed the prevalent problem on Wall Street of naked short selling and synthetic shares. Both of these practices are illegal, but it has become apparent that Wall Street has been doing it anyways. Naked shorts and synthetic shares involve a big bank or brokerage, like JP Morgan or Robinhood for example, selling “borrowed” shares before they have actually located and borrowed the shares to sell. When this happens, the sellers are making money off shares that do not actually exist, or synthetic shares.

I think it is awesome how the retail investor community that refers to themselves as Apes, has not only fought the hedge funds and won billions of dollars away from them, but they have exposed this illegal practice. What are your thoughts? Leave a comment below.

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Wall Street’s Weekly Wrap Up 6/4/21

This was a particularly crazy week on Wall Street as the meme stock revolution was in full swing. At the heart of the revolution is AMC (AMC). The meme stock revolution really took off back in January when GameStop was the subject of extreme short selling by hedge funds. At that time, the Reddit subgroup WallStreetBets noticed GameStop had about 140% of its shares being shorted (more shares were shorted than actually existed). WallStreetBets and a user named Roaring Kitty worked on spreading this knowledge and encouraging regular retail investors to buy up shares and force hedge funds to pay much higher prices when they were margin called and had to pay back the shares that they borrowed on contract (options trading).

This same scenario was played out again this past week, but with AMC being the focus this time instead of GameStop. AMC was trading around $10 per share over the last few months but became the focus of the meme stock revolution starting last week, and its price began its meteoric rise. AMC started out last week, 5/24, trading around $13 per share and it quickly doubled in price to end Friday at $26 per share. AMC’s value peaked on this past Wednesday when it reached $69.29 per share, and it has been on a rollercoaster ride since then, and it’s currently trading around $47 at the time of writing this.

In cryptocurrency news, Miami, FL, is hosting the 2021 Bitcoin Conference on 6/4-6/5. This is the largest Bitcoin/cryptocurrency meeting ever. Speakers include Ron Paul, Senator Cynthia Lummis, Michael Saylor, Jack Dorsey, Tony Hawk, and Nick Szabo. A noticeable person missing from this list of speakers is Elon Musk, although considering his recent negative comments and tweets about Bitcoin it’s no surprise that he wasn’t invited. His response was to tweet the image below.

Tweet by Elon Musk

What are your thoughts on AMC and the meme stock revolution? What do you think about the 2021 Bitcoin Conference and Elon Musk’s most recent tweet about Bitcoin? Let’s have a conversation and leave me a comment below.

Investing 101: Stock and Cryptocurrency Terms and Phrases Defined

As I was writing my last blog post about options trading, I realized that there are a lot of investing terms that people might not be familiar with. Plus, the Reddit subgroup WallStreetBets has popularized many newer phrases and terms that might need some explaining. In light of that, this blog is going to be a little different and I’m going to simply give you definitions to some investing terms that you might need some clarification on.

Short Selling: an advanced investment strategy that speculates on the decline in a stock’s price. Short selling is started when the investor opens a position by borrowing shares of a stock that they believe will decrease in value. The investor then sells these borrowed shares to buyers willing to pay the market value of the stocks. The trader is betting that the stock price will continue to decline and they can purchase them at a lower cost when the time comes to pay back the shares. Short selling can generate profits but it can also cause potentially limitless losses if the prices sky rockets (like it did with GameStop and AMC).

Diamond Hands: investors who are ready to hold a position until their end goal is reached, despite potential risks and losses. (I’m currently diamond handing Bitcoin until it rises above $60,000 again.)

Paper Hands: investors that sell early due to negative news or the pressure of the situation.

HODL: “Hold On for Dear Life”, derived from misspelling the work “hold” as in a buy-and-hold strategy.

Bag Holder: someone who purchased when a stock or cryptocurrency’s price was high and holds the stock or crypto that has fallen in value and keeps holding, believing the price will recover.

Tendies: derived from chicken tenders, it means profits or gains.

To the Moon: phrase used to express confidence in the performance of a chosen stock or cryptocurrency.

Bull Market: a financial market that is on the rise and where the conditions of the economy are overall favorable. Bull markets generally see a sustained increase in stock prices.

Bear Market: a financial market that exists in an economy that is receding and where most stocks are declining in value.

Let me know if there are any other terms or phrases you want me to clarify or define. Don’t forget to like this blog post and follow my Twitter where I post investment news and articles every weekday.

