[HN Gopher] GameStop Is Rage Against the Financial Machine
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GameStop Is Rage Against the Financial Machine
Author : tempsy
Score : 395 points
Date : 2021-01-27 16:29 UTC (6 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| unethical_ban wrote:
| So, can someone explain rationally how options/derivatives are
| actually useful to the economy, rather than a market manipulation
| and gambling mechanism?
|
| In the traditional, elementary school understanding of stock,
| people buy into a company because they want part ownership, and
| the stock goes up as the company does well and has solid
| financial strength.
|
| Derivatives seem to be an unnecessary accelerator.
| cbozeman wrote:
| They're not useful.
|
| They're a means of wealth extraction disguised under whatever
| load of bullshit someone wants you to believe.
|
| I'll even prove it to you. Ask someone with skin in the Wall
| Street game to explain this stuff to you, not mathematically,
| but in layperson's terms, so simple that a young child could
| understand it. They either won't be able to do it, or they
| won't do it. You'll get one of two answers, "It's really
| complex." or "It _can 't_ be simplified."
|
| When you hear this kind of shit, you're can safely deduce one
| of two things:
|
| 1. The person in question doesn't have a deep understanding of
| the phenomenon or principle they're trying to explain.
|
| 2. The person in question isn't interested in explaining it
| because it directly affects them.
|
| Ask a Ph.D.-holding, teaching nuclear physicist to explain how
| a star works. They'll be able to break it down for a 5 year
| old, a 15 year old, and a 24 year old graduate student, at
| various levels of complexity.
|
| Ask a Ph.D-holding investment banker or hedge fund manager how
| all this works. They don't want you to know, because it isn't
| creating value. Not the kind of value an Amazon or a Tesla
| creates. It creates value _for them_ and _for the large
| investors they represent_. Not for _you_ the layperson.
| corey_moncure wrote:
| Tell your 5 year old you're going to give him 10 cookies, but
| he has a choice. Either he can have the 10 cookies right now,
| or he can pick up his room, and then he has the option of
| getting 10 cookies from you any time of the day or night
| during the next month, whenever he wants, no questions asked,
| no matter how busy daddy is. Or he can sell the option to any
| one of his friends or family, to guarantee they get 10
| cookies in exchange for those pokemon cards he's had his eye
| on.
|
| That's an options contract.
| cbozeman wrote:
| LOL, now take your analogy all the way.
|
| "If you don't clean your room in one week, Daddy is going
| to take away all your cookies, plus you'll owe Daddy 10
| cookies."
| lainga wrote:
| > I'll even prove it to you.
|
| OK, I'm listening, what's the proof?
| dataminer wrote:
| Aren't options like insurance? insurance can be explained
| rather easily. People buy insurance in their home, to protect
| their investment in an unlikely event that it gets destroyed.
| Similarly people can buy insurance to protect their
| investments in financial instruments.
| shmoogy wrote:
| If you use them like WSB they are an unnecessary accelerator,
| they're intended for being used as a hedge (and probably other
| things more savvy investors know more about).
| jacksnipe wrote:
| I'm generally sympathetic to the idea that financial
| derivatives are a great evil, and a huge part of what feels
| "broken" about the current system.
|
| However, consider futures, which are very similar to options.
| Futures were, as I understand it, popularized in Chicago as a
| way for farmers to be able to get money for their crop right
| now, at a fixed price. In this way, they could pass the risk --
| and a little bit of the profit -- off to people with more
| capital, who were better able to weather all possible outcomes.
| croon wrote:
| And in practice, how would that be different from
| incorporating and selling stocks to those investors, thus
| raising money now, and then growing in value as the crops are
| reaped?
| [deleted]
| mLuby wrote:
| Derivatives provide useful abstractions over primitive
| financial data types. Instead of saying "give me the {id: int,
| name: string, birthday: date}" we can just say "give me the
| User" and that's helpful. But as in software, it's possible to
| build towers of abstraction high enough so as to lose sight of
| the fundamental data upon which they rest, and then differences
| between the abstraction and implementation open the door for
| bugs (i.e. financial crises).
|
| Options are similar to a down payment, or trip cancellation
| insurance. It gives you the ability to buy something (or not
| buy it) in the future, but for that privilege you must pay
| something right now. Options provide leverage (using more money
| than you presently have), like a credit card or mortgage. Just
| as most people can't bring piles of cash to buy a car or house
| outright, options give you the ability to buy the thing but
| also the chance to walk away. Key caveat: there situations
| where options that have unlimited risk; these can easily be
| avoided, but that's where options get their bad reputation.
|
| You're right that both can serve to accelerate growth, and
| that's a good thing for individuals, companies, and nations.
| But if things go wrong, crashes at high speeds are much more
| dangerous than those at low speeds.
| ineptech wrote:
| If you put $X in to AAPL, you can hedge against catastrophe by
| putting $X/10 in to an option to sell AAPL, which will limit
| your losses if the stock drops to 0 tomorrow. So in theory,
| they can be used sensibly.
|
| But in practice I think it's not the existence of the
| derivatives market, it's the size. Our economy is like a town
| with 1 farmer and 9 investors who spend all day wagering with
| each other on whether the farmer will have a good crop.
| saddlerustle wrote:
| > Our economy is like a town with 1 farmer and 9 investors
| who spend all day wagering with each other on whether the
| farmer will have a good crop.
|
| Objectively, that's not true. The finance industry is under
| 10% of GDP and under 5% of jobs.
| p_l wrote:
| The most traditional version of the stock market is that a
| company issued shares in order to gain cash for investment,
| with shareholders essentially fronting the risk for a portion
| of the pie. If it things went well, there would be dividends,
| then you addition of trading shares to someone other than the
| originating company.
|
| Can't say much on derivatives and others, at least futures made
| sense as way of fronting money for agriculture :/
| Youden wrote:
| So many ways:
|
| - If you own a stock and want to reduce the downside risk, you
| can buy a put option to ensure you'll always be able to sell
| your stock for a reasonable price, even if there's a financial
| crash.
|
| - If you have the ability to produce some product (e.g. grain)
| but need some extra money (e.g. to buy seed or fix a tractor)
| or just want to lock in a sale price for your product, you can
| sell a futures contract.
|
| - If you want need some product at some point in the future
| (e.g. fuel for your jets) and want to lock in the price, you
| can buy a futures contract.
|
| Fundamentally, derivatives allow you to trade risk. You can pay
| somebody to absorb some risk for you or you can accept some
| risk in exchange for money.
| alfl wrote:
| Let's say you want to invest your corporate treasury in
| equities (you've raised several years of burn and don't need it
| all now). If you lose the treasury you're out of business.
|
| You decide you can accept X% risk. You estimate portfolio risk
| is Y%.
|
| You can enter options positions for the portfolio components to
| force Y to X.
| jdjfktkrnj wrote:
| A nice mind-blowing true exemple I've read is you buy gas
| futures (cheap), you sell electricity futures (expensive) and
| you use the profit to build a power plant which turns gas into
| electricity.
| mdnahas wrote:
| Options are valuable because they are how Wall St. deals with
| probabilities.
|
| We don't actually know what a company is worth. You can imagine
| estimating the worth (a.k.a., "net present value") of a company
| based on its future dividends (or stock buybacks). But any
| formula will contain a lot of probabilities of when each
| dividend will occur, the amount, and the discount factor (that
| is, how much future money is worth today). So what you get is
| actually a distribution of how much a company is worth.
|
| The stock market doesn't deal with distributions directly. It
| uses options. A call option is the ability to buy a stock at a
| given price called the "strike price". So, from the prices for
| two call options, you can infer the probability that the
| stock's worth is between their strike prices.
| btbuildem wrote:
| Sure, people are angry. People are angry all the time.
|
| This however is as old as the game itself. It's ALWAYS about
| greed and fear. That part is as predictable as gravity.
| fairity wrote:
| It's impossible to time the top, but one thing you can say with
| certainty is that eventually the price of these stocks will come
| back down (because the underlying firm is clearly not worth its
| market cap).
|
| Hence, the smartest bet here seems to be buying put options that
| expire far out. Currently, the price of the $320 GME PUT expiring
| in Jan 2022 is $240. That seems like free money?
| bart_spoon wrote:
| Note that $240 is the price of a put for a single share, which
| are typically bought in increments of 100 with options. So
| buying a single one of those options requires $24,000. There
| are definitely people spending that kind of money over in WSB,
| for given the volatility nature of the meme stock, its a lot of
| money to put on the line for anyone not in the WSB mindset, or
| who isn't so flush with cash that that's a drop in the bucket.
| fairity wrote:
| Yea, it's definitely not a small amount, but at the same
| time, it seems like a very safe bet given the fundamentals of
| the underlying company. You're basically betting that the
| volatility will subside within 1 year.
|
| If you're right, your ROI will be (320-240-X)/240 where X is
| the share price 1 year from now. If X is 30, ROI is 20%. Even
| if you're wildly wrong, and the share price is still $100 1
| year from now, your ROI is only -9%.
| [deleted]
| kart23 wrote:
| Can anyone tell me why SEC won't just step in, suspend trading,
| and force some kind of resolution? Its obvious that the market
| has been effectively broken by the short sellers. It might just
| make the redditors more angry and likely to hit other shorted
| stocks, and possibly cause markets to decline, but its the best
| applicable solution i see.
|
| https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_tr...
| rjbwork wrote:
| The forced resolution will be to force the shorts to cover.
| Screwing people that took the other side of the trade because
| the short sellers screwed up doesn't really make any sense to
| me.
| pvarangot wrote:
| Also the short-sellers are not being fooled into taking risks
| and neither are the call buyers. Everyone should know what
| they are doing.
| girvo wrote:
| Though regulatory bodies "picking a winner" can happen, as
| unfair as it sounds. I would hope they wouldn't in this
| situation though.
| kart23 wrote:
| yes, the resolution would entail that. its not about screwing
| people, its about fixing something thats broken. Isn't that
| what happened in 2008? Banks made stupid decisions, and
| government bailed them out for it. Obviously more complicated
| and probably higher stakes, but the crisis essentially boils
| down to that. Don't see why it can't happen here.
| Miner49er wrote:
| It's not like this is the first time a short squeeze has
| happened. Has the SEC stepped in for other squeezes? If they
| were gonna step in, it should have been when naked shorting was
| occurring, not now.
| sjy wrote:
| It looks like there was a listed short squeeze fund, SQZZ
| [1], which closed in 2018 only for lack of investors [2], so
| the SEC doesn't seem to have a fundamental problem with the
| strategy.
|
| [1] https://www.sec.gov/Archives/edgar/data/1559109/000089109
| 215...
|
| [2] https://www.etfstrategy.com/active-alts-closes-
| contrarian-sh...
| rantwasp wrote:
| so heads I win, tail you lose?
|
| why would the SEC step in? I think if they step in they need to
| put in stronger rules from the wall street shamans not inhibit
| the retail traders.
|
| the stock market is not gonna get in trouble if a bunch a
| people are buying an overvalued stock. it is gonna get in
| trouble when you short 140% of the float and b*tch moan for
| more restrictions when you get called on it
| kahrl wrote:
| Short sellers illegally borrowed more stock that actually
| existed. They are the criminals here. Not the people
| discovering this and taking the criminals for everything they
| have.
| 0xffff2 wrote:
| It's entirely possible for short sellers to have _legally_
| borrowed more stock than is actually outstanding. There is no
| evidence that I 've seen that they've done so illegally.
| rvz wrote:
| Correct.
|
| GME was heavily shorted at ~148% and the institutional shorts
| got too greedy and /r/wallstreetbets caught them as they
| failed to close their shorts.
|
| Now they are forced to buy back the stock to cover their
| positions whist everyone is buying and holding GME as the
| stock price goes higher; rinse and repeat.
|
| If anything, the hedge-funds over-shorting these stocks are
| the criminals which have manipulated them (GME) for years
| with other hedge-funds bailing them out and the media
| covering their asses for their illegal activities; as usual.
|
| Then they cry and lie with the media: 'ThiS is mAnIpulAtIOn'
| to /r/wallstreetbets.
|
| All I can say is: /r/wallstreetbets is literally robinhood.
| [deleted]
| xur17 wrote:
| Is it actually illegal to do this (not should it be, is it)?
| kgwgk wrote:
| Not at all.
| qaq wrote:
| That is already happing people basically sorted stocks by % of
| shorted float and are piling on. AMC, SPCE etc
| pvarangot wrote:
| They only interfere when the amount of magical floating stock
| that would need to materialize to fulfill all the contracts and
| pay back all the loans is too much to actually break down the
| market. That is not the case yet. As long as the only
| consequence of a squeeze is that people that made bets loose
| all their money the SEC is not going to do anything. No one is
| being fooled into buying something that's riskier than it looks
| here.
|
| Of course if GME asked to be delisted they could also help, but
| that also hasn't happened yet I think.
| TheAlchemist wrote:
| I get Gamestop. But anyone knows why is Nokia also being targeted
| ?
| reducesuffering wrote:
| WSB retail is so ignorant these days, their only criteria are
| cheap ticker prices (GME, NOK, BB all started < $10) with a
| commonly recognized brand name to them, because that is all
| that matters to get people on board.
| EVa5I7bHFq9mnYK wrote:
| The Wall Street doesn't make money on direct bets, but on option
| spreads, commissions, margin rates, order flow etc. So they must
| love Robinhood and WSB ... the more excited the retail dummies
| are - the better, in the end the house always wins.
| rabuse wrote:
| I bought into this at around $80. Was shocked to wake up and see
| it at $350.
| jscheel wrote:
| I bought quite a bit around 88, later theorized that shorts
| would be able to stair-step down to ~60 on circuit breakers
| yesterday (like the day they did before), so I sold around
| neutral. Feeling pretty dang dumb now.
| vga805 wrote:
| i bought gamestop a few weeks ago at 17... then sold at 20
| something
|
| fortunately i was able to get back in around 40. this is an
| historic moment
| Kluny wrote:
| I tried to buy last night at $146, but I didn't get in before
| the market closed. Today I bought one single share at $360
| and I feel like an idiot on multiple levels. Pure gambling,
| but it's fun.
| dannyw wrote:
| I doubt you'd be feeling like an idiot if the short squeeze
| actually happens, sending the stock to wonderland ($$$$).
| Blackstone4 wrote:
| How do you know it is not in wonderland already? What
| price would you put on it? For me what is important is
| the fundamental valuation of the company...
