GameStop announced a GME stock split late March which should have received more attention than it did.
GME stock surged afterhours when the announcement was made public but failed to maintain its momentum as we’ve seen in the weeks since.
What will this split/dividend mean for shareholders and short sellers alike?
Let’s break it down together.
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GameStop announces stock split in form of dividend
Let’s discuss what a GME stock split in the form of a dividend would mean for both shareholders and short sellers.
When GameStop first announced the stock split/dividend news, I published an article breaking down how a stock split and dividend essentially work.
You can read the article here for a more in-depth description on the two.
But no matter how you take it, one thing is certain.
The borrower of the stock is responsible for paying any dividends to the lenders.
Here’s what we can see happen before the split/dividend.
1. Continuous shorting in GME stock
I don’t expect short sellers to ease off shorting GME stock prior to a stock split or dividend.
Afterall, we are in a bear market.
So, the market sentiment overall continues to be on a downtrend.
In a recent article titled, “How close are AMC and GameStop to squeezing?“, I explain how a bull market will trigger massive price action in both these stocks.
Primarily because the market sentiment during this time will be sending share prices upward.
Shorts will have to close to their positions to profit from this bear market, or face riskier bets on the way up.
So, while the GME stock split is bullish in nature, stocks are being kept in line due to the bearish course of the markets in general.
2. Gamma prior to approval of stock split/dividend
GameStop’s stock split/dividend still has to be approved by the board and shareholders.
The game retailer merely announced the move; however, it must undergo the approval process.
You can bet short sellers will be on a ticking time bomb before this process goes into full effect.
You see, the lender is going to want their dividend.
If you short sellers don’t want to pay this dividend to the lender, they’ll have to return the shares they borrowed in the first place.
This is where we can expect to see big gamma occur prior to GME’s stock split becoming official.
What will happen if shorts don’t deliver borrowed shares before stock split?
If GameStop’s price surges, shorts will accrue greater losses and the lender will still require shorts to pay back that dividend.
Any dilution from a stock split won’t necessarily affect short sellers, but if a dividend is approved then shorts will have to pay that dividend to the lender.
The issue of a stock split/dividend has often been seen as bullish.
Shorts betting on this play could be exposing themselves to very big risks.
Will a GME stock split or dividend expose naked shares?
There’s this concept floating around that a GME stock split or dividend yield will expose many more shares are circulating the market than there are in existence.
I can’t speak too much on this, but I would love to know your thoughts on this below.
It’s an interesting concept that would essentially unveil millions to billions of synthetic shares.
The premise behind this concept is to expose the shares and get short sellers to close every single share, resulting in a GameStop MOASS (mother of all short squeezes).
Leave your thoughts in the comment section of the blog.
What will this move mean for shareholders?
GameStop shareholders will be able to vote on this GME stock split/dividend.
A stock split will dilute the float providing shareholders with more GME stock shares at a lower price.
An approved divided will yield quarterly or yearly compensation for holding the stock.
It’s extremely bullish if you’re a shareholder and believe in the company’s long-term vision.
GameStop and Loopring just launched their beta NFT marketplace last month.
The company is evolving into a tech company with its ecommerce foundation and use of blockchain technology, which we will see more of in the metaverse without a doubt.
GameStop is adapting to the use of new technology for the future of gaming and I’m excited to see this space evolve.
I’d love to hear your thoughts.