The short squeeze in GameStop stock fueled by traders in the WallStreetBets Reddit group challenging hedge fund short sellers has become one of those events that everybody is talking about, including advisor clients and regulators.
The video game retailer’s stock spiked from about $65 a share just before this Monday’s opening bell to an intraday high over $480 on Thursday before closing around $236.
As a result, two ETFs — XRT, State Street’s retail ETF and GAMR, an ETF focused on the video gaming industry — found that GameStop became 20% of their total assets.
The Reddit group also pushed up prices of AMC and BlackBerry well beyond where their prices were supported by their fundamentals before they also gave back half their gains.
Trading restrictions by brokerages and trading platforms helped catalyze the reversal in the stocks’ prices.
How Should Advisors React?
Financial advisor Douglas Boneparth, president of Bone Fide Wealth in New York City, said, “It’s always a good idea” for advisors to reach out to their clients “before they reach out to you … especially if they have exposure to something that’s taking off to the moon or sinking like a stone. This wild event is a nice reminder to check for that, even if it’s limited through investing in a specific sector via a fund.”
John Bovard, of Incline Wealth in Cincinnati, Ohio, said he didn’t have any clients invested in GameStop but told many people he knew that it was time to get out of the stock after billionaire investor and venture capitalist Chamath Palihapitiya liquidated his entire position — he had bought $125,000 worth of February GameStop call options priced at $115, netting him a $500,000 profit, which he said he would donate to charity.
“I let my clients know to not get caught up in this,” said Bovard. “This is market manipulation and could have a very ugly ending.”
But advisor clients who owned shares of the XRT or GAMR ETFs, which ended with heavy weightings in GME stock because of the frenzy, stood to pocket some big profits in those ETFs if they chose to sell, especially before the price of GME retreated from its high.