| Kluny wrote:
| Normally that's true, but I don't think the company's
| actual valuation has much to do with what's happening
| here - the company is basically worthless. The only
| question is how much money you're willing to throw away,
| because absolutely no one can predict what will happen
| tomorrow.
| [deleted]
| anfogoat wrote:
| It is unbelievably telling how suddenly this sort of activity is
| a problem.
|
| I'm looking forward to seeing what kind of new regulations we're
| going to be enjoying as a result. Some people's feelings and
| sense of superiority are truly hurt by this I expect and the SEC
| are probably hard at work trying to figure something out and to
| the extent that they're failing to do so, salivating at thought
| of new powers. All in the name of saving the undeserving from
| themselves of course.
| voisin wrote:
| Why doesn't GME issue some shares at these prices and pay off all
| its debt and add cash to the balance sheet?
| odiroot wrote:
| Matt Levine is speculating that they're doing exactly that.
| jdjfktkrnj wrote:
| Some say that would be illegal, since GME knows these prices
| are wrong, and thus they would be guilty of fleecing whomever
| buys them.
|
| But supposedly they could make the investors sign a waiver that
| they acknowledge this?
| voisin wrote:
| This is not accurate. There is no such thing as "prices are
| wrong". The price is being set by arm's length third parties
| transacting. Their motivations may be questionable but that
| doesn't make the price "wrong".
| dannyw wrote:
| Because GME already has more cash than it's debt. It's always
| had a great balance sheet. Shorts were not very justifiable: it
| was hardly going to go bankrupt.
| kgwgk wrote:
| It doesn't have to go to bankrupt, it just has to go down.
| jdjfktkrnj wrote:
| So, do people still think Efficient Market Hypothesis is a thing?
|
| If this doesn't prove that the stock market is just a video game,
| which decoupled from economic reality a long time ago...
|
| We've now entered the age of the meme stock market.
| totalZero wrote:
| > do people still think Efficient Market Hypothesis is a thing?
|
| Sure, it's a thing. But underdamping is also a thing. And
| information diffusion is also a thing.
|
| The efficient market hypothesis doesn't say "markets are always
| efficient, and prices only move based on new public
| information." Rather, that information diffuses into the
| market. Some idiot hotshot billionaire short-seller overshorted
| GME, and it took time for that information to spread to other
| market participants. Then, once the information was there, it
| took time for the upward price impact to un-do the impact of
| the short. And it is going to overshoot the true asset value
| because the market is underdamped -- contrarians aren't going
| to step in immediately, and longs are still waiting to put in a
| clear indication of a top.
|
| The real joke here is that Plotkin went so heavily short a name
| that was trading at a mere fraction of its annual sales.
|
| Personally I think there are two SEC rules that should come out
| of all of this:
|
| First, shorts should be reported alongside longs in 13F
| filings.
|
| Second, there should either be a limitation on re-hypothecation
| for heavily shorted names, or short sellers should not be able
| to add to new positions once shorts go beyond 100% of the
| float.
| CyberRabbi wrote:
| Exceptional short-term phenomena like this do not disprove the
| idea that on long-term time scales the market is efficient.
|
| A regression to the mean will inevitably happen and that will
| further confirm the efficiency idea. Everyone will eventually
| have to sell.
| mam2 wrote:
| Well until you have a definite consistent strategy to make
| money off it, its still "efficient market" with noise.
|
| The noise just got bigger...
| dangoldin wrote:
| "The market can remain irrational longer than you can remain
| solvent." - supposedly John Maynard Keynes
| jdjfktkrnj wrote:
| r/WSB likes to rephrase this as "we can remain retarded
| longer that they can remain solvent"
| xiphias2 wrote:
| I hope it's true...I want to see Melvin bankrupt,
| especially after the ,,we closed our positions'' bs. I
| don't know why but it sounds so much fun :)
| vmception wrote:
| Quantum Market Hypothesis
|
| In one dimension, the new GME management (which did occur) does
| a secondary market offering directly into liquidity,
| recapitalizing themselves which changes all the fundamentals.
| This wouldnt be known information because the expectation of no
| liquidity, but now that there is liquidity it creates new
| information
| schnevets wrote:
| The only way this could get stupider is if GME took their
| impressive new warchest and bought/merged with Valve, pulling
| a unicorn into the stock market. At that point, reddit would
| have memed a brick and mortar retailer into a SPAC.
| baq wrote:
| if only gaben agreed. i think the internet would break.
| cbozeman wrote:
| Apes together strong.
| mttddd wrote:
| I guess it is not the efficient market in the sense of valued
| according to the underlying financials. But to me at least it
| is "efficient" in the sense that the price is now basically
| tied to supply and demand. You have a stock that has >100% of
| outstanding shares short and a ton of people buying and holding
| the stock intentionally to prevent those users from covering
| the shorts. If nobody wants to sell you a share at 100$ you
| have to offer more and the more you offer the more in the hole
| other shorts become. This is the market punishing people who
| thought they were getting easy money by shorting the hell out
| of a dying company.
| Edmond wrote:
| This is a reductive take, there is the idealized model of the
| market that the efficient market hypothesis refers to and there
| is the real one, which can get quite messy.
|
| The market does serve a real purpose, ie deploying capital and
| providing liquidity.
| VikingCoder wrote:
| It serves that purpose, but is the market as it exists today
| the best way for society to achieve that purpose?
|
| K-shaped recoveries make me think "I wish there were a better
| way."
|
| But I'm an idiot. So my best idea right now is, "When a
| business issues stock, they also have to issue an additional
| 20% to the government, and then we need to keep the tax rate
| low-ish on dividends, but increase the tax rate on capital
| gains - hopefully encouraging companies to pay dividends,
| which the government would receive."
|
| I'd appreciate if someone could tell me why my plan is awful.
| Because I'm sure it is, but I haven't been able to figure out
| why it's awful.
| Edmond wrote:
| Well, not sure which country you're writing from but here
| in the US, private property laws should be enough to nip
| the idea of government taking shares of a private company.
|
| Dividends and capital gains in general have an inverse
| relationship, ie dividend paying stocks typically are low
| growing and as such don't tend to experience much price
| increase (ie capital gains). You own such shares so you can
| get the consistent dividend (share of profits) as your
| return...There may be exceptions but in general this
| relationship holds.
|
| In a non-bubble market, the capital gains are a reflection
| of company's growth and expected future profits, thus the
| stock price is based on present-value-of-future-cashflows
| model (ideally of course, the reality is often messy).
|
| In other words dividends and capital gains are not
| inherently in conflict, they merely reflect life-cycles of
| companies. Of course there are a ton of unprofitable
| companies on the market currently with high stock prices,
| there is a larger debate to be had on why that is and how
| to curtail it.
| fennecfoxen wrote:
| You're proposing to make the market more efficient by
| giving the politicians _more_ power to boss companies
| around and pick winners and losers. This is an excellent
| thesis if you believe central planning is the best way to
| allocate society 's resources and is definitely never a
| vehicle for official corruption, and taxpayer funds are
| never ever misused for bailouts and other political favors.
| If not, such a move will only exacerbate the common
| complaints of today.
|
| As it turns out, government is already entitled to N% of a
| company's profit, through corporate taxes. If you are
| greedy on behalf of the politicians and want N to be a
| bigger cut of that, that's one thing.
|
| But if politicians want to boss companies around, they
| already have the option to go on record and pass neutral
| and generally-applicable laws to do that -- and such laws
| are a fair sight better than the shady backroom deals that
| will go in when politicians start filling board seats with
| political apparatchiks. Do you want Donald Trump filling a
| board seat at Disney with someone like Jared Kushner? If
| you do, do you want Biden appointing his son Hunter to a
| board seat at Tesla? Can you imagine the insane conflicts
| of interest multiplied by the entire economy? It's bad
| enough already. We really, really don't need to glue
| together everything shady about big business with
| everything shadowy about government.
|
| P.S. Oh, and the other thing is that people start raising
| capital and incorporating in ways that these confiscatory
| taxes and seizures of control that you propose just _don 't
| apply._ More private equity, or just incorporating
| overseas.
|
| P.P.S. Oh, it also favors the companies who don't need to
| raise capital on the markets: Apple can just take its cash
| hoarde and invest like crazy, while the next hot Silicon
| Valley player that would challenge them has to pay 20%.
| VikingCoder wrote:
| > You're proposing to make the market more efficient by
| giving the politicians more power to boss companies
| around and pick winners and losers.
|
| I'd love to hear your analysis of how Norway is handling
| their oil reserves.
|
| Huge companies are not paying taxes. That's a problem.
| You seem to think there's no good solution. I maybe
| agree. But I'm willing to move on to a bad solution. How
| about you?
|
| > As it turns out, government is already entitled to N%
| of a company's profit, through corporate taxes.
|
| If you think in practice that actually works, then you
| and I are on completely different pages.
|
| > politicians start filling board seats with political
| apparatchiks
|
| I'm proposing the government receive non-voting shares,
| or is just restricted from voting. I don't want
| politicians on boards.
|
| In fact, if you're curious, I think that the major
| political parties should refuse to endorse anyone who
| doesn't 100% divest themselves of all future income,
| instead promising to receive all of their future income
| through their government pension. And elections should be
| publicly funded (each citizen gets $100 per year to
| allocate to whichever politician or party they want to,
| and that's it). Amend the Constitution to overturn
| Citizens United. Re-instate the Fairness Doctrine.
|
| > everything shady about big business with everything
| shadowy about government
|
| That you apparently believe they're not already 100%
| glued together already shows again that you and I are on
| completely different pages.
|
| > More private equity, or just incorporating overseas.
|
| Yes, we need a "Uniform Commercial Code" for taxation,
| around the world. We all suffer that that doesn't exist.
|
| > Apple can just take its cash hoarde and invest like
| crazy
|
| That problem already exists in many ways. We should never
| have allowed corporations to get as big as they are, and
| we should start to break them up. Competition is good.
| fennecfoxen wrote:
| Excuse me. You started this by saying you were trying to
| deploy capital more efficiently. You appear to have
| abandoned that premise.
| VikingCoder wrote:
| Yeah, you can't isolate one aspect of how our global
| economy works and talk about it in isolation.
|
| And no, I didn't say "I want to deploy capital more
| efficiently."
|
| I actually used the phrase "is [this] the BEST way"
| [emphasis added].
|
| We went through a K-shaped recovery. Capital did AWESOME.
| I'm now asserting that the society should think about
| better ways to ALLOW capital to be deployed.
| fennecfoxen wrote:
| Right, if you want to push your populist agenda of state
| control in the name of the people(tm) you should really
| open with that.
| ISL wrote:
| In the short term, the market is a popularity contest. In the
| long term, the market is a weighing machine.
|
| If you look at the option chains, it is clear that traders
| value GameStop in the long run far below the current trading
| price.
|
| https://www.nasdaq.com/market-activity/stocks/gme/option-cha...
|
| A November 2021 "put" at the present market price of ~$360, the
| right to sell GameStop stock in November at $360, is selling
| for about $300.
|
| For comparison, a January 2022 put at Microsoft's present
| market price of ~$235 is selling for ~$30.
|
| GameStop is presently a cafeteria food-fight. It will end, a
| lot of people will be sad, everyone will remember the story,
| and GameStop stock will eventually better-correlate with
| business performance.
|
| _Edit: Indeed, the fact that one can buy puts for so cheap is
| interesting, as GameStop is probably "worth" $30 or less at
| present. However, is it worth risking $300 to perhaps make $30
| while food is flying around? Not for me._
| dannyw wrote:
| You don't actually understand option prices. Put-call parity.
| The reason why options are so expensive is because of high
| implied volatility. Both calls AND puts are expensive; as
| they always will be, because if they're not balanced, a risk
| free arbitrage ensures.
|
| Here's an article on why calls and puts must be the same
| price: https://robotwealth.com/why-arent-call-options-more-
| expensiv...
| hervature wrote:
| No, they are only the same price under very strict
| assumptions. The put-call parity says that buying a call
| and selling a put creates the same payoff structure as
| being long the stock itself. Depending on the strike, the
| put or the call could be ~100% of the value of the
| position. Only when you get near the price of the
| underlying do the put and call equal each other.
| ISL wrote:
| I think I do understand them, from a value-investor's
| perspective. If I buy an option, I actually intend to
| exercise it or hold it until expiration, not hedge with it.
|
| If I bought a GameStop put today, for the pricing in my
| post above, it would be because I was willing to make a
| strong bet that GameStop's intrinsic value in November
| would remain below $60/share and that I was fairly sure the
| market would return to its senses by then. How the option-
| seller reaches her offering price is entirely irrelevant to
| me.
|
| It is true that much of the pricing of options comes from
| volatility, but for me, as a buyer, it is perhaps
| irrelevant.
|
| Thanks for your perspective, though. I'll read your link
| with interest.
| dannyw wrote:
| What I mean is you cannot make directional predictions of
| a stock from option prices. The information just isn't
| there. The same way you can't use long dated futures.
| Because S&P 500 futures (during regular trading hours)
| will always be the current price, modified by the
| financing cost. There can never be a directional
| prediction, because all directional predictions get
| arbitraged away into the current price.
| ISL wrote:
| Ah. Understood. Thank you.
| ISL wrote:
| I've had more time to think about this now -- it would
| appear that directional prediction can be arbitraged away
| in a world where the future cannot be known. In general,
| however, through research, one can begin to divine a
| glimmer (or more) of the future direction of the
| underlying.
|
| In that situation, someone with a reasonable guess at the
| future could absolutely murder uninformed arbitrageurs,
| right? It is my expectation that "correct" pricing of the
| options should fold in information about both the
| expected volatility and the direction of the underlying.
| mikestew wrote:
| You should probably put the bottom, italicized part closer to
| the top of what is a good illustration. Many folks (most?)
| won't immediately know what a $300 premium means to a $360
| strike price. Meaning even if it goes to zero, you make a
| whopping $60. But your point of making $30 on a $300 risk
| clears it up, I think.
| thebean11 wrote:
| I think you're just seeing volatility difference between the
| stocks, not sentiment difference. Calls on Gamestop are also
| more expensive than Microsoft right?
| fennecfoxen wrote:
| > In the short term, the market is a popularity contest.
|
| In the long term, stocks that actually make money are the
| popular ones.
| thepasswordis wrote:
| There's a mantra among these people of
|
| "I just wanted to play video games, why couldn't you leave me
| alone?"
