Prop Trader Crushes the GameStop Trading Opportunity

In this video see how a prop trader crushed the GameStop trading opportunity. See a firm prop trader and me recap a personal best trade during the historic GameStop trading opportunity. Let’s get to work on sharing these important trading lessons so you can grow your trading account.

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in this video see how a prop trader
crushed
the gamestop trading opportunity hi i’m
mike bellafiore co-founder of SMB
capital
and we’re a proprietary trading firm
located in midtown manhattan
and i’m also the author of the trading
classic one good trade and the playbook
in this video see a firm prop trader and
me
recap a personal best trade during
the historic game stock trading
opportunity let’s get to work
on sharing these important trading
lessons so you can grow your trading
account
[Music]
so today i’m going to be going over a
trade i took last week in bed bath and
beyond
it was a bit of a sector sympathy trade
to catch the backside and all of these
short squeezed names that we saw
so trade strategy nothing too crazy i’m
identifying an overextended sector on
the higher time frame charts
and obviously with that the more
overextended it is the
more successful the trade’s going to be
because that’s farther to fall
and as the weakest names in the sector
begin breaking down
at that point i’m looking to see okay is
the parabolic move
over maybe we’re about to see the
backside in these names and if so i’m
scanning through the remaining
candidates and seeing which one of these
looks like it could really break down
so i’m building into this as an intraday
short
intraday swing short so i’m looking to
higher time frame technical levels as
areas for profit taking
and i just included this part that if
the charts really overextended
which these names like gme bed bath amc
all these names were very overextended
they should have a really significant
way to fall so i don’t want to get
caught in a scalper’s mentality i really
want to
get myself into a good position and sit
on my hands a little bit and allow the
trade to work for me
so catalyst i think pretty much everyone
knows what’s been going on with this but
just a brief overview
in the past couple weeks gamestop has
pumped from around twenty dollars up to
a high of five thirteen and this was
largely driven by a coalition of traders
and investors on our slash wall street
bets
who essentially began buying calls in
stock in gme really aggressively
upon seeing that the short interest was
well over 100 percent
and institutional players and hedge
funds like melvin capital were
very aggressively short game
never heard of it really should check it
out
um but so this move peaked out in
pre-market on thursday
january 28th as it was announced robin
hood and several other
retail brokerages were putting
restrictions on the trading of several
of these names so all the big ones
gamestop
amc blackberry nokia all of them so
users of these platforms essentially
we’re now only allowed to
sell their existing positions instead of
being allowed to
put on new positions along or build on
their old longs
so this development heading into the
open it just
significantly impacts the outlook in the
approach for the day
this short squeeze wouldn’t have been so
extreme and have gotten so far if there
wasn’t new money continually stepping in
into all these names in the sector and
adding fuel to the fire
so also after being blindsided by this
announcement
the people the retail investors that do
own positions in these stocks
are likely going to be selling their
existing positions in fear of getting
stuck hold in the bag
essentially which makes sense
unfortunately for them from like a game
theory perspective it just makes sense
to sell your position if an announcement
like this comes
out so when these factors come together
it makes it really likely that gamestop
and all the symphony sympathy names are
likely to drop
out throughout the day yeah i mean look
this is one of the craziest moves i’ve
seen
in since i’ve been doing this since the
late 90s
it would be hard for you not to know
gamestop was a stock to be trading
we were all trading game stock amc bb
the others
nokia bby
uh this is a trading tip if you’re
watching the local news
and they’re talking about trading in a
particular name
and you were trading it that’s a stock
that’s in play
so it certainly captured
the attention of
the the mass media pop culture
all over twitter this is
i don’t know when we’ll see something
like this again
actually i think one of the guys on the
desk james was
was saying these are some of the things
that happen
before big moves and markets are around
the corner
you see these anomalies like this i mean
you know obviously we’ve seen stocks go
up
but i don’t think we’ve seen a lot of
stocks go from the teens
to 400 and what to go through 400 and
513 yep that’s a big move
