Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Wall Street was contemplating big wins from the Reddit-fueled retail frenzy in stocks such as GameStop on Thursday, even though many hedge funds in its ranks were nursing losses.

Shares in GameStop, whose motto is “power to the players”, and other heavily shorted stocks such as AMC Entertainment, BlackBerry, Koss Corp and Express Inc soared this week, as traders on Reddit and other social media platforms snapped them up.

These trades forced hedge funds ‘shorting’ the stocks to cover their positions, costing them billions of dollars and further fuelling a rally which caught many by surprise.

Story continues below advertisement

But the tide started to turn on Thursday as some top Wall Street firms disclosed how they had benefited from the feeding frenzy, while others came up with new trades to make a profit.

Silver Lake took advantage of a 301% surge in struggling movie theater chain AMC’s shares on Wednesday to convert $600 million in convertible notes into its shares.

While this left Silver Lake with a $284 million gain on paper, it was not immediately clear how quickly the private equity firm could move to cash out on these shares. AMC’s stock plunged by more than 60% on Thursday.

Silver Lake did not respond to a request for comment.

More Wall Street firms could seek to cash out on the stocks that traded up. The world’s biggest asset manager, BlackRock , has a 13% GameStop stake that is now worth more than $2 billion, compared with $174 million at the end of December.

BlackRock did not respond to a request for comment.

TUNING MODELS

Market makers such a brokerages and trading platforms are also set to benefit from the surge in trading volumes.

Story continues below advertisement

Trading apps such as Robinhood, brokerages such as Charles Schwab and stock options providers such as Citadel Securities LLC have all seen business soar as amateur traders and Wall Street investors drive up trading.

And as the Reddit-fueled rally ran out of steam on Thursday, some hedge funds that still had cash to invest were scouring the market for stocks to short.

Investors ‘short’ stocks by selling borrowed shares in a company, betting that the price will fall and that the shares can be bought back at a lower level and deliver a profit.

Some were also buying corporate credit so they are in pole position to take companies over in the event of a bankruptcy or a debt restructuring.

One popular trade is to use the profit made from shorting a stock to finance the purchase of the company’s debt.

Others were looking to profit from the volatility by trading on pricing anomalies between a company’s shares and its debt.

Story continues below advertisement

“If you can get your hands on the securities, it is very compelling to go long on the credit and short the equity,” one market insider said.

“Investors are licking their chops and re-calibrating their models,” the insider added, with reference to the complex computer models which sophisticated institutional investors and hedge funds use to drive their trading.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies