Steve Cohen’s Point 72, Ken Griffin’s Citadel, and other partners are pouring $2.75 billion into Melvin Capital, and will receive non-controlling revenue shares in Melvin in return for their money. Melvin will accept the emergency cash injection as the relentless shorts have pushed it down 30% year-to-date as of Friday.
Droves of traders, most notably members of Reddit’s r/wallstreetbets, have gone after heavily shorted stonks in recent weeks. They elevated GameStop’s stock price 145% on Monday, Bed Bath & Beyond up 58%, BlackBerry up 48%, and AMC up 39%.
At the moment, there’s 446,000 traders online at r/wallstreetbets. Meaning if each has $5,000 in their account, they can deliberately put up at least $2.2 billion worth of volume whenever they please. Now, if every one of the 2.2 million followers had $5,000, it would amount to $14 billion in cash.
Melvin takes more short positions than most of its Wall Street counterparts, making it vulnerable to potential big losses. It bet stocks would drop by purchasing “put options” on 17 US-listed companies including GameStop and Bed Bath & Beyond at the end of September.
The firm’s game plan has paid off handsomely, as Melvin has returned an average of 30% annually since its founding in 2014, and had grown its assets under management to $12.5 billion at the start of this year. Gabe Plotkin, a former star portfolio manager at Cohen’s SAC Capital, left the company to start Melvin in 2014. He counted Cohen as a day-one backer.