yeah i think it was on tuesday of last
week
gamestop traded more money than any
other stock in the market more than
tesla apple spy
it’s unbelievable yeah it was it was
phenomenal so it’s fun i mean look i
to me i’ve been saying this is our
trading olympics
and and when you’re trading when you’re
in your trading olympics
forget about the money you’re going to
make way more than you have in the past
trade well enjoy it you know enjoy it i
mean we’re going to go over this trade
but
we’re gonna be talking about game stock
game stop and uh this trading
opportunity
20 years from now i mean it will be that
it will be that memorable
and you experienced it
you learned you learned from it uh you
felt it
and uh the next like
scenario like this you’ll trade pretty
well but i just the overall thing is
you know we sit here as traders and i
just think we forget to
to really appreciate the unbelievable
opportunistic moments that we get to
live through i mean everybody is tr is
talking about
gamestop well that’s what we do for a
living they’re all talking about what we
actually do for a living
and we’re we’re all the markets are not
going to be like this
all the months are not going to be like
january
and you it was a historic market moment
and you got to live through it and trade
through it and and trade it well
so let’s remember that while we’re going
through this
uh this is this is a fun time to be
doing what we’re doing
and uh i mean
i’m having fun i don’t know about you
guys but and i’ve been doing and i’ve
been doing this for a while so
this is this is as fun as it gets
yeah these were a blast to trade
especially last week and super
educational
if you want to learn three more real
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including the simple setup that we teach
all of our new traders and the setup
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than from years of online education
so for instance fundamentals everything
you might expect these are the
fundamentals of bed bath and beyond
our ball over four variant play and
short float of
65.72 so that’s not the
insanity that we saw in gamestop but
that’s still a very significant short
float
so it can definitely get moving to the
upside as it did
i’m curious graham do you feel like your
learning curve is really speeding up as
you’re going through opportunities like
this
can you sense that can you feel it you
know from week to week are you like wow
i really
progressed here yeah absolutely because
you’re just
there’s so many more trading
opportunities per week and per day
and the more practice swings you get at
these
just the better you’re getting so just
by force due to the fact that there’s so
many opportunities every day in the
market the opportunity says just forcing
you to get better so much quicker
so it’s pretty lucky pretty lucky to be
in this position right now
yeah i saw that too when we were
training guys in 2007 and 2008
their learning curves really sped up
because the volatility was higher and
they got so many more reps trading
you’re get you’re getting that as well
it’s very fortunate to start trading at
this time because you’re getting as you
said you’re getting the amount of trades
in a day in a week that
a typical market you might get in a
month so
i mean this is pretty evident of that
where um
really since march bed bath and beyond
is almost done at 20x
but it really started getting vertical
in the beginning of january
about the same time that gamestop did
and i would say that’s not
a coincidence at all
so again this is an intraday swing so
i’m looking more to the higher time
frame charts for my profit targets
and so when i’m looking at the hourly
i’m looking at this
maybe 39 ish level here has some initial
profits
and then this 36s region and then kind
of the the home
the home run region would be this 30 to
32 area where if we get all the way down
there that’s
really an immaculate trade so that’s
kind of my final destination for my
shares
so pre-market you see this chart and
gamestop and all the others looked
pretty similar we got this move all the
way up to 58
and then it was announced that robin
hood would be restricting trading and
then the other brokerages came out and
said they were going to do the same
and so we got a pretty dramatic reaction
to that all the way from 58 to 43 within
like 30 minutes
so coming into the open i don’t think
we’re going to re visit these prices but
i’m looking at this 48 level
and this 43 level as well as the lower
down pre-market supports
can you just walk through why that was
significant that robin hood was
restricting trading and
give us a little background on the
importance of
uh robin hood positions robin hood’s a
is a broker
that is a trading platform that a lot of
us traders use
right especially a lot of retail traders
and a lot of the guys on wall street
bets
are a lot of them are going to be using
robin hood
