While Melvin Capital, which required a $ 2.75 billion infusion from money managers Point72 and Citadel on Monday, appeared to be hardest hit, Point72 itself suffered as well. When markets closed on Wednesday, returns on the company run by billionaire Mets owner Steven A. Cohen were down nearly 15 percent since the start of the year, according to a person with knowledge of the results. Part of the problem: A long-term investment of around $ 1 billion that Point72 made in Melvin that manages the money for Point72.
That same evening, returns at Citadel, the large Chicago wealth management firm, were down single digits, according to a person familiar with Citadel results. Citadel has also been exposed to the market turmoil through its separate securities division, in which it executes orders to buy and sell stocks of Robinhood clients under an agreement in which it and other companies pay the online brokerage firm to access orders.
The situation of the hedge funds is similar to a classic short squeeze: The amateur investors raise the price of a share against which the big players have bet. And pressures to avoid losses could force the shorts to buy, driving the price up further and turning the casual trader into a coin.
Even after the fall tested their nerves on Thursday, users on the online forums that sparked the unlikely rise of GameStop – like the Wall Street Bets forum on Reddit – encouraged each other to stay strong and take their positions hold.
That’s the plan for Shawn Daumer, 19, a Valparaiso, Indiana real estate agent who invested approximately $ 40,000 in GameStop stock on Jan. 19. By the end of the day on Wednesday, he was in the black for more than $ 420,000.
Thursday was a different story, however: on paper, he lost nearly $ 200,000.
“I was still up 500 percent,” said Mr Daumer. “I’m OK.”
And he had no intention of selling GameStop, which rose to $ 483 on Thursday before falling to $ 193.60. The price, he said, would go up again – if all goes well.
“We’re going to $ 1,000,” he said.
Emily Flitter and Tara Siegel Bernard contributed to the coverage.