|
| The culture of a lot of redditors and internet trolls in general
| seems to be that they feel like they are the eternal punching bag
| of society. They were the punching bag in high school, they
| didn't get into a good school (or go to college at all), and now
| they're the punching bag of society as "incels" or "white males"
| or whatever, and I think what you're seeing here in a big way is
| them fighting back.
|
| A comedian named Tim Dillon somewhat accidentally NAILED the
| sentiment here: https://www.youtube.com/watch?v=-0pgEWcq_YQ (NSFW
| language).
| chasely wrote:
| The people that are getting the highest praise in the subreddit
| are probably not in that group. We're seeing people investing
| $10^4 to $10^5 in GME.
|
| If they are gambling their entire life savings away, then I
| guess they got lucky this time but I do hope they see this as
| the anomalous event that it is. I have invested a small amount
| into the WSB "portfolio" and have similar great returns. But
| given that I only do this with the "play" money in my
| portfolio, I'm not retiring because of it.
| diarrhea wrote:
| I'm not sure there's much of an overlap. Incels are a rather
| small group, and I think most wallstreetbets users are
| surprisingly... normal. You can't bet on stocks if you're poor.
| So you'll have lots of mid/late 20s educated guys with decent
| incomes. This to me really feels like a classic "for the lulz"
| (and some personal profit), avalanche-style event.
| fwip wrote:
| "for the lulz" isn't really a normal-person thing to do.
| briankelly wrote:
| Not everybody takes themselves so seriously.
| icebraining wrote:
| Yeah, but that doesn't mean they aren't portrayed as incels.
| as1mov wrote:
| This applies even to the internet "cesspools" really. Most of
| my friends were/are regular posters on reddit/4chan, and they
| are surprisingly normal. All of them have decent jobs that
| pay well, some are married. If you met them in real life, you
| couldn't really tell there's something wrong with them.
|
| They seem a far cry from what internet tells you a 4chan user
| looks like. Funny enough, none of them (including me) are
| white.
| diarrhea wrote:
| > you couldn't really tell there's something wrong with
| them.
|
| Okay, but is there? The way you're phrasing it sounds that
| merely posting to 4chan makes them abnormal.
|
| The other way around is true: there's an unusually high
| share of abnormal people on 4chan. Just posting there
| shouldn't be a sign of abnormality. It's just a Mongolian
| basket weaving forum after all.
| me_me_me wrote:
| This. Plus every subreddit has different make up. Its pretty
| ignorant putting all reddit as one homogenious group.
| nceqs3 wrote:
| Tim Dillon is one of the funniest and most thoughtful comedians
| out there right now. His ability to describe the ongoing
| political and social climate is unmatched.
| cccc4all wrote:
| There are 3 million people at WSB. Are you calling all 3
| million "incels" and "white male" or whatever? Why are you
| calling them "these people"?
|
| Do you think their opinions are less than yours?
| cvhashim wrote:
| The real punching bag in our country is probably poor, minority
| single mothers.
| colllectorof wrote:
| If you want an entertaining explanation of what's going on with
| GameStop's stock, I highly recommend these videos from Louis
| Rossmann:
|
| https://lbry.tv/@rossmanngroup:a/wallstreetbets-vs-citron-re...
|
| https://lbry.tv/@rossmanngroup:a/why-mainstream-media-s-slan...
|
| https://lbry.tv/@rossmanngroup:a/gamestop-shorts-lose-billio...
|
| https://lbry.tv/@rossmanngroup:a/gamestop-shorts-are-full-of...
|
| (That's how I learned about the whole thing, which I frankly find
| fascinating.)
| kylebenzle wrote:
| Just SO pumped that library is being used in the real world to
| host videos!
| mdoms wrote:
| I didn't even get through 4 minutes of the first video
| without a huge amount of buffering. Is this on youtube?
| FooHentai wrote:
| I tried to watch the first video and it stopped after 13
| seconds, insisting the video was complete. Refreshes didn't
| fix it.
|
| So I just went and watched on Youtube instead. Not sure what
| the deal was there.
| teekert wrote:
| I had some hiccups, they should have gone with PeerTube, the
| more peers, the merrier.
| cstrat wrote:
| I'm unable to watch any of them, only the first few seconds
| loads. Hopefully they can improve because this is terrible
| fredliu wrote:
| Great explanation. IMO the GameStop phenomenon is the result of
| the combination of democratization of trading through software
| (Robinhood no fee trading, doing it on your cellphone) + social
| media enabled mass scale online community building (around some
| previously fringe niche). Any area that is subject to this kind
| of combination of change could face similar situation where the
| old institutions guarding the area would face increasing
| challenge from grass root efforts ("retards/autistics" as in
| wsb's lingo).
| wyxuan wrote:
| I lost my respect for Rossman after he uploaded a video cursing
| out short sellers after $AGRX sunk after getting approved. Bio
| stocks almost always sink after PDUFAs, but he was just raging
| after what he thought was market manipulation.
| IIAOPSW wrote:
| I was disapointed in some of his videos about Coronavirus and
| Cuomo's executive orders. But then I remembered that he is
| neither a stock trader nor an epidemiologist. His channel is
| fundamentally an opinion show. Its a good opinion show, but
| still an opinion show. When he starts giving opinions on
| things far outside his wheelhouse he becomes a more-rational-
| than-average lay person.
| tpmx wrote:
| Ah, so the downvotes came. Edit: He's the smartest person
| alive!
| paulpauper wrote:
| I call them 'professional morons'--high-profile who have
| a lot of status and money and clout in various tech and
| investment fields despite being sorta dim and banal
| [deleted]
| throwaways885 wrote:
| Rossmann is hardly rich. His whole brand is fighting
| Apple for right-to-repair legislation as well as a bunch
| of pro small business stuff. What exactly is wrong with
| this opinion on the oppressive covid lockdowns?
| teekert wrote:
| This is gold, it's things like this situation and then such
| people explaining it that teaches me more about the market than
| any other dry material I have ever found before.
| zinclozenge wrote:
| I didn't watch all the videos, but so far as I write this post,
| it does not appear that shorts have covered, or started
| covering (at least as of this morning). It seems like the price
| hike is due to big buyers and gamma squeezes. There's been
| systematic short attacks in an attempt to drive the stock down,
| but they keep getting neutralized by big buyers. It's been a
| wild ride.
| herpderperator wrote:
| Melvin Capital did.[0]
|
| [0] https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-
| reddi...
| jowsie wrote:
| You sure about that?
|
| https://www.reddit.com/r/stocks/comments/l64xvw/gme_dedicat
| e...
| melq wrote:
| Couldn't they close their position and still have the
| short interest go up because of other investors opening
| new positions?
|
| If these institutions are going on record as closing
| their positions, when they actually havent, aren't they
| committing some sort of fraud?
| ordinaryradical wrote:
| If you follow this in more detail you will see they have
| already misled the public on their positions several
| times. But when the choice is between your fund's
| bankruptcy and an SEC fine, people do crazy things.
| edlebert wrote:
| Also the borrow fee for shorts is insane now, like 23%.
| toomuchtodo wrote:
| Short interest is still over 100 after today's close.
| cccc4all wrote:
| The wall street casino recoils in horror that some people are
| good at counting cards at black jack stock market and teaching
| millions in how to count cards at black jack stock market.
| [deleted]
| ipnon wrote:
| Maybe Robinhood's mission of democratizing finance is succeeding.
| The locus of power is being sucked out of Wall Street into a
| lumbering giant in the hills. My question is: how isn't this the
| most useful outcome for the most people?
| Blackstone4 wrote:
| Well if the valuation where it is now is undeserved then it
| will likely come down. It may well be over priced so there is a
| chance investors loss money from here. Not sure if this
| democratizing....true democratizing is giving retail investors
| access to financial markets on a level playing field
| (information, trading/prices, all assets).
| zappo2938 wrote:
| Meanwhile a handful of families still own and control 70% of
| all stocks which aren't traded, that is they aren't buying or
| selling and will likely transfer the ownership to family in
| decades time. The only way that will change is by changes in
| taxation. What we are looking at with WSB and GME is a very,
| very tiny perspective of the entire machine. It is interesting
| but a very small influence on the entirety. Nonetheless, all
| these instruments, such as short selling and options, are
| designed to create liquidity and stability. It's working by
| design. This isn't a bug, it is a feature.
| bern4444 wrote:
| It absolutely is. This is competition forcing entrenched
| companies to adapt and compete. Funds will have to compete by
| offering new financial products/models/offerings/services etc.
|
| The public now has access to information and means of trading
| at a level that was never before possible.
|
| All the funds must be crazy upset since their once cornerd
| industry, gated by terminology, tools, information and
| institutional knowledge is suddenly far less valuable.
|
| This at its core is exactly how a market should work. People
| made stupid trades, and a bunch of others figured it out and
| called them out. Perfect self regulating behavior but only
| possible due to the massive expansion of access to information
| and tooling by individuals.
|
| What WSB and similar communities do is no different than a fund
| manager going on the news and stating their recent positions
| and reasoning.
| boring_twenties wrote:
| Yes, except the stated (and true) reasoning is "because fuck
| you, that's why."
| ping_pong wrote:
| It's really not. Because eventually retail is going to get
| destroyed.
|
| Yes, some hedge funds have lost their shirts, but those are the
| first ones who were in the short before the squeeze. The hedge
| funds and more importantly day trading shops making money right
| now are the ones who saw the activity and are goosing the stock
| price right now. I don't know if people realize that there are
| thousands of day trading shops where hundreds of people are in a
| single room, like an internet cafe, where people are day trading
| at terminals and people bark orders to each other and they all
| jump on the same stocks. These are probably the shops that are
| responsible for most of this volume.
|
| There is no way that WSB boosted the price for $40 to $400. Those
| are hedge funds and trading shops that jumped into it afterwards.
|
| They will sell at the top, and retail investors are going to buy
| on the fall, thinking it's "on sale" and then they will get wiped
| out.
| boringg wrote:
| I don't think you understand what's happening here.
|
| There's only so much volume available as a result of the short
| positions. WSB et al are putting in money on a long hold. As a
| result that drives up the price. Yeah gamma's are in for sure
| making money. There are some people who have made multiple
| millions. One individual sitting at $31M currently on a $50k
| investment.
|
| Some retail will lose, but wall street institutional short
| sellers are getting hit hard right now. For them to win this
| they need to keep putting more money into the fire which pulls
| in bigger and bigger fish. At some point large institutional
| investors aren't willing to bail out the short sellers.
|
| It is also a strong argument that wall street isn't as
| intelligent or in control as they like to promote.
|
| General public doesn't understand the trade or the sentiment
| behind it.
| alfl wrote:
| WSB is trying to get stock removed from the pool available
| for shorts as well to break the cycle of shorts borrowing the
| stock, selling it, and then borrowing it again and selling it
| again.
| boringg wrote:
| Exactly. Add that people are supposed to be buying stocks
| and not allowing the brokers to lend them out to shorts
| (squeezing supply further).
| mdoms wrote:
| > One individual sitting at $31M currently on a $50k
| investment.
|
| What happens when one tries to cash out this kind of
| position? Does he or she actually walk away with $31M?
| chasebank wrote:
| FWIW, he was sitting on $31M at close yesterday
| (~$141/share), Jan 26th. It's mid $300's now, Jan 27th,
| easily doubling his position from yesterday north of $60M.
|
| Edit: He just updating his daily position. Cashed out 13M,
| has 35M still riding in shares and options.
|
| [1] https://old.reddit.com/r/wallstreetbets/comments/l6ekdz
| /gme_...
| [deleted]
| celticninja wrote:
| It's approx $44m based in his most recent post.
| alfl wrote:
| In this case (/u/DeepF*ckingValue) it's a rolling options
| positions so: yes, less the fees they've accumulated over
| the 2+ year history of the position.
| rabuse wrote:
| Yes. The large order is placed on the market, and it would
| be gobbled up at this point in time.
| pbhjpbhj wrote:
| I know nothing about trading:
|
| Presumably they'd want to split the sell offer into
| smaller portions to avoid indicating a turn in the market
| which might cause a fall in price before they realise [as
| big a] profit on their position?
|
| Like trying to get out of a place when you see things
| heading south (ie a calamity approaching). If you run for
| the door then everyone will see you and the people close
| to the door might block your exit as they seek to escape.
| If you cautiously walk, avoid being direct, etc., you've
| more chance to get out.
| ogre_codes wrote:
| Assuming they liquidate the position before it crashes,
| yes.
|
| It's very easy for retail investors to look at points in
| time and see stellar results. Unless they cash out some of
| that, before things start to drop, their massive position
| vanishes as quickly as it arrived.
| nightowl_games wrote:
| > For them to win this they need to keep putting more money
| into the fire which pulls in bigger and bigger fish.
|
| This isn't true. The institutions with Short Exposure are
| connected to the institutions who buy Robinhood data and
| perform high frequency trading on those orders. Citadel and
| Melvin can BUY GME themselves to mitigate the risks. It is
| likely that a substantial amount of GME is being held by the
| institutions who had short exposure. It's basic risk
| mitigation.
|
| The high frequency traders who have the Robinhood data are
| making money on every Buy GME order and will make money on
| every sell when this bubble collapses.
|
| It is wrong to present this as a populist uprising.
|
| This is an incredible fluctuation, a hilarious anomaly, but
| it is nothing more than that. It will have no lasting impact.
|
| I firmly believe that the hedge funds that held GME short
| positions have bought into GME to mitigate their exposure.
| They likely bought in algorithmically using robinhood data
| and are making money off of retail right now.
|
| My message to the people here: /r/wallstreetbets is not a
| gameshark. You are still playing their game. You are still
| playing a rigged game and you are still losing.
| smm11 wrote:
| Tell that to the guy up $31 million.
| reissbaker wrote:
| "Melvin and Citadel can BUY GME themselves to mitigate the
| risk."
|
| Melvin buying GME is not "mitigating," it's closing the
| short position. If you close your short position high, you
| got screwed and you lost money. They did close it
| recently... At a massive loss.
|
| "I firmly believe that the hedge funds that held GME short
| positions have bought into GME to mitigate their exposure.
| They likely bought in algorithmically using robinhood data
| and are making money off of retail right now."