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Investing 101: Options Trading

Investor portfolios are often comprised of stocks, bonds, and ETFs, but options are another asset class that is getting more attention in the news. An option is a contract that gives the buyer the right to buy or sell the specified stock at a pre-determined price on or before a certain date when the contract expires. A call option gives the holder the right to buy a stock, while a put option gives the holder the right to sell a stock.

Options are generally used for income, to speculate, and to hedge risk. A stock option contract is typically comprised of 100 shares of the underlying stock. Options can usually be bought and sold like stocks on your brokerage account, such as Webull, Robinhood, or Fidelity.

People who buy options are called holders, and those who sell options are called writers. Options holders (buyers) are not obligated to buy or sell, they simply have the choice to exercise their rights. This limits the buyers’ risk to only the premium spent on the options contract. However, options writers (sellers), are obligated to buy or sell if the option expires. This means that a seller may be required to make good on a promise to buy or sell, even if that negatively impacts them. It also implies that option sellers have exposure to more risks. Writers can lose much more than the original price of the options premium.

There are four basic options trades: buying a call option, selling a call option, buying a put option, and selling a put option. With call options, the buyer is betting that the stock price will be higher than a predetermined price called the strike price. The call options seller is betting the price will go down. With put options, the option buyer is betting the stock price will fall below the strike price, while the seller is betting it will be higher than the strike price.

When valuing option contracts, it’s all about determining the probabilities of future price events. The more likely something is to occur, the more expensive an option would be that profits from that event. Generally, the closer an expiration date is, the less value an option will have because there is less time for the stock price to make a big move. For example, an option for a fairly stable priced stock will be more valuable as a three-month option than it will as a one-month option.

So, if you buy a call option then you are betting the stock price rises above the predetermined strike price listed in the options contract, that way you have the option to buy the shares for the cheaper strike price compared to the current market trading value. If you’re selling a call option, you’re betting the price will fall below the strike price, so you have the option to sell the shares for more expensive than the current market value. For put options, it’s the opposite of calls, where the put option buyer is betting the stock price will go down and the put seller is hoping it goes above the strike price.

That was a simplified quick breakdown of options trading but I hope you understood and liked it. Don’t forget to like this blog post and subscribe to see more weekly posts about investing and news in the stock market. Leave me a comment and let me know your thoughts or experience with options trading.

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Friday’s Weekly Market Wrap Up 5/28/21

The biggest news from this past week has been the resurgence of the infamous meme stocks GameStop (GME) and AMC (AMC). As you may remember, back in January GameStop was made famous when the Reddit group WallStreetBets and in particular a user named Roaring Kitty, urged retail investors to buy and hold the stock because it was being short sold by big hedge funds. I went into detail about the whole situation in a previous blog post.

Prior to the stock reaching its peak price of $347.51, it was selling around $10-$15 per share. Within less than a two-week span, the stock price shot up more than 10 times its normal trading value and then came crashing back down. At the same time, AMC’s stock price was trading around $2 per share and shot up to $19.90. Both stocks have been trading higher than previously but nowhere near their all-time high prices. There was another bull run on these stocks in mid-March and then prices lowered again.

These two companies, AMC in particular, were the subject to another bull run driven by retail investors who are countering hedge funds attempting to short sell the stocks again. AMC started the week around $12 per share and is ending the week at $26. GameStop went from around $170 at the beginning of the week up to $222 to end the week. AMC’s stock price more than doubled in one week!

In other news, the crypto market has been on a downward spiral lately, and the announcement that came out on Wednesday regarding Iran banning bitcoin mining due to power outage problems didn’t help. Many large cities in Iran have been experiencing daily power outages and Iranian officials blame part of the problem on bitcoin and other cryptocurrency mining. This ban is effective immediately and will be in place until September 22nd of this year.

Do you think the crypto market will bounce back even after Iran and China have recently banned cryptocurrencies? What’s your thoughts on the rise of memes stocks like AMC and GameStop? Leave me a comment and let me know your thoughts. Don’t forget to follow me on social media, I post investment news every weekday on my Twitter.

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What Exactly is Payment for Order Flow?

Ever since Robinhood was in the news back in January for their involvement in the GameStop controversy, the way brokerage firms get paid has come into question. Popular stockbrokerage companies such as Robinhood, Webull, E*Trade, and TD Ameritrade all utilize a practice that is known as “payment for order flow”. Payment for order flow is the process where the stockbrokers receive payments from the market makers (dealers) for routing trades to them. The brokerage firm is essentially acting as the middleman between you (the retail investor) and the market makers.

