Sep 27, 2021 Last Updated 21:42 PM EDT

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GameStop Drama: Who Really Won the Money?

Feb 05, 2021 07:30 PM EST

Despite the GamesStop trading frenzy before January ended, it appears that it was not really the app that was highly favored the previous month. According to new data, the GameStop mania might not have been the rebellion that people thought it was. 

Retail Investors Did Not Buy Most of the GameStop Shares in January

GameStop
(Photo : Michael M. Santiago / Staff)

Data on the 10 most-purchased stocks by retail traders during the highly-talked about market mania last month revealed something peculiar: there is no GameStop on the list.

Among all the stocks involved in the drama last month, GameStop was the one that made headlines. Even though people heard about AMC Entertainment and silver, the whole phenomenon was usually called the "GameStop drama" even. 

New data by JP Morgan however showed that only AMC Entertainment and Plug Power, were the ones who were the more popular buys among retail investors. The brick-and-mortar video game retailer was the one who put Wall Street on the defensive and yet it is not on the list. Analysts have an explanation, as reported by CNBC

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According to the analysts, contrary to what was said earlier, institutional drivers and not retail investors are the ones who can be considered big drivers of the wild price action in the latter weeks of January 2021.

The prevailing and old narrative was that a group of Reddit-inspired small traders rose up and banded together to fight Wall Street giants and buy GameStop shares en masse. Based on the usual explanation, they worked in tandem and forced a short squeeze by professional hedge fund managers, who are said to be compelled to cover their negative bets or otherwise lose in a meteoric way.

Institutional Investors are the Ones Who Bought the Most GameStop Shares

New analysis after data showed GameStop nowhere the the top ten stocks that retail investors bought claimed that institutional investors are the ones who purchased the shares more.

"Although retail buying was portrayed as the main driver of the extreme price rally experienced by some stocks, the actual picture may be much more nuanced," JPMorgan global quantitative and derivatives strategy analyst Peng Cheng explained to clients in a note.

 JPMorgan's quant team derived retail investor activity by utilizing public data from exchanges and applying their own proprietary methodology. This method enables them to know which flows are from retail traders and which are from institutional ones. GameStop was only at the number 15 on the firm's retail buying list for January.

This means that there were also some hedge funds winning even though the whole drama's point was to take down the hedge funds who are supposedly the big guys in the eyes of Reddit investors, and therefore, the so-called "enemy." 

GameStop Drama Not Small Vs Big Guy After All

"Maybe it's not as much of just the little guy versus the big guy,"  JMP Securities analyst Devin Ryan explained. "I think that it's reasonable to say that institutional investors were also very active in those stocks last week because there are institutional investors that participate in names that have elevated volume. I think most likely that was also expressed in some of the options activity last week as well."

In other words, there were hedge funds that saw what was happening and decided to go to the supposedly winning side, and siding with the Reddit investors by buying up GameStop shares as opposed to betting against the video game retailer's stocks.

"What was going on in the stocks forced the hedge funds to trade to cover, or they might have been playing, too, to win," said Piper Sandler analyst Richard Repetto. "There always could be the hedge fund that was totally uninvolved, wasn't short, but saw what was going and said this might be a way that I can profit just by going long."

One prime example is the New York-based hedge fund Senvest Management. According to The Wall Street Journal, it made $700 million off of the GameStop drama.

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