and so when they restrict the trading
that does two things
first of all all those wall street bets
players
that were almost certainly stepping in
throughout this
and were looking to buy up even more
into the open
they no longer have the opportunity to
do that so that source of buying
is gone from all of these names no more
new money coming into these names as
well as the fact that i discussed
earlier which is
they did allow for people that had
existing positions to sell what they had
so not only are the robinhood traders
not
long biased anymore if anything they’re
quite cell biased
so it just adds a lot of sellers to the
market and takes out a lot of the buyers
and
where we initially had a huge uh demand
and balance over supply
this pretty quickly shifts us to having
a huge supply
imbalance over demand and so pretty
evident immediately as that news comes
out
and then off the open this 48 level does
establish as an important level
as well as these pre-market support
levels
so hopefully this doesn’t get too
esoteric but i feel like this is a very
important part
of this trade is this is essentially a
sector
it’s a sector trade and there’s going to
be a lot of correlation behind these
moves
so throughout the day these are the four
names i was looking at bb
amc bbby and gme and i’m watching each
of the names in these sectors and seeing
if one of these is going to lead the
other
so as i said in the trade strategy slide
looking for the weakest names in the
sector and seeing if any of them are
breaking down
uh and in this case i’ve drawn vertical
lines on all of these charts
at 10 30 just so you see what they’re
doing at the same time
at 10 30 amc is clearly broken down
through pre-market support
and has started to go limit down it’s
very weak structurally and seems like
we’re going to see a lot of downside
there
at the same time bb hadn’t broken
through pre-market lows yet but looks
very weak it’s making these lower highs
the volume
seems to be stepping up as we’re
settling down into pre-market lows
and it seems like we’re gonna break down
any second there and then finally
in gme and bed bath these two were
holding up that stronger than the other
two
but they do have the same move where we
have this bounce in the morning
but since then we’re making these lower
highs and the volume is ramping up as
we’re selling down
and so now that i’ve seen amc breaking
down
i think all of us were kind of saying
okay maybe the backside really is in now
and if so bed bath and jimmy are about
to really really drop
and this is different usually we talk
about the head of the snake
usually which in this case would be gma
so usually we identify
hey what is the key stock that’s driving
price action for the sympathy names so
gme is the head of the snake
amc bb bbby
those are the sympathy stocks those are
going up
mostly because gme is going up so
normally
you need gme to crack first
before the sympathy names will crack
in this case you’re noticing a sympathy
name selling off
before the head of the stake gma is
likely to
break so this is and that’s that’s
advanced observation
that you’re doing right there not every
trade’s the same
but it stands to reason that hey
if i’m starting to see something
different in some of these sympathy
names
maybe that’s a a prelude to what we’re
gonna see
in in the head of the snake in gma mbby
so good right and i guess it’s worth
noting that
amc i would say is pretty was pretty
solidified as the number two stock that
wall street bets was interested in
i’d say it was gamestop clearly as the
head of the snake but amc was doing a
lot of volume and had a lot of investors
behind it
um it would be different if this would
if this were like nakd
dropping off i would put less weight
into it but amc was
getting a lot of the spotlight
throughout this move then just for a
side-by-side of
gamestop and bed bath i’ll go into more
of this
later but the purple arrow taken out the
same time period and the black arrow
these are the same time periods as well
so purple arrow is around 10 35
and this is where i was getting into bed
bath and beyond we see that
again it hasn’t broken down quite yet
but
gamestop looks very weak right now amc
and bb they’re very weak already and
through pre-market lows
and also just this technical setup with
these lower highs
and once we get below this 370 level
it’s pretty evident even without looking
at this whole mess right here
that if we get below 370 there’s a big
pocket of air for us to drop down
even just to reach pre-market lows so
this could really break down
and then the same deal in bed bath and
beyond so that is where
this is the region where i’m starting to
build into my position
um and then throughout the trade with
bed bath
i’m watching gamestop and gamestop gets
very very vertical to the downside
where we see it drop down from 380 to 11
12 or to 112 within like an
hour which is unbelievable and went down