|
| How... Would "making money off of retail" in a pernicious
| sense be possible right now? If a retail trader on WSB
| bought in at $20, and sold at $200, they got 1000% ROI on
| their trades. Do you think that a bank secretly snuck in
| greater than 1000% ROI? The WSB trader got 1000% ROI, but
| the bank got 2000% ROI on the set of trades? The stock
| would have to be trading at $600 and the bank secretly
| pocketed $400 for that to happen.
|
| Sure, the HFT front-run orders. But they are constantly
| buying _and selling_ the shares they trade, they 're not
| just buying. They don't get the buy-and-hold wins that the
| slow retail traders got off of a rally like this. HFT make
| money by providing liquidity, not by buying and holding
| GME.
|
| Also, just as a technicality, Melvin is not a high
| frequency trader. They are not the same people front-
| running Robinhood orders. Melvin lost big time.
|
| "My message to the people here: ... you are still losing"
|
| My message to the people here: if you got >1000% ROI, you
| won. Don't let randos on HN make you feel bad.
|
| (Close your position though.)
| trianglem wrote:
| No, if Melvin is buying calls they are not covering. They
| are making a profit they can use to mitigate their losses
| covering later.
| DennisP wrote:
| > It is likely that a substantial amount of GME is being
| held by the institutions who had short exposure.
|
| To some extent, sure, but bear in mind the total short
| exposure was 140% of the total GME shares.
| boringg wrote:
| > This isn't true. The institutions with Short Exposure are
| connected to the institutions who buy Robinhood data and
| perform high frequency trading on those orders. Citadel and
| Melvin can BUY GME themselves to mitigate the risks. It is
| likely that a substantial amount of GME is being held by
| the institutions who had short exposure. It's basic risk
| mitigation.
|
| -- They would have to do this at great cost and loss (rumor
| mill has it at current loss of $4B). If you believe the
| reports in the media Melvin has had to go ask for money
| from other institutions. Thus bigger fish would now be
| involved as they are putting money out to Melvin.
|
| > The high frequency traders who have the Robinhood data
| are making money on every Buy GME order and will make money
| on every sell when this bubble collapses.
|
| -- Agreed i said as much in my comment that people will
| make money on it - some retail some institutionals.
|
| > It is wrong to present this as a populist uprising.
|
| -- Disagree. This is a trade that at its core is a
| sentiment of disenfranchisement, anger at wall street short
| sellers, financial establishment - and of course with the
| hope of making money.
|
| > This is an incredible fluctuation, a hilarious anomaly,
| but it is nothing more than that. It will have no lasting
| impact.
|
| - Agree - most likely - it will however make wallstreet
| institutional short sellers think more carefully about
| their positions. There will be impacts but doubtful
| anything transcendent on the markets. If anything SEC will
| investigate Wallstreetbets traders as opposed to doing
| anything to Wall street (which has been having carte
| blanche under the last administration's effort to neuter
| the SEC).
|
| > I firmly believe that the hedge funds that held GME short
| positions have bought into GME to mitigate their exposure.
| They likely bought in algorithmically using robinhood data
| and are making money off of retail right now.
|
| -- Might be, however the losses they took at the beginning
| on their position were pretty steep to jump right back into
| the pool.
|
| > My message to the people here: /r/wallstreetbets is not a
| gameshark. You are still playing their game. You are still
| playing a rigged game and you are still losing.
|
| -- I don't think anyone has allusions that the tables have
| turned. This is more like the chance for this one time give
| a giant F U to wallstreet who has been perceived to be
| making money off the backs of the population without any
| care at all from retail investors.
| majormajor wrote:
| How much of "wall street" would lose major money off
| this? Just a few hedge funds? Is that even that
| meaningful in the long run or big picture?
| jermeh wrote:
| It's worth noting that these funds blowing up causes
| large sell-offs of their other holdings, which can in
| turn cause prices of those assets to fall. Falling prices
| can cause more sell-offs, and can spiral. Nobody really
| knows what's going to happen as a result of this since
| it's pretty unprecedented. IIRC the SPX is down ~3% and
| VIX is up 60% today.
| majormajor wrote:
| "A few firms losing a bet can spiral into huge effects,"
| if true, sounds like a really, really, really good
| argument for eliminating higher-risk instruments.
|
| "We don't know how bad things we could get if we are
| wrong" means you're doing something you shouldn't be.
| nightowl_games wrote:
| Fair assessment.
|
| I am just pushing back at the narrative that this is a
| "win" for the little guy and a "loss" for wall street.
|
| Retail investors putting money into the market _at all_
| is a net win for wall street _every time_ imo.
| ds206 wrote:
| > Retail investors putting money into the market _at all_
| is a net win for wall street _every time_ imo.
|
| This is what I think to myself everytime I see one of
| those Acorn ads.
| freeone3000 wrote:
| What's the other side, though? Putting it into savings,
| at 0.5%? Forex?
|
| The game is rigged against you, but you're still better
| off if you play.
| boringg wrote:
| Don't disagree with you - the markets are heavily
| balanced in favor of entrenched players who have
| informational, scale and timing advantages (ie wall
| street). I do think that there's something else at play
| here ... we will have to see what happens over the next
| couple of weeks as things shake out.
| boringg wrote:
| Also - Citron has already said that they will take this
| trade into account in how they allocate in the future. I
| don't think this will really change anything though.
| splistud wrote:
| perhaps you don't realize these day trading shops (and loosely
| connected groups of high volume traders), are active on wsb
| ISL wrote:
| It isn't just retail that is going to get destroyed -- the
| option-sellers may not have enough capital to hedge
| effectively. A lot of parties are going to be harmed by this;
| it is an expensive tuition payment to the school of hard
| knocks.
|
| The most interesting technical thing about this fracas is the
| fact that WSB has managed to play the options-sellers off
| against the shorts to set this off. The kids have temporarily
| played the adults off against one another and caused an
| explosion.
|
| In the end, the savvy and the lucky will have more capital than
| in the beginning, and the un-trained and unlucky are going to
| be very sad. In the meantime, food-fights are fun while the
| food is flying.
| trianglem wrote:
| That's what I was wondering. Who is selling Jan 29th calls
| right now? They can't all be covered. Is it the DMM?
| elliekelly wrote:
| And (no one seems to be talking about this) but there's
| definitely a systemic cost. Going forward, how do you
| effectively manage the risk of one of your positions becoming
| a meme? This happening once is an interesting situation and
| I've certainly enjoyed watching it play out. If it happens
| repeatedly it will definitely start to undermine the
| investing public & market participant confidence in the
| market. That's certainly not something anyone should be
| rooting for.
| ISL wrote:
| One way to counter the risk is broadening the
| diversification of your positions. Half the time, meme-
| status will make you a lot of money, too.
|
| A more-sophisticated investor than I could also hedge
| against undesirable long-tail events.
|
| To me, with a long-term/value perspective, these transients
| are a bummer because they distract from efficient price
| discovery. But, with a long-term perspective, these
| transients are mostly irrelevant. If a quality company's
| price drops precipitously, it is then on sale and worth
| buying. If it becomes quickly inflated, I can either hold
| with a smile or, if it is just too insane, sell with the
| expectation of buying in again later. The only real risk is
| of a meme-driven fluctuation shorting an otherwise-okay
| company into bankruptcy.
| stonecraftwolf wrote:
| I don't think dismissing this phenomenon as a stock turning
| into a meme is right. WSB is...something, but there is
| actually a rationale behind going long GME. If you think
| that the new CEO, known for turning dead retail into
| profitable online content and e-commerce businesses (as I
| understand it), is going to turn GME around, then buying
| $12 Apr 21 calls for thirteen cents or whatever it was
| makes sense absent any notion of a short squeeze or market
| manipulation. That it was one of the most shorted stocks
| and there was an obvious opportunity for a short squeeze,
| and that this seems to all be multiplied by HFT, is quite
| the force multiplier.
|
| It's not like this is some random event that could happen
| to any position. There seem to be a number of factors in
| play, but it's not random, and it's not because a meme got
| popular.
| eastbayjake wrote:
| To clarify: not a new CEO (current one has been in place
| since April 2019) but rather an activist shareholder who
| bought a large stake and got seats on the board as a
| result, and that guy has the e-commerce turnaround story
| stonecraftwolf wrote:
| That's what I get for skimming! Thanks for the
| correction. :)
| btbuildem wrote:
| Meh. It's about time this rotten house of cards started
| coming down.
| Marazan wrote:
| Don't play derivates, options or shorts.
|
| Buy things, hold things, sell things.
| onion2k wrote:
| _Going forward, how do you effectively manage the risk of
| one of your positions becoming a meme?_
|
| Hide your position better. Put out fewer signals. Lobby to
| make trades secret.
| ska wrote:
| Or, you know, don't short more than available float (or
| anywhere near it)
| mdoms wrote:
| > Going forward, how do you effectively manage the risk of
| one of your positions becoming a meme?
|
| Don't take short positions. They add nothing of value to
| anyone. They are just fancy gambling.
| dentemple wrote:
| And if you do intend to take a short position anyway,
| don't push it past 100% of the available float.
| blhack wrote:
| Reading through the comments on WSB, I actually don't think
| the losers care. They just want to see the short sellers
| suffer. They're _just_ mad, and while I think they hope they
| make money, I think most of them just want to see the people
| they feel like control their lives suffer.
|
| It's past clever trading at this point.
| tonfa wrote:
| I think it largely spilled over at this point, it's been
| mentioned in every mainstream media around the globe, and
| I'd assume there's a lot of FOMO going on.
|
| While it's likely that some of the wsb crowd plays it yolo
| style and doesn't care (it's for the lulz), I don't think
| the people who invest because they saw it on mainstream
| media will see it that way.
| dannyw wrote:
| You underestimate just how much concentrated retail volume is.
| I have had more than ten people ask me how to buy GME. Its on
| the front page of everything. Bitcoin's nearly $1T market cap
| is more or less all retail.
|
| Plenty of WSB posts with multi million positions.
|
| Disclosure: I long GME.
| elliekelly wrote:
| > Plenty of WSB posts with multi million positions.
|
| This is interesting. I wonder what percent of outstanding
| shares of $GME WSB commenters collectively own and whether
| the SEC could make the case they're operating as a "group"
| for disclosure purposes.
| pinky1417 wrote:
| I don't even think the SEC would have to characterize the
| WSB commenters as a group, merely that "alone or with 1 or
| more persons" they caused trades that increased GME's price
| and that their goal was to cause others to buy/sell the
| stock. The real question is why wouldn't the SEC get
| involved!
|
| 15 U.S. Code SS 78(i)(a)(2) - Manipulation of security
| prices
|
| _[It shall be unlawful...] ...to effect, alone or with 1
| or more other persons, a series of transactions in any
| security registered on a national securities exchange, any
| security not so registered, or in connection with any
| security-based swap or security-based swap agreement with
| respect to such security creating actual or apparent active
| trading in such security, or raising or depressing the
| price of such security, for the purpose of inducing the
| purchase or sale of such security by others._
|
| https://www.law.cornell.edu/uscode/text/15/78i
| criddell wrote:
| What is there to disclose when the group is entirely open
| for anybody to see?
| andoriyu wrote:
| It's all complicated and up to interpretation to be
| honest.
|
| Basically, doing any effort to raise stock price beyond
| it's "proper" price in a coordinating way is a violation.
| Proving it is an entire another thing. I doubt this is
| what happening right now. I would like to see anyone
| trying to prove that ":rocket::rocket::rocket: GME to
| 1000" counts as such.
|
| However, liability like that is why AMC is forbidden to
| mention in r/WSB by its name. It's easy to pump and dump
| that ticket.
|
| This is why many "Let's take over this company with small
| market cap" threads were removed back in a day.
| elliekelly wrote:
| The % of outstanding shares controlled by a group acting
| in unison.
| teruakohatu wrote:
| When the SEC requires reddit to disclose Private
| Messages?
| krustyburger wrote:
| Not sure if you're serious, but there may be much more to
| the subreddit than meets the eye and regulators would
| probably be interested in:
|
| 1. Back channel communications and coordination between
| users.
|
| 2. User identities, including how many participating
| Reddit accounts are operated by the same individuals as
| alt accounts.
| criddell wrote:
| Oh, right. I never thought about those possibilities.
| They probably should investigate that stuff.
| vincentmarle wrote:
| > I have had more than ten people ask me how to buy GME.
|
| Correct, I know at least 5 people who bought GME this week.
| It's way bigger than WSB now.
| xiphias2 wrote:
| Also with out if money call options you can have 5x leverage
| quite easily with limited downside, and that's what retail is
| doing on masse.
|
| It's more fun than playing lottery for sure.
| dannyw wrote:
| Also with half of the market being passive, every $1 of
| active money is matched by $1 of passive money.
| tonfa wrote:
| What does it mean? The passive ownership usually follows
| market cap, it doesn't need to buy because the share goes
| up, it was already owner the correct fraction (ok unless
| it suddenly enters the sp500 then it might move the price
| :))
| ping_pong wrote:
| You don't understand. The original multi million dollar
| positions with WSB are static now. They're not trading
| anymore. They can't possibly boost the stock price any
| further.
|
| The way the stock price goes up is by more volume coming in
| at the highs. But we are talking 57 M shares traded at noon
| today with outstanding float of 65M. Those are professional
| day traders propelling the stock. Buying high and selling
| higher. It's not WSB.
| jaxwerk wrote:
| Margin calls are surely coming for large short positions,
| starting Friday and likely continuing in coming weeks. If
| the short positions need to cover, there's forced demand.
| lend000 wrote:
| There is simply a supply shortage of GameStop stock at the
| moment. There are no massive hedge funds that took huge
| positions before the price started rocketing up. Maybe some
| smaller prop shops with sentiment based strats, but this is
| mostly retail volume, now being reigned in by market makers.
| Obviously the smart, patient, and principled retail traders
| will do better than the uninformed and emotional when all is
| said and done and the price stabilizes near realistic levels.
| That is just how markets work. They are not perfect, but allow
| us to asymptotically approach pricing perfection to the degree
| that available information is perfect, in the long term. Such
| phenomenons are much less volatile on larger market cap
| components of the economy where the big funds can aid in price
| discovery.
| mam2 wrote:
| Or not.. people have been saying that about tesla for years..
| wpasc wrote:
| That's a false equivalency if I've ever seen one
| thebean11 wrote:
| The companies aren't similar, but both are/were heavily
| shorted "meme" stocks used as examples of an irrational
| market or bubble. Both short squeezed, and were heavily
| shorted by many of the same groups.
