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Title: Melvin Capital Lost A Stunning $7 Billion In January, 53% Of Its Capital; Here's How Everyone Else Did
Source: [None]
URL Source: ... al-heres-how-everyone-else-did
Published: Jan 31, 2021
Author: Tyler Durden
Post Date: 2021-01-31 11:00:50 by Horse
Keywords: None
Views: 77
Comments: 7

We already knew that last's weeks epic squeeze of the most shorted stocks was a disaster for Melvin Capital, which emerged as the first casualty of the reddit squeeze because, as we showed last Monday, it was heavily short precisely the stocks that exploded higher (mostly as pair trade offset to its retail longs such as Amazon and others) with its puts losing all value, even as the fund suffered further pain on its outright shorts.

And while we didn't know just how much pain Melvin had suffered - especially after Ken Griffin's Citadel (which is Robinhood's top client and orderflow purchaser) and Steve Cohen organized a $2.75 billion bailout financing, we do now, because as the WSJ reported this morning, Melvin Capital lost 53% in January, as Gabe Plotkin (a former SAC Portfolio Manager), lost over $5.3 billion in one month.

In dollar terms, it means that Melvin lost over a whopping $7 billion in just one weekthanks to r/wallstreetbets. Here's the math:

It started the year with about $12.5 billion and now runs more than $8 billion. The current figure includes $2.75 billion in emergency funds Citadel LLC, its partners and Mr. Cohen’s Point72 Asset Management injected into the hedge fund last Monday.

What is even more stunning is that it took just days for Citadel and Point72 to be underwater on their $2.75 billion rescue financing: "So far, Citadel, its partners and Point72 have lost money on the deal, though the precise scope of the loss was unclear Sunday."

This also means that as the squeeze of GME and other companies continues, it is leading to billions in losses for the two funds and may explain why Robinhood - whose biggest customer is Citadel (as the WSJ separately reports 29% of Gamestop trading volume on Thursday was handled by Citadel, which means that Citadel is caught in an unprecedented conflict of interest) - was so quick to halt trading on Thursday and limit it to just one share on Friday.

With the fund now existing only on daily life support and the continued goodwill of Griffin and Cohen, it is hardly a surprise that it had to massively degross (i.e., sell all potentially problematic positions):

Melvin has massively de-risked its portfolio, said a client.

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#1. To: Horse (#0)

Melvin has massively de-risked its portfolio, said a client.

By choice?

A previous report listed current totals losses over GameStop by hedge funds to be $19 billion. I guess that would include other funds not so heavily tied into GameStop. And that on a corp who's total market cap on Jan 1 was about $1.2 billion. And there are still abut 38 million shorted shares in GameStop that have yet to be covered.

I've also seen claims the number of shorted shares exceeds the number in existence. If true, it's proof of financial wizardry. If things are now to get started on silver this week as seems in the case, then we could see some real fireworks.

Pinguinite  posted on  2021-01-31   12:12:31 ET  Reply   Untrace   Trace   Private Reply  

#2. To: Pinguinite, BTP Holdings, TommyTheMadArtist, Lod, Ada (#1) (Edited)

Stock brokerage firms sell millions of shares they do not possess. It is almost like counterfeiting. They do this a lot to mining shares. If the share price spikes upwards, then the brokers are screwed. Also if the people they sell shares to demand physical delivery. Then the brokers have to buy shares in a rising market to cover shares they sold at a lower price.

Horse  posted on  2021-01-31   13:01:43 ET  Reply   Untrace   Trace   Private Reply  

#3. To: Horse (#2)

Stock brokerage firms sell millions of shares they do not possess. It is almost like counterfeiting.

What do you mean, "almost"?

I'd like to understand that process better. I think shorting stocks at all should be prohibited as it creates an obligation to buy later, but to somehow process a sell order without actually providing anything to the buyer is downright criminal.

Pinguinite  posted on  2021-01-31   13:34:20 ET  Reply   Untrace   Trace   Private Reply  

#4. To: Pinguinite (#3)

What do you mean, "almost"?

Wall Street adage:

He that sells what isn't his'n
Must put it back or go to prison

Ada  posted on  2021-02-01   9:49:48 ET  Reply   Untrace   Trace   Private Reply  

Replies to Comment # 4.

#5. To: Ada (#4)

He that sells what isn't his'n
Must put it back or go to prison

You must mean short sellers or the hedge funds or others like the Keating Five who stretched things out so far they virtually lost their shirts, just like the Hunt brothers? ;)

BTP Holdings  posted on  2021-02-01 12:16:59 ET  Reply   Untrace   Trace   Private Reply  

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