whim it down several times in the
process and so
my thought process as we’re getting
below like 160 and this is getting
absurdly steep is
okay we’ve been selling off a lot and at
some point
one of these unhauled is going to result
in a limit up and we’re going gonna get
a bounce and that bounce could be pretty
significant we’ve fallen like 75 percent
in two hours
so once i see that happen right here and
gamestop finally goes limit up for once
and starts bouncing
that’s when i close the the last of my
shares in bed bath
but i’ll break it down a little bit more
in the
exact executions so like i said
amc and bb were breaking down so i put
on my initial shares here and then as
gamestop
uh and bed bath begin really breaking
down i view this
sell-off with some volume behind it as
confirmation that this probably is going
to work
and i add more shares on and then
again i’m thinking about my higher time
frame technical levels that i’m looking
to take profits at
this 39-ish area is one of those levels
so we come into it i cover a little bit
uh emphasis on little it’s like maybe 15
of my position i’m curious so
you make this killer swing trade right
here
not easy to stay in the position uh what
what’s what’s helping you to do that
do you feel like you did that
i think a lot of uh developing traders
struggle with staying in a position uh
what
how are you how do we handle that in
real time what were you thinking
um so i’d say the biggest thing by far
is
you me and trey were all on call at the
same time we were all basically in the
same trade
uh and you were kind of just telling me
that look think about the bigger picture
context of this
this thing just went from i don’t
remember what it was like 8 to 56
or 58 within the course of a couple
weeks and the back side is in this thing
can easily be at
28 by the end of the day so i’m really
shooting myself in the foot and selling
myself short
by covering into like 39 thinking about
the bigger picture context
like it’s not often in the market where
you have friends with no interest in the
market texting you and asking you
questions about things
and that’s exactly what we’re seeing
with these names it’s complete mania
and when that pops there should be
significant downside
so i was just really holding sitting on
my hands and thinking
at least 36 as a profit target for a
bulk of shares
um so it wasn’t easy but i just knew
that this was a fantastic opportunity
that isn’t
they might not show up for another year
or more so
i didn’t want to sell myself short in
what i knew to be a really good position
look the the trade we talk about this a
lot which is
there are certain days we’re going to
trade move to move in these names
like gm amc bby bb
and then there’s other days where the
swing trade is more appropriate
we we traded these names long
trey actually did a video of how we
traded bbb
bbby bbb how many b’s three b’s y
triple b y we can trade them we can’t
say them
triple b y we traded that long to the
upside during the gma mania
and and captured some some some nice
trade to the upside
and then this is an example of
you know one of those days where the
backside is in based on
the way amc is reacting based on the way
gme is trading
and so this isn’t a day for us to scalp
this is not a day
for us to take profits too early this is
a day
to go to our longer term charts
and figure out what the real target is
always good to take profits into target
i remember
saying to you when when we were short
this thing
and towards the very beginning
you know the 38 35 30 were
to me the levels of of of some interest
40 38 35 30 and those are the levels on
the way up
and so you know okay to take some
profits into
each of those levels but you know the
real move is
is down towards 30. that’s the real
trade and when the backside is in
and something that is is historically
pumped
is historically overbought
and and now they’re the catalyst for
why it was overbought removed so you’ve
got this news catalyst you couldn’t buy
the shares like you could in the past
it’s time for the real trade
it’s it’s time to think about holding
the core for the real trade
and giving it away too early on a day
like this in a trade like this
is something we want to be very careful
about
so so good it’s a good that you’re
shifting to that mind might be
a quick quick cheat sheet if you don’t
have trey or myself
chirping ear on this good to write down
on a piece of paper what the real target
is
and keep that in front of you
and refer to it so that you don’t get
out of a really good trade
too quickly and leave some money on the
table
right and that’s why once i was in the
position i kind of
set myself to essentially pyramiding out
of this and by that i just mean
very small covers at the higher profit
targets and then the lower we get the
bigger the covers end up getting
until you know i still have more than
half my position by the time we get down
to 32.
