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Chamath Palihapitiya closes GameStop place, however defends buyers’ proper to sway shares like professionals

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Billionaire tech investor Chamath Palihapitiya told CNBC Wednesday that he closed out his position in GameStop, one day after joining the trading frenzy around the videogame retailer.

Palihapitiya also defended the power of individual investors to compete with Wall Street hedge funds.

The CEO of Social Capital and former Facebook executive tweeted Tuesday that he bought $125,000 worth of February $115 GameStop call options after asking his followers on Twitter what to buy. Calls are derivatives that give the buyer the right to purchase a stock at a set price. The trader makes money when the stock rises above the strike price. GameStop stock opened Wednesday at $354 per share, up more than 1,550% this year alone.

On CNBC’s “Fast Money: Halftime Report” on Wednesday, Palihapitiya said, “I ended up closing out my position this morning, and I wanted to announce that I’m taking all the profits that I made plus my original position — I’m going to take $500,000 and I’m going to donate it.”

Palihapitiya dismissed Wall Street criticism about how individual investors are banding together on social media — particularly the wallstreetbets Reddit message board, and short-squeezing GameStop and a handful of other stocks like pros — as hypocritical. He said hedge funds try to push stocks around all the time.

Allowing hedge funds to go short 140% of GameStop shares could be seen as irresponsible, he said. “To a normal person that doesn’t make any sense. But to a Wall Street mathematician, that’s the game that’s been played. And that game came undone.”

Shares of GameStop initially jumped earlier this month after the company said that Chewy co-founder Ryan Cohen was joining its board. As buyers plowed into the stock, shorts were sent running for the hills.

A short squeeze happens when a stock with a large bloc of short sellers starts to increase in price, and shorts scramble to buy shares at the current higher prices to limit their losses. They return the number of borrowed shares and lose the price difference.

Palihapitiya said the craze GameStop shares, a few other stocks like AMC Entertainment, is much more than just a trading story, arguing it’s a push back again the establishment.

“Instead of having ‘idea dinners’ or quiet whispered conversations amongst hedge funds in the Hamptons these kids have the courage to do it transparently in a forum,” he said. “What it proves is this retail [investor] phenomenon is here to stay. There are 2.7 million people inside wallstreetbets. I think they are as important as any hedge or collection of hedge funds.”

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Katherine Clark