Meme stonks don’t fly like they used to – and a billionaire would be about to take advantage.
Carl Icahn, longtime investor, billionaire and chairman of the board of Icahn Enterprises, has a “big bet” against video game retailer GameStop, Bloomberg reported, citing “people familiar with the matter.”
The sources added that Icahn began to develop short trading, which is when people bet against a stock – i.e. they bet it will go down, and then they made money on it – after GameStop soared to skyrocketing heights in January 2021.
This is interesting for the stock meme saga and market news in general. When a person or entity sells a stock short, they borrow a stock from some sort of middleman at a market price of, say, $100. You will eventually have to pay it back, but if you sell it at the current price on the open market, then you can buy back your old share for less money.
So if the stock drops to, say, $50, you end up paying back $50 per share – you can pocket the $50, minus various fees and interest that tend to come into play.
Ichan, according to the report, holds a big bet of unknown size in GameStop that he bought when a frenzy of meme stockpilers took over Wall Steet and bought shares in struggling video game retailer GameStop, costing traditional gamers , like hedge funds, about $20 billion.
Related: Netflix Documentary ‘Eat the Rich: The GameStop Saga’ Explains the Meme Stock Saga That Cost Wall Street $20 Billion
GameStop’s share price fell from around $4 per share to a high of around $483 per share in January 2021. Other companies that received the same treatment include AMTD Digital and Bed Bath & Beyond. .
“The power dynamics have changed,” Guy Warren, managing director of FinTech ITRS Group, told The Trade of the event.
GameStop’s stock is still quite high, at $25 per share. When the price of a company is still rising, but there may be no underlying business value, such as in assets or liabilities, some investment schools would call this “not trading on its fundamentals”, i.e. its business fundamentals.
That’s apparently what Icahn is betting. “The investor, who has strengthened his position from time to time, is betting that shares of GameStop are not trading on its fundamentals and will continue to fall, the people said,” Bloomberg wrote.
There are ideas that other people are looking to make money on GameStop by falling off the meme stock cloud. Insider reported on Tuesday that short-term interest in the stock was up comparable to AMTD Digital, for example.
Icahn is No. 55 on Bloomberg’s Billionaires Index with a net worth of around $23 billion.