it does show the value of trading on a
team trading together because
i think we were reminding each other
what the real
trade was i watched a nonsensical video
from the wolf of wall street last night
about how
uh he was telling the gme longs
i think he came up with something we’re
not leaving
uh did you see this on youtube i didn’t
click on it
so all these guys are way out of the
money in gma and he created this chant
we’re not leaving
uh but the price action didn’t warrant
that
in this case we were actually
constructively helping each other
essentially saying to ourselves hey
let’s not cover this thing it’s it’s not
a career it’s not a cover yet let’s hold
that let’s hold it it’s not the
it’s not the cover yet um that was
we were constructively doing that as
opposed to
what the welfare wall street was doing
so that can be helpful too all right
good what else we got so just very
quickly
obviously i put these for sures on
covering a small amount here
uh but then once we get this weak bounce
or this wick up here that’s pretty
unsustainable
with the entire sector selling off and
showing complete weakness i’m going to
be
building in even bigger so now i’m full
size here and risking everything against
a hole above 46.
my thought is if we hold back about 46
something’s very wrong with the trade
and i’ll move on
and then again taking covers into this
35 to 36 zone
adding it back on on weak bounces and
finally
covering into my hail mary area of like
30 to 32
and once jme goes limit up and bounces
that’s when i take off the last of my
shares
hey graham can i point out one thing
that we all experienced in real time for
this trade that was not easy
and so we did capture this we did crush
this to the back side
i think this is your best trade to date
yep congrats
thank you this pump gma started
uh selling off and we did short this
in front of that 48-ish level
is my memory right it’s around that 48
level right yep
and we there was a point where gme was
rolling over
and so we start to uh short pretty
aggressively
this bb triple b y and
it didn’t wasn’t working it wasn’t going
down and we got
blown out of our shorts
against 48 with that move to the upside
can you just show that
to the upside and so
we you know we were not we didn’t pull a
melvin capital
we didn’t just hold this when it was
against our price target
and say well it has to go down because
i think actually even trey said this
when it got above 48 i mean it really
could have gone to 60 as crazy as the
market was at that point
there could have been you know just an
ultimate short squeeze and this
triple b y at that point so we had to
stay within our
risk rules we had to stay within our
stop-loss rules for the trade we put on
and you know i i got out of uh my
position there above that 48ish area
um but then you know i’m out took a
little bit of a loss
it wasn’t fun you know i should have
went down uh
yeah but then you quickly say to
yourself all right well maybe it’s just
maybe it’s just uh the the move that’s
going to actually cause the down move
and maybe there’s just going to be a
complete failure above that 48 level
and it’ll it’ll show us an even better
short it’ll give us even more
confirmation
the trade is about to work because
there’ll be a failure above that
breakout area
and that a lot of times is denoted by a
quick
move back to the area from which it
broke out from
when something breaks out it shouldn’t
pull back into the area
that it broke out from it should just
get above it it should stay above it
and so we saw that we saw the fake
breakout above 48
we saw it quickly returned back into
that
and a half area we got back in
uh with our shorts uh on on our second
attempt so it wasn’t just
the easiest trade in the world we got
short and we had to trade
this was we had to trade we had to
maneuver quickly we had to
be we had we had to persevere a little
bit in this trade and then put it back
on and it was too big of an opportunity
not to put the trade back on when it
couldn’t hold above that 48
uh level uh and gme was just too
negative for us not to be in this thing
and missed this trade
we had you know a good 17 points a
downside
for a point a point
maybe half a point of risk so i wanted
to point that out
i thought we did i think we actually
traded that we did a really nice job i
think
getting out and being like okay
let’s get back in yeah i agree and
like you said this portion right here i
still remember it was just a complete
pain to trade for
this like 30 minute portion right here
but we’re doing it because we know that
once we get in this
trade and it starts working it’s just an
immaculate opportunity
and really starts working for us so you
just got to put up with it so you know
you can
capture an opportunity like this and so
this is what the executions looked like
nothing too crazy to say i will say that
there are a lot of green dots here
these are very very small covers these
are maybe one to two percent covers of
my actual position just something to pay
myself along the way
but i’m still holding on to the vast
majority of my position
until we get down to like 35 and then my
covers start getting a little bit bigger
well we’ve talked about that and that’s
something i like to do as well which is