| tempsy wrote:
| that isn't what the article is saying. it's arguing that the
| short squeeze is less about pure profit making, though of
| course that's part of it, but more about actively trying to
| hurt hedge funds who are naked short selling and potentially
| forcing them to liquidate as a sort of populist driven
| "payback" against the elite.
| ping_pong wrote:
| It's all about making money. WSB was about hurting the hedge
| funds or screwing the system. And to be clear, I know wsb
| because I was one of the first group of subscribers of wsb
| way way back, but quit it because it wasn't engaged in what I
| thought was trading strategies, but a lot of shitposting.
|
| But they didn't cause this crazy short squeeze. It's the
| other hedge funds and day trading shops that are causing this
| because they see weakness and an easy way to day trade to
| crazy profits.
| splistud wrote:
| On this we agree. I dropped in when I felt like
| reading/engaging in some shitposting. That said, WSB is a
| good alternate stock screen.
| mdoms wrote:
| There's no evidence for this. There's plenty of evidence
| that it's WSB.
| tempsy wrote:
| nah you're underestimating their power to move names in
| small cap stocks with high short interest.
| ping_pong wrote:
| That's absurd. People in WSB probably bought low and
| haven't sold at all or sold on the way up. Look at the
| volume. Who is shorting at these prices with this kind of
| activity?
|
| Who has the money to keep buying at $350 to propel the
| stock to $400? Definitely not WSB. I know plenty of
| people dipping their toes in and buying 10 or 20 shares
| for fun right now. But there's 55M shares trading at all
| time highs. That's not retail. That's day trading shops
| and deep pockets.
| tempsy wrote:
| i guess we'll disagree there. i'm sure the big boys are
| playing the swings but they didn't start this. and it's
| not just Gamestop it's a lot of names.
| Scoundreller wrote:
| The models for any short selling have just imploded. I'd
| imagine a lot of low-capitalized short sellers just
| exited a lot of positions and won't take any for a while.
|
| "Holding until it's over" now means having enough capital
| for 100x any short position you take. That limits how
| much you can short.
| xiphias2 wrote:
| The aggressiveness of the short squeeze is unprecedented
| and can only be executed with aggressive cheap out of
| money call options. That looks like gamers to me :)
| lukeramsden wrote:
| > Who has the money to keep buying at $350 to propel the
| stock to $400
|
| Delta hedging, potentially
|
| > But there's 55M shares trading at all time highs
|
| 55M is the float but there's nowhere near that much
| actively available. Fidelity and Blackrock together own
| about 25M I think [0], along with other institutional
| investors as well as staff in stock incentives. Some of
| this will be liquidated as the price goes up but not all
| of it.
|
| [0] https://news.gamestop.com/stock-
| information/institutional-ow...
| Scoundreller wrote:
| > But there's 55M shares trading at all time highs.
|
| One thing that's different is commission-free trades.
| Plenty of folks buying and selling 10 shares at a time a
| dozen times/day "to profit off volatility".
|
| Doesn't explain everything, but retail can put through
| more volume than ever before.
|
| Just checked GME spread though, and it's about $1.50 or
| about 0.5%, so the market makers must be happy with that
| and the volume.
| klodolph wrote:
| Are market makers happy? Don't they have to do a bunch of
| delta hedging, and isn't that harder to do with the stock
| being so volatile? I expect that risk is reflected in the
| spread, but then again, I don't really understand
| markets.
| moolcool wrote:
| Every thread about WSB has comments like this, pretending that
| tons of stupid kids haven't made fortunes rolling the dice on
| meme stocks. You ignore or misunderstand what's going on at
| your own peril.
| germinalphrase wrote:
| There are something like 3 million subscribers to WSB. How
| many people are _really_ making that kind of money on meme
| stocks?
| moolcool wrote:
| Where have you been? TSLA was one of the biggest meme
| stocks and WSB won big.
| germinalphrase wrote:
| I hear the hype. I see a few big winners, but there are a
| lot of people piling on that don't know the first thing
| about why prices go up and down.
| moolcool wrote:
| So what?
| germinalphrase wrote:
| If the argument is _everyone's making bank on these meme
| stonks_ and it turns out to only be a tiny fraction of
| the user base that are ending in the black, the argument
| isn't very well founded.
| moolcool wrote:
| You can make that argument about literally any retail
| investing. Of course it's a gamble, it's right in the
| title. Wall Street _Bets_.
| germinalphrase wrote:
| You are simultaneously deriding those skeptical of WSB
| while telling off my skepticism by saying "of course
| they're rubes!"
| moolcool wrote:
| Some of them are really intelligent investors who know
| what they're doing, and some others are jumping on the
| bandwagon and don't really understand what's going on.
| mdoms wrote:
| Bloomberg seems determined to make people feel bad for the short
| sellers. No. I will not. They made a gamble and it costs them
| billions. Good. No one should be gambling with billions on the
| line, for any reason.
| [deleted]
| IIAOPSW wrote:
| Not it doesn't. You didn't read the article.
| mdoms wrote:
| Yes it does. Yes I did.
| esoterica wrote:
| The "retail traders vs Wall Street" narrative is so fucking
| stupid. Who do you think is earning PFOF for every trade that
| someone makes through their brokerage? Who do you think is
| earning the bid/ask spread every time someone buys or sells? Who
| do you think is collecting the theta from all the calls and puts
| people are buying?
|
| And last of all, who do you think is going to be left holding the
| bag when the price eventually collapses after the short squeeze
| ends?
| hntrader wrote:
| I'd like to know whether these retail investors see Gamestop as
| artwork or as speculation/investment.
|
| Artwork - they buy it not because of any intrinsic value or
| expectation of a dividend/capital gain, but because of reasons
| pertaining to subjective utility - childhood nostalgia, a desire
| to get symbolic revenge at hedge funds, entertainment value, or a
| desire to access gambling services in a country where online
| gambling is restricted.
|
| Investment - expecting to make a profit through greater fool
| hypothesis, a short squeeze, or because they believe in the
| company (e.g positive reflexivity of stock price and exposure
| leading to more funding and business, respectively).
|
| Arguably it's a combination of both, and I'd say it's a fairly
| new phenomenon in financial markets (not so much other markets),
| perhaps TSLA being another good example.
| davedx wrote:
| For me it was an opportunistic trade. I support wall street
| bets though!
| TeMPOraL wrote:
| Observing from the sidelines, I think by this point it's option
| #3: doing it for teh lulz.
| hntrader wrote:
| Which would be entertainment value, fitting into number 1
| above (ie reasons unrelated to profit expectations)
| TeMPOraL wrote:
| You're right. When I read the point #1, my eyes somehow
| glazed over the second half of the paragraph. My #3 is
| fully contained in your #1.
| [deleted]
| supercanuck wrote:
| it started with this..
|
| https://www.youtube.com/watch?v=JWdWCtLMoU0
| JanSt wrote:
| For those downvoting: that's u/DeepFuckingValue. He got
| laughed off by WSB for a year and is now making millions
| every day. Turned 50k to 48 million as of today.
| hehehaha wrote:
| I am tired of this misguided narrative that pits retail and r/wsb
| vs big bad wolf Wall Street hedge funds. This is not David and
| Goliath. There are hedge funds with deep pockets on both sides.
| Retail traders do not run sophisticated algos to jam the price 15
| minutes from the open because they want to neuter circuit
| breakers. C'mon guys...
| whimsicalism wrote:
| Agreed. It seems like everyone is learning the wrong lesson
| from this.
| jrochkind1 wrote:
| I would like to hear more about this. Has anyone found details
| in this particular case?
| chovybizzass wrote:
| we're only just beginning. anything under $1000 for $GME is a buy
| tpmx wrote:
| Gotta feed the furnace so that you come out on top...
|
| https://i.pinimg.com/originals/f3/f9/6c/f3f96c06ddc73aa35cfa...
| arafa wrote:
| Am I missing something in the Gamestop news that isn't "hedge
| fund gambles billions on naked shorts and loses"? That seems like
| a real blunder on their part. In other contexts we would just
| call this gambling, I think. Shorts have infinite liability, not
| hedging them is not something I can get behind.
| LiquidSky wrote:
| Because the Masters of the Universe are obviously better and
| smarter than the pleb masses. That's why they're rich, right?
| They're the ones who are supposed to be manipulating the
| market, not these filthy peasant swine who dare to cost their
| betters money. Their faithful, obsequious servants in the
| financial news and investor class are merely crying about how
| unfair this all is to their masters.
| FriendlyNormie wrote:
| Type the word "Jews" you sackless faggot.
| thecupisblue wrote:
| They have a large chunk of cash, they got new investors with
| Ryan Cohen coming onboard and are moving into an ecommerce
| direction + they are a familiar and established brand. The
| "resurrection" story here serves fuel on the brand fire. Real
| news is that gamestop really has turnaround potential.
| SheinhardtWigCo wrote:
| Demand for physical media is declining and seems certain to
| be extinguished by the console manufacturers within the next
| few years. GameStop has no leverage to slow or change that.
| 99_00 wrote:
| The problem I have isn't that a hedge fund screwed up. It isn't
| even with WSB.
|
| The problem I have is that this seems to be another red flag
| that we are in the late stages of a bull market. The point
| where, at least according to folk wisdom, the least
| sophisticated investors enthusiastically enter the market.
| krok wrote:
| You are missing something - these aren't naked shorts. The fact
| that more than the whole float is out on loan does not imply
| that naked shorting is going on.
| cwhiz wrote:
| How can you get to a point where 140% of the shares are
| shorted without naked shorts?
| TheCoelacanth wrote:
| A owns 1 share (the only share in existence for simplicity)
| and lends it to B.
|
| B short sells to C.
|
| C lends 1 share to D.
|
| D short sells.
|
| 200% of outstanding shares are shorted.
| arafa wrote:
| Please explain. I thought this was the whole purpose behind
| hedging, was to avoid the short squeeze. Are people reneging
| on the purchase agreements or overpromising? How can we know
| these aren't naked shorts and if so, why are they still
| facing the short squeeze?
| krok wrote:
| You can have a short squeeze without naked shorting. Shorts
| who _aren 't_ naked have borrowed the stock from someone.
| If that person asks for it back, they have to go out and
| buy it in order to return it.
|
| At least in theory, if retail investors buy up the stock,
| some of the institutional investors who own it, and who
| have lent it out, will sell it to them. This could mean
| that they recall lent stock. As this happens, shorts might
| have to compete to buy the stock. Equally, as the price
| gets higher, shorts might have to cut their losses, which
| also means buying back the stock. If the people buying it
| now don't sell it and don't lend it they will withdraw a
| lot of the supply.
| oh_sigh wrote:
| Since you're nice and explaining things...what happens if
| a naked short gets called in but literally no one will
| sell any stock for any amount of money, so the shorter
| can't fulfill their obligation?
|
| Obviously not going to happen with GME or anywhere
| realistically, but I'm just curious how that would be
| handled.
| arafa wrote:
| So it seems the issue is that people have borrowing
| agreements that can be recalled early (seems like it
| functions like a margin call in a way). Call it half-
| naked shorting, I guess. Still seems risky. I feel like
| they could've just bought call options and called it a
| day instead. Maybe that's too naive or call options are
| hard to find/pricey for Gamestop?
|
| That still doesn't explain how you know folks aren't
| naked shorting. Maybe you can read the trades?
| krok wrote:
| I don't know they aren't, but it's illegal. Large hedge
| funds are unlikely to be breaking the law, and I haven't
| seen any evidence that they are which wasn't based on a
| misunderstanding of the free float numbers.
|
| Stock borrowing is very very commonly done and renewed
| per-day, in the vast majority of situations this works
| fine.
| arafa wrote:
| I appreciate the explanations, thanks. I don't have the
| trading context. Seems like tail risk or Black Swan
| events yet again. I hope they made enough money on these
| shorts that it wasn't "picking up pennies in front of
| steamrollers". If not, then I wish there would be better
| rules to prevent the short squeeze, like requiring calls
| instead of stock borrowing (maybe this is too expensive).
| When the liability is theoretically infinite, it just
| seems really risky to count on the hope that you can keep
| borrowing the stock (which works great the vast majority
| of the time but every now and then you lose billions).
| beervirus wrote:
| https://www.bloomberg.com/opinion/articles/2021-01-25/the-
| ga...
|
| See footnote 3. "This does not necessarily mean a lot of
| people are doing evil illegal nefarious naked shorting!
| Really, I promise! There is no special limit on shorting at
| 100% of shares outstanding! Here is an explanation of how
| options market makers (discussed below) are allowed to
| short without a locate, but I want to offer an even simpler
| explanation. There are 100 shares. A owns 90 of them, B
| owns 10. A lends her 90 shares to C, who shorts them all to
| D. Now A owns 90 shares, B owns 10 and D owns 90--there are
| 100 shares outstanding, but190 shares show up on ownership
| lists. (The accounts balance because C owes 90 shares to A,
| giving C, in a sense, negative 90 shares.) Short interest
| is 90 shares out of 100 outstanding. Now D lends her 90
| shares to E, who shorts them all to F. Now A owns 90, B 10,
| D 90 and F 90, for a total of 280 shares. Short interest is
| 180 shares out of 100 outstanding. No problem! No big deal!
| You can just keep re-borrowing the shares. F can lend them
| to G! It's fine."
| arafa wrote:
| Right, seems like a similar problem to banks and
| leverage. People can short more in aggregate than exists
| the same way the money multiplier exists for banks. But
| there are bank runs and it's built on trust, so that's
| risky too and we make people hold on to a certain amount
| to cover what they lend.
|
| I guess I'd just prefer they use call options to cover
| the shorts instead of borrowing. No leverage or
| multiplier effect there. Gets too high, just execute the
| call. Am I also missing something there?
| ta1234567890 wrote:
| This is a great example of how the stock market is not about
| fundamentals, just like Bitcoin, it's all about popularity and
| perception.
|
| In the end, people don't care if the "stock is really worth" the
| price, they only care if themselves or someone else are willing
| to pay the price, nothing else really matters.
| wesammikhail wrote:
| You're right in the short term. But in the long term the hope
| is that things average out and true value emerges as a function
| of countless transactions over years and years. Markets are a
| value ascribing heuristic machine. There is nothing about them
| that can deterministically point to objective value. However,
| the idea is that over a longer period of time, an approximation
| of true value emerges though wisdom of the crowd.
