Markets stagnant as Bezos steps down

The markets ended very flat after tech stock earnings, which included the bombshell announcement that Jeff Bezos is stepping down at Amazon. The Nasdaq reversed late in the day and ended slightly lower, with the Dow and S&P ending slightly up. Let's get into it! Markay Latimer has a lot on her plate, and time management is critical for her. Like a lot of folks, she's finding fewer minute in the day with more and more to accomplish. That's why she's mastered a formula to limit her trading to just 30 minutes a day. Tomorrow, she'll release a brand new briefing explaining how she does it. [Reserve your seat here]( (Clicking automatically registers you for the event and periodic updates from Markay Latimer ([Privacy Policy]( Bezos Steps Down at Amazon Maybe the sting of losing the "richest man in the world" title hurt Jeff Bezos more than we expected. Today, he announced that he will be stepping down as the CEO of Amazon. Andy Jassy, the current chief of cloud computing, will take his place. What does the departure mean for the future of Amazon? [Read more here]( (Clicking automatically registers you for the event and periodic updates from Markay Latimer ([Privacy Policy]( Bear or Bull with Rob Booker? You probably know that Rob Booker is a bear on 2021... But how does he feel about other things, like GameStop, silver, and pancakes? [Learn by watching this video]( Flash Mob Trades: Just a Game or Actually Dangerous? Dear Reader, Remember when flash mobs were popular? A crowd would pop up somewhere at a pre-ordained time, having organized by phone or on social media. On January 20th, 2008, for example, about 700 people stormed a McDonald's in Munich and bought 4,385 hamburgers. Now, private investors are using a similar strategy to put pressure on hedge funds—and of course to make a heap of money in a flash. However, the danger this poses to financial markets is much greater than a large surprise order at McDonald's. What is happening, exactly? Investors are using social media platforms to organize mass buys of certain out-of-the-money call options on heavily shorted stock. Of course, since there isn't enough supply for such sudden high demand, brokers have to jump in to sell calls in order to fulfill the trades. To cover these trades, they have to buy the underlying stock on the market (unless they already own sufficient amounts). This is due to the way calls work. The buyer of a call has the right to demand the agreed-upon number of stocks from the seller. If the seller hasn't covered the call, they can be forced to buy stock at much higher prices once the call is exercised. As brokers purchase stock to cover these calls, they push demand for the stock, forcing hedge funds to deal with the fact that the stock they've been short selling isn't falling as expected. Now that the price is shooting upward instead, they have to buy it up to cover and limit risk, creating even higher "forced" demand and resulting in a situation called a short squeeze (where the short sellers are being squeezed out) and rocketing prices. This is what has been happening with the American stock GameStop in the past week. How it works On January 27th, GameStop stock (GME) closed at 39.12 USD. If, on that day, you had chosen a strike price of 35 USD, your call option would be worth (in-the-money by) 4.12 USD, plus whatever time value remained until your right to purchase stock at 35 dollars expired. An OTM call option could have had a strike price of 45 USD. This option would have been cheaper to buy, because its value would be comprised entirely of time value. In this case, the stock price would need to rise above 45 USD for the option to gain value. Measured against a closing price of GameStop stock at 79.76 USD, this call with a strike price of 45 dollars would be worth at least 34.76 USD (the difference between the stock price and the strike price), plus a time value of X. If you calculate from a daily peak of 159.18 USD, this call would be worth at least 114.18 USD. Those are some pretty nice profit ranges. Who is short selling what? In order to accomplish this kind of flash mob trade, you need to know which stocks are heavily shorted. Short selling is different from put options (where you also profit from falling prices), because you're trying to profit by selling stocks (that you don't own) as prices fall. If it works, you can buy back the stock you sold short once the price has dropped. Searching for information on short interest returns websites like finance.yahoo.com. Below, you can see the percentage of shorted stock compared to the stock as a whole, or as a percentage of outstanding shares. As you can see, despite the short squeeze, there are still slightly more GameStop stocks shorted as exist on the market (102%). Crazy! Risks and side effects If the flash mob trade succeeds, it could bring the hedge funds involved in massive short selling into a very precarious position. One of these, the hedge fund Melvin Capital, has already received a 2.75 billion-dollar capital infusion from partner funds to keep it afloat. Brokers also in danger Brokers may also be in sudden danger due to flash mob trading. They have to make sure that the calls and puts of their investors balance out. If one type of option outweighs the other, the broker can be exposed to massive amounts of risk upon market changes. In extreme cases, this can lead to bankruptcy. Another aspect of this situation: Investors with portfolios through E*Trade, Vanguard, Robinhood, Merrill Lynch, and Charles Schwab have been reporting that they've been losing online access to their portfolios due to high trade volumes. Conclusion Flash mob trades are great chances for the initiators to profit, as the GameStop situation is showing. Brokers are also making a tidy profit from transaction fees. However, there are also risks and side effects that can, in extreme cases, threaten institutions like hedge funds, brokers, or even the financial markets themselves. And we haven't even talked about whether such actions are legal. That's a question I can't answer. Sincerely, Dr. Gregor Bauer Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. You may lose more than you invest. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. The information on this website is intended as educational in nature and we do not recommend that you buy or sell any specific financial instrument.   Daily Profit Publishing , 1800 Hughes Landing Blvd. Ste. 200, The Woodlands, TX 77380, United States [Update your subscription]( — [Unsubscribe](