Who are the market makers? The bigger market makers are Citadel Securities, Susquehanna, Virtu, Two Sigma and UBS. The SEC defines a “market maker” as a firm that stands ready to buy and sell stock on a regular and continuous basis at a publicly quoted price. Market makers are essentially companies or individuals that buy up large quantities of stocks to sell hoping to make a profit on the bid–ask spread, or turn.

The market makers profit from buying shares for cheap and selling them for more expensive. The brokers on the other hand profit through making the trades actually happen by acting as the wholesaler between retail investors and market makers. The broker basically directs traffic to the market maker that can best fulfill the order. The stockbrokers will generally have prearranged agreements with market makers who will compete for the order flow.

The controversy with the payment for order flow process comes into play here. While the brokers should choose the market maker that will quickly and efficiently fill the order at the lowest market price, this isn’t always the case. An order flow agreement might make brokers direct traffic to a prearranged third-party. The third party compensates the broker for sending traffic their way, often at the expense of the retail investor.

One of the biggest worries with payment for order flow is that the brokerage firms might be routing orders to a particular market maker for their own benefit and not in the best interest of the the investors. Other concerns are that order flow arrangements empower market makers with the additional liquidity to bundle large orders, deal from inventory, and take the opposite sides of trades to buffer exposure risk.

Payment for order flow has been considered revolutionary for retail investors because it has all but eliminated the commissions and fees associated with trading stocks. But some argue that the negative consequences caused by the payment for order flow process outweigh the benefits of not paying commissions and fees. What are your thoughts about payment for order flow? Leave me a comment and let me know.

Photo by Vance Alm

The End of the GameStop Story?

In this corner! We have Gabe Plotkin, from Melvin Capital (hedge fund that majorly shorted GameStop stocks), Vlad Tenev, CEO of Robinhood (brokerage app) and Ken Griffin, the CEO of Citadel (hedge fund involved with both companies). In the other corner, we have the House Financial Services Committee, with Congresswoman Maxine Waters and Alexandria Ocasio-Cortez, Congressman Patrick McHenry, Reddit’s CEO Steve Huffman, and Keith Gill, known as Deep F***** Value on Reddit (he’s a longtime advocate of GameStop and one of the original people to encourage others to buy their stock). The congressional hearing was addressing last months unprecedented skyrocketing and plummeting of GameStop stocks within one week.

One side of the argument is that Reddit and user Keith Gill had manipulated the stock price by generating excitement around GameStop stock. The argument is that this excitement led to driving the price to a peak of around $483. Reddit CEO Steve Huffman stated that there was an internal investigation and there was no evidence of unscrupulous activities or any signs of artificially generating excitement about GameStop or any other companies mentioned on WallStreetBets.

On the other side of the argument is the thoughts and accusations that the hedge funds, Melvin Capital and Citadel, worked directly with Robinhood to force down the price of the GameStop stocks. A little backstory, Melvin Capital is the hedge fund that engaged in majorly short-selling the GameStop stock. The hedge fund Citadel came to the rescue for Melvin Capital and made a large cash investment, reportedly around $3 billion, to essentially bail Melvin Capital out of this predicament. The problem with this is that Citadel operates and makes money by executing trades on behalf of Robinhood, along with some other retail brokers. The connection has made many people suspicious and has led to theories that Citadel pulled strings to make money on both sides of the fight.

During the height of the GameStop stock price, Robinhood disabled only the “Buy” button, but not the “Sell” button, which is argued to have caused the price of the stock to crash. This action is at the heart of the argument. Suspicions and theories about why purchases were suspended started flying around the internet, including one where Citadel and Melvin Capital pulled strings at Robinhood to disable the “Buy” button. Robinhood CEO Vlad Tenev claimed that was not the case, and that it was necessary to disable the “Buy” button due to liquidity concerns because the clearinghouses (responsible for making sure money is correctly exchanged between buyers and sellers) demanded billions of dollars in collateral from Robinhood to ensure the trades would be settled. This caused Robinhood to suspend purchases while they scrambled to gather capital for the clearinghouses.

In the end, the hearing showed that the suspicions and theories lacked substance. There was no proof of collusion between the hedge funds and Robinhood but this situation has put a spot light on brokerage apps like Robinhood and their relationships with institutional investors. Leave a comment and let me know if you think this was just business as normal or was there some unethical behavior here that needs to be further addressed.