| AznHisoka wrote:
| But what if retail investors start to make up a larger % of
| investors? Then the dominant philosophy is hype, popularity
| and trying to sell to a greater fool. This is already
| happening: retail investors are growing in number.
|
| Originally, when institutions were the major players, stock
| prices followed fundamentals because most ppl cared about the
| revenue, earnings and cash flow. But what happens when the
| demographics change?
| Thrymr wrote:
| "In the short run, the market is a voting machine but in the
| long run, it is a weighing machine" attributed to Benjamin
| Graham
| SomewhatLikely wrote:
| I would say it's more than a hope. Any trader whose strategy
| is closer to optimal will have larger profits over time and
| come to own a larger and larger fraction of the market.
| Though saying that out loud makes me realize optimal doesn't
| have to mean buying and selling according to true value.
| Optimal would in fact be predicting the behavior of other
| participants and trading off those predictions. I still think
| certain events ground value though: bankruptcies, mergers,
| and dividends attach a real cost/gain to holding a stock.
| lordnacho wrote:
| > I still think certain events ground value though:
| bankruptcies, mergers, and dividends attach a real
| cost/gain to holding a stock.
|
| Those things are themselves the product of the market
| price, it's not a one way street. This is what Soros'
| reflexivity is about.
| walleeee wrote:
| > Markets are a value ascribing heuristic machine. There is
| nothing about them that can deterministically point to
| objective value. However, the idea is that over a longer
| period of time, an approximation of true value emerges though
| wisdom of the crowd.
|
| It's a beautiful idea in principle. Ultimately the reality
| that emerges will reflect the underlying values of the
| society.
|
| Really makes you wonder about our values, given that
| presently emerging realities include an increasingly
| inhospitable homeworld.
| vmception wrote:
| Diamond hands
|
| This is a financial term now
| shuntress wrote:
| One of main points I've seen from people angry about a perceived
| deliberate manipulation to reduce Gamestop's stock price is that
| this will directly impact retail workers in the form of job loss.
|
| Could anyone explain how this might happen? My naive assumption
| is that the relationship between a company and it's stock is
| (mostly) one-way. If a company cuts jobs, this along with all
| other signals from that company will be perceived by the market
| in some way and potentially impact the price of stock in that
| company. Would the opposite ( _" Our stock price is going down,
| lets fire people"_) be at all likely to happen?
| dec0dedab0de wrote:
| I think that can happen if the board decides to sell the
| company because the stock is low, then it is bought by another
| company that just wants to extract as much profit as quickly as
| possible. For example by taking on a bunch of debt to pay
| themselves bonsues, then declaring bankruptcy and liquidating
| the remaining assets. I am far from an expert, but I think
| something similar happened to Toys R Us.
| alfl wrote:
| Stock prices typically rise after layoffs because the
| perception is that the company is cutting underperformers that
| don't have the same marginal contribution as the remaining
| staff.
|
| Generally, a declining stock price could have implications for
| debt covenants, compensation packages, and, requires selling
| more stock to finance the same level of capital expenditure.
| andyxor wrote:
| I've been lurking on WSB since 2015 while working in New York and
| Chicago hedge funds. I think that silly sub represents the spirit
| of original Wall Street with all its open outcry stock gambling,
| the modern "Wall Street" has become too corporate, exclusive and
| boring, it could use a little disruption.
|
| "In the late 18th century, there was a buttonwood tree at the
| foot of Wall Street under which traders and speculators would
| gather to trade securities. The benefit was being in proximity to
| each other." https://en.wikipedia.org/wiki/Wall_Street
|
| WSB is the 21st century version of that buttonwood tree.
| throwaway63d2b wrote:
| The duplicity of the media here is funny!
|
| Melvin has not closed out of its short position.
| VikingCoder wrote:
| Is there any way for us to know for sure, other than them
| announcing their positions, or losses?
| zinclozenge wrote:
| This is the current short interest as of this morning
| https://www.reddit.com/gallery/l642ms
| tempsy wrote:
| the reality is all of their major shorts are being squeezed
| not just Gamestop, but I agree I think their CNBC interview
| was just a distraction and doubt they could've closed out
| their entire short position overnight.
| VikingCoder wrote:
| Dumb question - could the shorts actually negotiate with
| Gamestop directly to get them to issue new stocks? Wouldn't
| that be a win-win (and the retail loses, because a) the
| stock is diluted, and b) no one would be "forced" to buy
| from them)
| nceqs3 wrote:
| Related...
|
| Hedge funds have "asked" companies to PURPOSELY DEFAULT
| on their debt before.
|
| Great Matt Levine piece on this:
| https://www.bloombergquint.com/view/blackstone-may-do-
| its-cl...
| challenger-derp wrote:
| An associated qn is what price GME would issue new stock
| at if such a deal took place? higher/ lower/ current
| stock price?
|
| Suppose lower. Unlikely. Because a better price for GME
| to raise capital exists -- the current stock price.
|
| Suppose at (approx.) current stock price. Possible. But
| what's in it for GME to offer such a deal to shorts
| instead of offering it to stockholders? Suppose offer to
| stockholders, then shorts still have to cover and thus
| potential of short squeeze remains (which is beneficial
| to future capital raises). Now, suppose GME offered it to
| shorts, squeeze is extinguished, the rally fizzles,
| stockholders who propped up GME's price feel betrayed. At
| offer to raise capital at current stock prices seem
| better placed with stockholders than shorts.
|
| Suppose higher. Now we might be on to something. Without
| GME's offer, the shorts have to close out huge positions
| by buying from the secondary mkt -- short squeezing the
| price up and making future purchases to close remaining
| short positions increasingly costly. Shorts don't want
| this. Shorts would rather close by buying shares at a
| higher, _constant_ price (constant means not subject to
| squeeze). GME, if desperate for capital, could extend an
| olive branch to shorts with a deal that says, hey, I'm
| offering n stocks at a 75% premium to the current price
| of $400, wanna take it?
| tempsy wrote:
| who knows but their market cap has become so bloated that
| any new issuance would probably not be that dilutive. i
| doubt that is what would trigger a crash.
| dannyw wrote:
| Sounds like a great way for management to get into a
| fiduciary duty lawsuit.
| VikingCoder wrote:
| If no one is selling GME, but someone is willing to buy
| GME, and GME actually gets to _pocket the cash_ , that
| sounds like it would be in the long-term interest of GME
| shareholders to me. But like I've said elsewhere, I'm an
| idiot.
| jannes wrote:
| I believe those shares would not be tradable for 6
| months. But I am no expert.
| [deleted]
| Kranar wrote:
| To know for sure? Not really unless they themselves announce
| it. Right now the announcement comes from a third party CNBC
| reporter, so it's not official and there's plenty of room to
| claim a misunderstanding.
|
| But there are ways to gain some insight based on how hard GME
| is to borrow and the shorting interest, and that hasn't
| changed much from yesterday.
|
| If Melvin did manage to get out of their short, they handed
| that short to another party almost share for share, or they
| found a way to hedge their position. At any rate, GME remains
| the most shorted stock on the market, which means another
| short squeeze is possible.
|
| This Friday when options expire is going to be an absolute
| circus.
| k3oni wrote:
| There is a high chance that they started closing their
| position. Just look at other long positions Melvin had and what
| those started doing, i'll give you a hint : they started going
| down due to the possibility of them starting to liquidate other
| positions to raise more cash for covering their shorts. But
| this is also speculation, until they release their books on
| what they own nothing is 100% sure.
| MrStonedOne wrote:
| > and I don't think the answer to today's many ills is to empower
| poor people to bankrupt themselves with margin accounts and
| derivatives.
|
| I love the double speak wrt margin accounts. They want to mix up
| naked margin accounts where your broker gives you a loan of money
| to trade with, with the types of margin accounts used by WSB
| peeps, where the margin is only to cover the 2 day settlement
| window or the time it takes a deposit to transfer, ie: _covered_
| margins.
|
| My counter point: I don't think the answer to today's many ills
| is to parentalise retail investors with a holier than thou
| attitude that is driving half of the spite from these investors.
|
| The soundbite is that they have to protect the poor whittle
| retail investor from scam stocks, but the effect is and will
| always be to lock off higher gain opportunities to institutional
| investors and away from poorer investors.
|
| Don't buy it.
| xnx wrote:
| Would the real power move be for everyone to pull their money out
| of the stock market? I realize that's not an option for those who
| don't already have money in it. If a few small players can expose
| the ponzi scheme/grift that is the modern stock market, that
| sounds pretty good to me.
| nfriedly wrote:
| I mentioned this on a different thread, but the Money Stuff
| column has had some pretty good (informative & humorous) coverage
| of the GameStop and r/wallstreetbets craziness.
|
| Monday:
| https://www.bloomberg.com/news/newsletters/2021-01-25/money-...
|
| Yesterday:
| https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...
|
| Today:
| https://www.bloomberg.com/opinion/articles/2021-01-27/reddit...
| dang wrote:
| For pointers to the many other threads on this story, see
| https://news.ycombinator.com/item?id=25933543.
| 99_00 wrote:
| Everything that's happening right now reminds me of the 'day
| trading' craze in 2000.
| m3kw9 wrote:
| When people are risking and betting their money like casinos for
| 2x-10x gains. I'm not sure if any of that are in peoples thoughts
| when people trade $GME.
|
| The bottom line is always $$. The "Rage" is a good story to sell
| to buyers
| blueblisters wrote:
| A more boring conversation about this is how will it actually
| impact Gamestop? Could the new price levels become a self
| fulfilling prophecy, with Gamestop being able to raise enough
| capital to revamp the business?
|
| "Irrational" retail investors have perhaps saved a company before
| - Tesla - by holding onto the stock even when every hedge fund
| was saying it's doomed.
| blhack wrote:
| Okay a serious question: at what point does it make sense for
| these hedge fund guys to just purchase reddit and shut it down?
|
| To be clear: I don't think that would work, but I think we're at
| the point where stuff like that is going to be tried. These guys
| are losing BILLIONS of dollars. Billions. Can they spend $1B to
| prevent the loss of $2B? (Is reddit worth more than $1B?)
|
| Other stuff I won't be surprised if we see:
|
| * Massive astroturf campaigns (the WSB mods are claiming that
| this is already happening.
|
| * DDOS attacks on reddit
|
| * Attacks against the mods of WSB
|
| * "Institutional" attacks like SEC involvement
|
| It's just sortof crazy to think what it looks like when there is
| this much money on the line. Everything goes out the window.
| goatcode wrote:
| > * Massive astroturf campaigns (the WSB mods are claiming that
| this is already happening.
|
| That's 75% of the site as it is.
| onion2k wrote:
| It would be much cheaper just to pay some kids to make nice
| looking but ultimately loss making bets on there. If WSB looks
| like a place where people go to lose money then it's popularity
| will drop.
| andoriyu wrote:
| uhm, have you ever been to WSB? Loss Porn is a thing.
| fumar wrote:
| This is how WSB started. It was about sharing ineffective and
| losing positions.
| paxys wrote:
| It would probably take $5-$10 billion to purchase Reddit
| outright today. Its last funding round a couple of years ago
| valued it at $3 billion, and it has grown a lot since.
| Blackstone4 wrote:
| Hedge funds and other investors have rules in place to limit
| what they can invest in which would probably rule out a
| purchase of Reddit.
|
| Secondly, the Reddit crowd would move else where.
|
| Thirdly, working in investments myself, hedge fund types dont
| even think like this. It is hard to explain how far off the
| mark you are...I know financial services can look like a black
| box....but what is happening is much more boring than you might
| think. All the drama is happening on Reddit...the SEC is
| worried about retail investors creating a bubble and losing
| money....hedge funds and traders just want to make
| money.....they may take a loss here and move on quickly to the
| next thing. Doing crazy sheeeeet like you suggested would have
| them potentially lose all of their investors money or be
| blacklisted....
| asdfman123 wrote:
| It's probably not a good idea to buy reddit when you're losing
| your shirt just in hopes of turning it around in the short
| term. The momentum is already there for the short.
|
| Instead hedge funds will learn from this example and get
| smarter about using and manipulating social media. I wouldn't
| be surprised if they start leading secret PR campaigns to start
| trends like this on reddit--screw their competitors and make a
| lot of money.
|
| Why try to swim upstream when it's so much easier to make money
| swimming with the current?
|
| And why buy social media when you can just manipulate it
| anonymously?
| bonestamp2 wrote:
| > I don't think that would work, but I think we're at the point
| where stuff like that is going to be tried
|
| Agreed it won't work. A lot of the discussion has already moved
| from Reddit to discord, and then to another discord channel
| after the first, and it will move again too if it needs to.
|
| I don't have any skin in the game, but it's fascinating to
| observe.
| rantwasp wrote:
| the cat is out of the bag. you can suppress maybe one or two of
| these squeezes but fundamentally this changes what they are
| going to try in the future (ie they need to rewrite their
| playbooks)
| vmception wrote:
| Gotta hit discord and telegram too
|
| Telegram has threads now on announcement channels that are
| unlinked from discussion channels
| boringg wrote:
| WallStreetBets hit their threshold on discord - no more
| invites.
| blhack wrote:
| Discord and telegram are big, but there's no way they're as
| big as WSB. I can just go to reddit.com/r/wallstreetbets and
| watch the show, I don't even know how to begin finding the
| same thing on discord.
|
| And to put into focus _how many_ people are involved here:
| the GME discussion threads go to tens of thousands of replies
| within MINUTES of being posted.
| omni wrote:
| r/wallstreetbets has an official Discord, I think that's
| probably what parent is referencing. It's linked in their
| sidebar with a giant Discord logo, not hard to find
| throw0101a wrote:
| > _Okay a serious question: at what point does it make sense
| for these hedge fund guys to just purchase reddit and shut it
| down?_
|
| It would be irrelevant even if they could. The problem is/was
| not Reddit/WSB, but rather the positions that the hedge funds
| put themselves in.
|
| Where are/were the PhDs in risk analysis at these places? How
| do you get into a position of shorts being >120% of the total
| float?
|
| Take Willian Gibson's 'Law':
|
| * The future is already here--it's just not evenly distributed.
|
| And take the Efficient Market Hypothesis (EMH):
|
| * The price of a security reflects all the available
| information about it.
|
| And when you combine them you have the principle that the
| information is out there ( _too many short contracts_ ), but it
| wasn't widely available--yet. Until someone noticed it, and it
| started to spread, and that caused people to change their
| positions in GME.