when you see something you know
you’ve got to hold the stock for the
real move it’s that type of trade
but you see it go down you go go down
and to me one of the things
that’s helpful to me to fight the human
nature to
take some risk off and lock in profits
is literally to put in super super small
position sizes to to cover you know
it it helps you to feel like you’re
doing something
and you do i mean you super super small
sizing to to to take some some covers
and
you know not meaningful anyway but but
sort of doing that
i’ve i’ve felt i’ve found to be
constructive and helpful and uh keeps me
away from covering
too much but makes me feel like i’m
doing something
right i just i kind of had to pay myself
just a little bit into this because
i’m pretty sure by 39 it was already my
biggest trade
so i but i knew that there was this
downside for 31
to 30ish so had to allow myself to get
there but also had to pay myself so i
didn’t feel like an idiot if this thing
reverses
um but as to ways to improve this is my
biggest trade to date
by kind of a long shot but there’s still
ways to enhance it
and one way to do that is just to
broaden the scope of the attack
so by only focusing on bed bath and
beyond i’m kind of resigned to capturing
just the move that bed bath and beyond
makes
when in reality names like amc and jamie
were even
cleaner and were more capitulatory to
the downside
so if i can widen my scope
and actually trade those names in tandem
i can really enhance my returns without
really needing additional bandwidth
because they’re trading as a sector
so tracking price action across the
names is really
quite easy it doesn’t add an extra
difficulty to the to the play
so that’s the biggest way i need to
enhance this like this bed bath and
beyond move was very
large but like i showed earlier gme
dropped out
75 in like an hour and a half so there’s
a lot of
money to be made in checking out all of
the names that are
seeing these sell-offs
yeah and look i’ll just say a lot of
people have asked how we traded
uh gma and so
you don’t obviously a lot of the bigger
traders
focused a lot of their energy on
watching gme itself
and trading that with size and and doing
very well
on on that day i actually think this day
was the biggest day that we’ve ever had
as a desk the day that you’re you’re
mentioning
and so there were there were guys that
were were focused on the gme and then
their the bigger traders were
spread out more amongst some of the
other names as well
so that is something we observed from
the biggest of traders but
you know trading gma is is not the
easiest thing in the world if you are
a new trader or developing trader and
there’s nothing wrong
and it’s actually quite smart to say i’m
not
quite ready to trade gme yet
this it’s too spready uh it’s not the
best
way for me to use up my risk capital at
the firm
let me find another
sympathy name that’s going to go down
when gme goes down
that where the spread isn’t so big and
that’s not
so is so expensive and let me trade that
and let me practice
and feel what that’s like to trade that
in real time so i improve as a trader so
that one of these days i am
able to do that which you will be able
to
i think a a better first step is to
trade some of these easier trades
amc might have been even easier than
triple b why
because it’s cheaper and not as spready
and and sort of developing success and
trading a sympathy name
i think you do that a lot with the
bitcoin names as well
trading a lower price less volatile less
expensive
sympathy name having success with that
is really preparing you to be able to
trade the head of the snake
and you know and there’s also just
there’s really good money in trading
these sympathy names as well
maybe you don’t even have to advance to
trading the head of the snake
you can develop a whole career on
trading sympathy names with a lot of
size
amc i mean you just crush that thing you
can trade that thing with
with huge size um so
so good to be thinking about that and i
do think
with these plays you want to be thinking
about how you could have put on more
risk within your
trading system and
an easy thing would have been to maybe
add a stock for another swing trade as
well get some more buying power into the
into the market into the trade spread it
out a little bit
and see how you do well that’s all i
have prepared if anyone has any other
questions i’d be happy to answer
i got a question how did it feel you had
your best trade
to date how did that feel it felt
ridiculous like i
i didn’t even i was taking peaks at my
blotter
throughout the trade but it didn’t
really resonate with me
and clicked for me until the trade was
already locked in
um but then i looked at the number and i
think i wrote you in my daily report
card like
i just didn’t even think that was on the
table for this stage in my career
um because not not only was it the
biggest p l trade in my career is the
biggest with relation to my daily stop
so as my stop gets bumped like you’re
saying i don’t even have to be trading
gme this
in and of itself by getting my stop
bumps
can turn into like ridiculously large
gains
and quite big opportunities further in
my career
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* no relevant positions