The Beach Bum Who Made Millions on GameStop

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The Ringer
A special February 17 newsletter:
Mike McCaskill spent years scouring the stock market and betting on long shots. Then he found the opportunity that changed his life—and helped spark the mother of all short squeezes. This is his story, as reported by David Hill.

A Quick Q&A With David Hill

What made you want to tell this story? 
I didn't want to write this story. I wanted to read this story. I was so sure that there was more to the story than just the whole WallStreetBets side of it. I couldn't stop thinking about The Big Short, and how there were multiple people who discovered that trade from different places and perspectives independently of one another. But I kept reading the same narrative over and over. Then The Ringer asked me if I would write something and even though it terrified me to think about wading into this world, I figured I should at least give it a shot and see what I could come up with. I got incredibly lucky to find Mike

What's something that most people seem to get wrong about the GameStop saga? 
I think people are wrong to think that a handful of traders on WallStreetBets or on Robinhood were the force that moved this stock price upward. After reporting this story, I'm not sure that retail investors made much of a difference, if any. I think institutional forces on Wall Street are so big and so leveraged and so powerful and the rest of us are just gnats on a bull's behind. The fact is, GameStop is a Fortune 500 company and they have some billionaires behind them and that stock was going to move hell or high water. What Mike did that helped wasn't that he bought 1,000 option contracts. It's that he tipped off Jim Cramer and got Cramer to talk about it on his show. That stirred some of those powerful forces into action more than anything else. 

Will this be a small side note in history or do you think this will have a larger effect? 
Both. As I researched this story I ran across multiple anecdotes of similar types of things happening through the years in the markets. The Piggly Wiggly market cornering, the Hunt brothers and the silver market, the Palm Pilot 3M short squeeze. These things end up having larger effects like market reforms and regulations, but the machine continues to lurch forward. I mean think about how much the housing crisis of 2008 has been reduced, even in my own story, to simply referring to the movie The Big Short! This was nearly the end of capitalism and 13 years later we now think about it as an interesting historical anecdotea weird few months in America. We forget that millions of Americans lost their homes, their jobs; that when the economy suffers for even a few months, let alone a few years, that means real people suffer and lives are upended. So even though this is a story where, as I try to point out in the piece, there are real people whose lives will be negatively impacted, this is going to be a far smaller event in terms of scale. So I imagine this is more like Piggly Wiggly and less like Bear Stearns when all is said and done. 

The Beach Bum Who Beat Wall Street and Made Millions on GameStop

Ringer illustration

The following is an excerpt from the piece.


Mike McCaskill endlessly studied GameStop. He learned about its fundamentals. What he saw wasn’t a company trying to die. He saw a company with real fight in it to live. And he believed that there was a trade to make. A big one. “I knew that one day this would explode,” he says.

He started buying 1,000 call option contracts on GameStop every week, which meant that he was willing to pay a small premium on each contract in exchange for the right to buy the shares at the current prices if the stock price managed to go up within the week. “The contracts were maybe five, 10 cents. And I’d buy an assload of them,” he says. “And they would expire worthless every time, because the shorts sat on that stock. No matter what happened, it didn’t matter. They were defending that like it didn’t matter. And I lost my ass on calls, over and over.”

McCaskill wondered why the hedge funds that had shorted the stock weren’t covering their shorts. Surely, he thought, they would buy back the stock when it was below $4 and return it to wherever they borrowed it from. At some point, the shorts would have to cover. And when they did, the demand for the stock would tick the price back up. But it never happened. And then it occurred to McCaskill—the funds weren’t ever going to cover their short positions, because they couldn’t. They were trapped in what he calls “an irreversible trade.” Unless GameStop issued new shares, those who shorted the stock were running out of places to buy shares that they hadn’t already bought and sold. “They made it to where there are no real shares,” McCaskill says. “They were betting that this was going bankrupt and that it would never survive. And it was an interesting bet, but it was wrong.”

As McCaskill continued to lose money trying to time his options to an uptick that never came, he touted the stock to all of his friends and family once again. He convinced his uncle Ken, who was at this point had retired from UPS, to invest. “He’s always teased me because I’m pretty much still holding a significant share in UPS,” Hayden says. “He says, ‘You can’t make money on that old bear.’” But Hayden trusted McCaskill. He remembered the money they had made in SOLI. And he knew how hard McCaskill worked. “The guy gets up at 3 in the morning, way before most people, and he’s online most of the day,” Hayden says. “He’s not a goofball. He knows his shit.” Hayden bought about 6,000 shares.

McCaskill’s brother took more convincing. “I’m pretty risk-averse most of the time. I don’t really try to play these things,” Delling says. “He was always chasing the white whale. I’ve always told him, ‘Mike, you’ve been Captain Ahab for a long time. It’s time to stop chasing the white whale.’” McCaskill really did seem to think GameStop was his white whale. And he would suffer like Ahab in pursuit of it. At that time, he believed it might triple or quadruple in value, so he invested in options that would pay him off exponentially higher rates of return. “To me, you’ve got to time this short squeeze because this thing could go to $50 and rip somebody’s head off,” he says.

CLICK HERE TO READ THE FULL STORY

“As the GameStop saga drags on, it’s worth noting that the mother of all short squeezes isn’t a cataclysmic event. It’s a sideshow.”
—David Hill
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Copyright © 2021 Bill Simmons Media Group. All rights reserved.

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