|
| Shutting down Reddit, or any other random forum, isn't going to
| stop someone from noticing the shorts.
|
| This is no different than what happened in _The Big Short_ :
| some folks noticed discrepancies (mortgage delinquencies) and
| acted first, and as that information spread the market
| "corrected" it's price. It's just that it ended up causing the
| Great Recession.
|
| The spread of information isn't instantaneous: at the very
| least it is limited by the speed of light. After that, it's
| limited by either (a) human attention spans, and/or (b) the
| machine learning systems that humans programmed in automated
| systems.
|
| --
|
| Now the price of GME is kind of meta though, in that it doesn't
| reflect on what's know about GameStop, _but rather_ someone
| 'related' to GameStop.
| TrackerFF wrote:
| But let's not kid ourselves here - a lot of WSB users are trading
| under the pretense that this is some great class war against the
| "elite".
|
| Here's what's going to happen, in the end (my predictions):
|
| - Some institutional investors will make an absolute killing
|
| - Some retail investors will make a killing
|
| - A bunch will make fast'n easy gains
|
| - A good share of retail investors will stand holding the bag.
|
| Sure, some short sellers / funds will lose their shirts, if they
| can't come up with the funds - but it's not the end for those
| managers. They'll continue to get work, and continue to short
| companies they think are on the way down.
|
| In the end, the "evil" hedge funds will walk out as the winners.
| rantwasp wrote:
| this is not about who and how wins. this is about a level
| playing field. the field is not level now and the sheeple are
| waking up
| spiralx wrote:
| This just seems like a continuation of the anti-short selling
| hysteria whipped up by Elon Musk over the last few years. As
| you say nothing will have changed in a years time.
| asdfman123 wrote:
| The evil hedge funds will start rolling out the astroturf and
| making money off of these campaigns.
|
| I wouldn't be surprised if the GME thing is astroturf already.
| neonate wrote:
| https://archive.is/9UwhT
| andred14 wrote:
| the financial machine is too busy smashing crypto :(
| jjnoakes wrote:
| What I don't understand is all of the chatter in various places
| about how the short positions will be the only ones to lose. Even
| with more shorts than shares driving up the price, eventually
| when all shorts are covered, there will still be folks holding
| the original shares, and the demand will vanish. So not only will
| the short positions lose a lot of money, but everyone left
| holding shares will lose a ton of money as well. And if the float
| is 140% (or whatever) then isn't that like 2/5 of the total
| shares which is about to crash hard? So if you are holding $GME
| and get out randomly, you have a 2/5 chance of losing it all (by
| getting out after the shorts close)?
| soybean wrote:
| the short squeeze hasn't happened yet. punishing greed is so
| satisfying.
| jariel wrote:
| Sadly, those piling on are much more likely to have their shirts
| lost than the short sellers who will take a loss and move on.
| When it crashes, it will be the RobinHooders left holding the bag
| and many of them stand to lose a lot to make a point, possibly
| much more than they thought.
|
| I'm not happy that Musk is getting in on this, egging on crowds
| to take risks that might have material risks on their lives. He
| stands to lose nothing.
|
| Finally - nobody seems to be talking about 'Game Stop'. Their
| CEO/CFO in reality must be soiling their pants under this kind of
| stress, nobody wants to be the pinata.
|
| If the kids want to be smart, they can act conscientiously and
| organize a fund to structure initiatives they deem worthy. But
| then they have to face the reality that 85% of most of business
| is fairly 'reality driven'.
|
| Weirdly - the most rational thing for executives to do, at this
| very moment - is to sell all of their shares to the mob. 'Now you
| own it'.
| entwife wrote:
| How did this work? Is there a clear explanation with maximum math
| and minimum speculation about the emotional state of investors?
| paulpauper wrote:
| A lot of ppl are expecting this to be dumped hard. i dont think
| that is going to happen. I think rather it is going to stabilize
| eventually and not crash, much like Tesla. The market tends to do
| what consensus does not expect. GME is flush with cash and has
| the backing of various high profile billionaires. It may make a
| major acquisition or something like that.
| paxys wrote:
| There is a massive difference between Tesla and GameStop. The
| latter is not flush with cash, but rather hundreds of millions
| of dollars in debt. Their revenue has been declining every
| quarter. There is no long term business plan, the digital game
| sales space is already too crowded. It will be a miracle if
| they can manage to turn around.
| paulpauper wrote:
| that was 3 months ago . the market is forward looking.
| paxys wrote:
| The market is sometimes forward looking, and sometimes a
| bubble.
| boringg wrote:
| I gotta give Bloomberg credit here - they really nailed the title
| on the article. Normally I complain about clickbait but this is
| right on the money. Gotta give credit where it's due.
| cwhiz wrote:
| I am loving every minute of this. The "professionals" gamble on
| the market all the time, front run, high frequency trade, and
| relentless tactics to get rich at the expense of the "retail"
| investors. Now they are upset that apps like Robinhood has
| provided unprecedented access to the markets. Their exclusive
| access to insane gambling nonsense is being torn down in real
| time.
|
| If Wall St can gamble and cause a global financial crisis, I see
| no reason why "retail" traders can't fuck around on Robinhood and
| cause some meme stocks to explode.
|
| I think what is really going on here is that the "professionals"
| are bothered that the "idiots on WSB" are making a mockery of the
| market. Make no mistake, the market is already a mockery, what's
| happening now is that the public is finding out.
| Blackstone4 wrote:
| I believe you are far off the mark here. Retail investors are
| well within their rights to drive up a stock to what could be
| above fair market value....some may well lose money in doing
| so. The whole narrative around retail vs. hedge funds/wall
| street is naive to say the least...people in financial services
| are worried that retail investors may lose a lot of money here
| which may dent confidence in the market.
|
| The irony here is that you believe the market is a mockery
| which most of the time it isnt but at times it can be
| irrational. This is clearly one of those times....as an
| investment professional.....I look at this and see the
| irrationality of the price which is not underpinned by cash
| flow or a fair valuation close to the price...which is called
| fundamental investing and not trading like what is happening
| here.
| raesene9 wrote:
| But what they're trying to achieve here (AFAIK) is a short
| squeeze. The whole point of this move is that there's massive
| short interest in GME, and the WSB crew (and anyone else long
| on it) can take advantage of it until those positions are
| closed.
|
| After that, if people hang around, sure they'll likely lose
| money if they bought at the top, but until those big
| positions close, there's money to be made.
| briankelly wrote:
| It does assume the short position is naked which might seem
| like the case but is not a confirmed fact as far as I
| understand the situation.
| fairity wrote:
| Agree 100%. I think the smartest bet here is buying put
| options that expire far out. Currently, the price of the $320
| GME PUT expiring in Jan 2022 is $240. That's free money...
| beervirus wrote:
| So you're paying $24,000 to bet that the stock will fall
| below a breakeven price of $80. Even if we assume that
| that's likely to happen, your maximum upside (i.e. if the
| stock goes to zero) is only $8,000.
|
| It is not a trade I would make.
| chrchang523 wrote:
| I've been keeping an eye on the far-out-dated put options,
| and I haven't seen anything that's more compelling than
| simply leaving money parked in an index fund. The
| expectation that GME will drop back down to Earth over that
| timeframe remains priced in.
|
| The main takeaway from this incident is that margin-call-
| constrained short selling is even more dangerous than
| previously understood.
| fairity wrote:
| >The expectation that GME will drop back down to Earth
| over that timeframe remains priced in.
|
| Yea, it does seem largely priced in, but perhaps not
| completely. If share price is $60 in 1 year, the ROI on
| that contract would be 9% -- so slightly better than what
| you'd reasonably expect an index fund to return. A $60
| share price is higher than GME's all-time high prior this
| fiasco.
| chrchang523 wrote:
| The inferior tax treatment of put options relative to
| index funds also matters. Not tempted.
| ab_testing wrote:
| THe price of that put is $240 . So GME has to fall to
| 320-240 = $80. Also the cost of that put is twenty four
| thousand dollars. Not exactly chump change.
| cannabis_sam wrote:
| >people in financial services are worried that [this will]
| dent confidence in the market.
|
| They they don't give a single fuck about retail investors.
|
| (Outside of PR initiatives of course)
| Blackstone4 wrote:
| Well I work in financial services and I care about people
| including retail investors which disproves your point.
| Everything is not black and white. There are of course
| people in the sector who dont care. There are a mix of
| views.....
| boringg wrote:
| Agree - and glad to hear that. I think the statement
| should have been posted along the lines of a majority of
| people who are in positions of power in the financial
| industry barely care about retail.
| cannabis_sam wrote:
| > majority of people who are in positions of power in the
| financial industry barely care about retail.
|
| Yeah, I agree. I should have worded it more like that.
| cannabis_sam wrote:
| You are correct. I should have worded it more like the
| sibling comment.
| gmadsen wrote:
| value of a stock is what the market dictates is the value of
| the stock, not what an analyst wants the price to be. It is
| laughable to say that Hedges were using purely "fundamentals"
| for the past 10 years.
|
| Were people in the financial services worried about retail
| investors when Melvin was shorting GME into the ground at $5
| a share? Intentional manipulation to quickly bankrupt a
| company. How about with the 2000s derivatives bubble?
|
| The only thing they are worried about is that they are
| getting the shitty other side of the game they made for the
| first time.
| Blackstone4 wrote:
| Price is what you pay in the market and value is what
| something is worth...clear difference.
|
| Some people with in a group who hold a view does not mean
| the entire group holds that view.
|
| In this game, I believe retail investors feel like they are
| winning now but ultimately many will lose money when the
| price comes down. In my view the price is not
| sustainable....
| gmadsen wrote:
| how much is a $20 USD bill worth to you? Its a penny or
| less of cotton.
|
| obviously its not sustainable, we are entering a short
| squeeze. But capping at $4 a share shouldn't have been
| either, I think $60-$80 is a really reasonable
| assessment, it will spike, and rightly so, as the too
| greedy naked short sellers get screwed over and forced to
| cover their positions
| esoterica wrote:
| > Now they are upset that apps like Robinhood has provided
| unprecedented access to the markets. Their exclusive access to
| insane gambling nonsense is being torn down in real time.
|
| This is such hilariously clueless nonsense, the fact that it's
| expressed with such smug confidence and upvoted to the top of
| the thread is really emblematic of HN's complete ignorance of
| any topic outside of programming.
|
| When retail volume goes up there a plenty of "professionals"
| (brokerages, market makers) that make a killing off executing
| the retail flow. I assure you the industry is loving the fact
| that everyone and their cat is FOMOing into trying to day-trade
| on Robinhood. If you really want to stick it to Wall Street put
| all your money into a low-fee index fund.
| raesene9 wrote:
| Whilst most of Wall street may like this, I'd guess there's
| at least some parts (the hedge funds with large short
| positions in GME) who aren't having a good time today.
| briandarvell wrote:
| Could you elaborate a bit more on why low-fee index funds are
| sticking it to Wall Street?
| esoterica wrote:
| If you're not actively trading they're not making any money
| off you.
| avereveard wrote:
| > the "professionals" are bothered that the "idiots on WSB" are
| making a mockery of the market
|
| I think it's deeper. if they get forced by a margin call to
| purchase stock people that shorted without a lend will quickly
| come under scrutiny from sec, which will be quite interested to
| know which broker(s) allowed to reach this ridiculous float
| volume without securing the shares
|
| they're not just covering their losses, whose whom will remain
| with uncovered short can get fines and or jail time.
| this_user wrote:
| > I see no reason why "retail" traders can't fuck around on
| Robinhood and cause some meme stocks to explode.
|
| It's called 15USC78i "Manipulation of security prices" [1]. It
| is unlawful to transact just for the purpose of forcing others
| to transact. Going through a fund's 13F filings, and
| deliberately driving up the prices of put options they sold
| should fall squarely into that area. And there are more than
| enough posts on reddit of people stating that this is exactly
| what they are doing. At the scale this is happening now, there
| is no doubt that there are going to be legal repercussions.
|
| [1] https://www.law.cornell.edu/uscode/text/15/78i
| itronitron wrote:
| No one is forcing the short sellers to buy GME, they did that
| all by themselves.
| nceqs3 wrote:
| Steve Cohen and Gabe Plotkin both traded on inside
| information at SAC (Gabe was cc'ed on several of the
| communications). Why are they not in jail? Ohhhh because the
| justice system only impacts the 99%.
| this_user wrote:
| That's some nice whataboutism, but that doesn't mean this
| isn't exactly the kind of market manipulation for which the
| Securities Act of 1933 was written.
| mdoms wrote:
| There's a pretty simple defense here. "I saw the posts on
| reddit and wanted to get in on the upward swing". Efficient
| markets at work. Unless you can tie real identities to the
| reddit posts there's not much to be done.
| jeffreyrogers wrote:
| I don't think what they're doing violates the law[0], but
| they could easily subpoena Reddit and find out who the
| users are if they wanted to.
|
| [0]: too complicated to get into here, but basically my
| interpretation of the law is that you need to be making
| trades that you intend to cancel or revert immediately in
| order for it to apply to you, and what these traders are
| doing is instead speculating on the price going up and
| hoping to cause the shorts to liquidate their positions,
| thus further driving the price up. Not spoofing to create
| fake demand.
| jimbob45 wrote:
| How would Reddit know who those people are? Protonmail +
| VPN would hide their identities as far as Reddit is
| concerned, right?
| shpx wrote:
| You actually still don't need an email address to create
| a Reddit account.
|
| Reddit has stayed true to their word of maintaining the
| old design, and it's free of the dark patterns in the
| redesign. Go to https://old.reddit.com/register and just
| leave the email field blank or if you use the pop-up menu
| (the thing you get when you click login/register in the
| top right of the old design), you can click skip on the
| first screen where it just asks you for your email.
| jeffreyrogers wrote:
| In theory. I'm not sure if Protonmail or the VPN provider
| would respond to a subpoena, but I wouldn't rule it out.
| But realistically most of these people are using their
| home IP address and their gmail account.
| jimbob45 wrote:
| There are VPNs not bound by US law and the same with
| email providers (if your email address with Reddit is
| even legitimate to begin with).
| jeffreyrogers wrote:
| Yes, but it can't be more than a few percent of people
| who go through the effort to set that up right? I know
| it's not hard to do (I've done it), but I think most
| people on reddit are using either their personal email or
| a throwaway gmail account they use from their home IP.
| shadowgovt wrote:
| I would not assume that de-pseudonymizing Reddit accounts
| is impossible, especially if large amounts of money are on
| the line.
|
| Reddit complies with FBI requests to hand over account
| data.
| boringg wrote:
| I think that only works on co-ordinated activity. Everyone on
| their is so small and not working in co-ordinated way. There
| is considerable discussion in the thread about the legality
| of it.
|
| Also - what do you think short sellers like Citron do all the
| time. Put out fake reports about companies to make money off
| their short positions.
|
| The sentiment on the trade is eff those short sellers and
| their sketchy tactics.
| cellar_door wrote:
| The mod team is coordinating
| boringg wrote:
| Have they been?
| this_user wrote:
| > I think that only works on co-ordinated activity.
| Everyone on their is so small and not working in co-
| ordinated way. There is considerable discussion in the
| thread about the legality of it.
|
| There are entire threads and Discord channels dedicated to
| coordinating this. It will be extremely difficult to
| convince a court that there is no coordination or market
| manipulation, especially when there are people who are
| spelling that fact out. And reddit have all of their IP
| addresses.
|
| > Also - what do you think short sellers like Citron do all
| the time. Put out fake reports about companies to make
| money off their short positions.
|
| If you can prove that those allegations are indeed fake,
| then they can be held liable for that. But Citron's
| influence stems from the fact that they have published a
| large number of reports that were indeed correct, e.g.
| Valiant.
|
| > The sentiment on the trade is eff those short sellers and
| their sketchy tactics.
|
| What sketchy tactics? Expressing their view that a company
| like Gamestop is not worth very much on account of their
| outdated business model that relies on physical retail in a
| sector that has been going fully digital for the last 15
| years?
| boringg wrote:
| In Citron's case they cast super sketchy dispersions
| about companies and hope that they influence investors
| who don't understand how the companies operate. It's
| right at the line and the cost of proving them wrong is
| not worth the effort... plus the SEC has bigger fish to
| fry when they have a mandate to enforce.
| cwhiz wrote:
| There are some base requirements for market manipulation that
| are not met here. Namely, lying. You're allowed to tell your
| "friends" they should buy a stock.
| Enginerrrd wrote:
| A lot of people have had the hammer brought down on them
| for pump and dumps performed by only making true
| statements.
| balls187 wrote:
| Yes, but some of them also manage funds that are people from
| Mainstreet's retirements.
|
| So while, yeah fun to stick it to the wealthy elite, I feel the
| law of unintended consequences is going to rear it's head much
| like crash of the housing market in 2007.
| Thaxll wrote:
| I coudn't agree more! It's really fun to watch from an external
| perspective.
| psim1 wrote:
| This kind of market folly also has an effect on long-term
| investments, e.g. retirement funds. What is there to love? I
| hate that unshowered basement-dwellers are coordinating to
| screw around with the market and potentially my retirement
| money. Get an honest job, guys.
| cwhiz wrote:
| Ha! Maybe the WSB traders should go get a "real" job at a
| hedge fund where they can do the same insane gambling, only
| now it's "professional."
|
| How do you think the recession happened? It wasn't retail
| investors gambling on the housing market.
| littlestymaar wrote:
| Retirement funds are a scam: when prices go up, funds manager
| take their bonus, when it goes down, the funds shareholders
| (that is, everyone) swallow up the loss. It even a double-
| edge scam, because now people are supposed to stand up for
| the finance behemoth because they holds their retirement
| hostage.
| psim1 wrote:
| Within the United States, you will have a hard time finding
| a company with a traditional pension system. Almost all use
| 401(k) or similar retirement systems. If it is a scam, it
| is a well-supported scam.
| hannasanarion wrote:
| Companies switched to 401ks from pensions precisely
| _because_ it 's a scam. With a traditional pension, the
| company needs to guarantee the availablity of funds for
| retirees. With a 401k, each individual employee is
| required to gamble their life savings on the stock
| market.
|
| The result is that the company doesn't need to give a
| damn about long-term stability, they can focus on short-
| term gains for a carousel of owners that each demands a
| quick return and cash out. As a bonus, the 401k system
| forces the government to bow to the whim of the stock
| market because every citizen is now clinging for dear
| life onto the same mechanism the owning class use to grow
| their hoards.
|
| It's a win-win-win for the rich:
|
| * they don't need to pay retirees
|
| * they can squeeze more money out of companies at the
| expense of customers, workers, future owners, and the
| environment
|
| * they can get leverage over the entire society by
| credibly threatening the lives of millions of retirees
| dependent on their table scraps
| QuesnayJr wrote:
| Companies don't need to guarantee their persons. They can
| raid the pension fund, say "sorry!" and go bankrupt.
| piva00 wrote:
| Pensions funded by current workers towards the pensioners
| are also very widespread worldwide, doesn't mean they
| aren't an unsustainable practice.
|
| The same can be the case for 401(k)s and similar systems.
| And I say that living in Sweden where the majority of my
| pension will consist of funds that I can manage myself
| the split, so I should believe in this system for my own
| sake.
| jaywalk wrote:
| As if the guys at hedge funds shorting stocks to drive
| companies out of business have more "honest" jobs.
| boringg wrote:
| Seriously those guys claim they are holding companies
| accountable and the market efficient. They are just sleazy
| stock traders. Grinds my gears people try and defend them
| through efficient capital markets when you see the garbage
| reports they put out there to manipulate the market for
| their positions.
| QuesnayJr wrote:
| Is the market more efficient now that the price for
| GameStop went up a factor of 10 over 5 days?
| jameslars wrote:
| I have an honest job AND a position on GME. Thanks for your
| concern though.
| cvhashim wrote:
| Get a load of this guy with an honest job. I'm riding my
| GME shares to the moon :P
| yowlingcat wrote:
| > Get an honest job, guys.
|
| The gravedigger always has a job, and it's plenty honest. No
| need to direct misdirect your ire at the killer towards the
| gravedigger for the existence of the corpse.
| jeffreyrogers wrote:
| It shouldn't unless those funds are invested in hedge funds
| (some are, but usually only a few percent of their total
| assets). Day-to-day volatility shouldn't affect them that
| much.
| dheera wrote:
| I'm also really loving that there are a whole bunch of
| Redditors donating part of their gains to charity, something
| that those hedge funds would never do.
|
| In my eyes those hedge funds never did anything good for
| humanity, and I too am loving every minute of this and how some
| of the big money is being siphoned into the hands of people
| that actually need it more.
| hoka-one-one wrote:
| Have you completely discounted that this thing was calculated?
| Plenty of professionals probably foresaw the squeeze.
| chromaton wrote:
| The WSB thing could just be cover for them. There were more
| shares shorted than were outstanding, so it's a great
| opportunity for a trader/raider with a pile of cash.
| drzoltar wrote:
| I'm worried what will happen down the road. Robinhood is likely
| getting super valuable data on this. Combine that with
| correlating post activity on Reddit and you have a recipe for
| obliterating the arbitrage of retail investors. These hedge
| funds will also buy the data that Robinhood freely sells [1].
| Sure, squeezes like this will still happen every so often, but
| on average the hedge funds will win more in the long run.
|
| So, I think Robinhood needs to get some competitors, who charge
| $1-2 per month, while enforcing data privacy.
|
| This all feels like a classic Black Swan at work, and I guess
| the main question is if you believe that the long term expected
| return justifies such risky short sells.
|
| [1]: https://www.jacobinmag.com/2021/01/trading-app-robinhood-
| inv...
| dheera wrote:
| Really the only thing the hedge funds could do to "win more"
| in the long run is to stop shorting stocks en masse.
|
| The more they short sell, the more this can be pulled off
| again and again.
|
| Which is good IMO, I'd be happy in a market where short
| selling and negativity in general just isn't a thing. If you
| aren't optimistic about a company just stay out.
| blueblisters wrote:
| Short sellers are incentivized to uncover scams and
| overvalued equities, as a few other folks pointed out.
| There are firms like Muddy Water doing the hard work of
| finding companies swindling investors and using publicly
| available data to make a case against them. Without short
| selling, they lose the incentive to do that.
| dheera wrote:
| I'm fine with them not having that incentive.
|
| Scams can be uncovered by CUSTOMERS and plenty of other
| people than short sellers, and I don't think overvalued
| equities is actually a problem. Many times overvalued
| equities leads to faster adoption of EVs and solar and
| better GPUs and other nice things, which are more
| important to my personal life than maintaining the
| sanctity of capitalism.
| AlexandrB wrote:
| Overvalued equities lead to market crashes that tend to
| wipe out the retirement funds of unsophisticated
| investors and bankrupt otherwise viable companies. Has
| everyone forgotten about the dot com bubble of 2000? If
| so I think we're headed for a reminder.
| amalter wrote:
| Hard no! I want scams and shady schemes uncovered. What a
| disappointment that Herbalife wasn't brought down by the
| shorts.
|
| I'm struggling to even understand what a market with "no
| negativity" means. We want to evaluate firms with a
| critical eye. If they are mis-valued, that serves no one.
| cwhiz wrote:
| >I'm struggling to even understand what a market with "no
| negativity" means.
|
| Just imagine basically... every single other market. The
| price of goods at Walmart is not based on your bet on
| supply and demand.
|
| If there are more buyers than sellers, the price goes up.
| If there are more sellers than buyers, the price goes
| down. If a business wants to raise money by issuing new
| shares, supply and demand will dictate the price.
|
| The market doesn't need uninvested third parties sitting
| outside the ring gambling on the supply and demand
| outcome in order to set a price.
| arthurcolle wrote:
| > The price of goods at Walmart is not based on your bet
| on supply and demand.
|
| This is a specious argument. You literally could go out,
| borrow your friend's crate of 10,000 bananas, sell them
| on the open market, then wait for the price of bananas to
| crash, and then buy them back (maybe even the same
| crate!) and give them back to your friend, plus whatever
| the banana margin costs. Effectively, if you were to do
| this at scale, you would directly be influencing the
| price of goods at Walmart. Mechanically, this isn't how
| it works, and I don't think there are banana futures and
| options, but thinking that all derivatives activity is
| speculation is simply naive.
|
| On the GameStop excitement, all I have to say is...
|
| "Apes, together.. strong."
| kqr wrote:
| For better or worse, derivatives-based economies are
| incredibly resource-efficient. By creating a formal
| system for actually assigning universally-understood
| value to promises, we can do a lot more with a lot less.
|
| Sometimes bad things happen, but you can be sure we'd
| have none of the niceties of modern society without a
| derivatives-based economy.
|
| Immediate cash just has a ceiling for what it's capable
| of supporting.
| RGamma wrote:
| Well the general discontent with the financial system
| stems, I believe, from it being perceived as mostly a
| walled garden in which professionals have built a
| complicated and highly self-referential system few
| control (Blackrock _cough_ ) that makes and keeps them
| disproportionately wealthy.
|
| To anyone in the working population it must seem like an
| instrument designed to keep the pressure on and not serve
| general society or those providing actual tangible things
| of value to the market, like goods and (non-financial)
| services.
|
| I actually tend to agree but it's pointless to battle the
| market's cold logic (which often does make sense to me
| from what little I know) or existing power structures.
|
| Solutions/counterforces need to come from society and
| civil institutions. If those are weak, gotta fix that
| first and the market would depict a more equitable
| society without prejudice. It's the same old rich vs poor
| repainted with complicated terminology and systems,
| really.
|
| Another thing to improve would be transparency and
| education about what's going on in finance like with
| personal accounts of people working there for instance,
| making it less of a stranger and showing some of its
| internal logic and the things it does well or not so
| much.
| amalter wrote:
| I think you're arguing for a market with only direct
| investments and no secondary derivatives. If that was all
| the equity market was, we could be in the same zip code.
|
| However, we live in this hyper-securitized world, where
| every part of the economic fabric has bets for and
| against, with insurance, leverage and information
| asymmetry baked in.
|
| The only way to "discover" price is to provide
| instruments that provide "gravity" for both upward and
| downward price movements. The lack of supply on it's own
| is not enough, especially when malicious actors are
| pushing on the supply and demand levers.
| dheera wrote:
| > We want to evaluate firms with a critical eye. If they
| are mis-valued, that serves no one.
|
| Hard disagree here. Sometimes mis-valuing firms serves a
| LOT of people. There are many firms who could create
| value if only they had more capital to work with. As an
| example, it's very possible that a company hard hit by
| COVID could recover if they got fresh capital and used it
| to explore new business models that are quarantine-
| friendly. I'm all for kicking out non-believers from
| being involved in their equities in any way.
|
| You can't short sell most early stage startups. If you
| don't believe in them you just don't invest in them. It's
| that simple.
|
| As for companies who do bad things, like laundering money
| or misusing funds, we don't need to short their stock, we
| need to take them to court and get them punished.
|
| You know which firms are _really_ mis-valued? Hedge
| funds. They sit in armchairs in high rises on Wall Street
| and do nothing for me.
| greatpatton wrote:
| Exactly! from who the short are getting their money when
| they crash a company stock like Wirecard? Not from the
| company management who did it but from other
| shareholders, and most of the time "retail" shareholder.
|
| They are running to the ground company that may survive
| with a fresh injection of capital, and destroying company
| that suddenly cannot raise more capital or have no more
| collateral for a loan.
|
| Moreover they are this hedge fund are manipulating
| information to the level of a troll farm. I was a
| shareholder of AMD when they where starting to release
| the Zen architecture. Every other week, they were sending
| report of "problems" with the new architecture, or even
| basic feature behaving normally. Hedging is ok, but
| betting as they do is not. And when they get burned I
| celebrate!
| kgwgk wrote:
| > There are many firms who could create value if only
| they had more capital to work with.
|
| Those don't need to be misvalued to get capital, they
| just need to be properly valued.
|
| In fact if they cannot get the capital it's because of
| misvaluation! And other misvalued firms that will destroy
| value get that capital instead.
| [deleted]
| partiallypro wrote:
| This might have started on social media, but make no mistake
| that the professionals are the ones that piled on to take
| advantage of the situation.
| briankelly wrote:
| Burry (fund manager who Bale played in the Big Short) is the
| one who put this trade on most people's radar months ago.
| 52-6F-62 wrote:
| > Make no mistake, the market is already a mockery, what's
| happening now is that the public is finding out.
|
| Pretty sure that was about a century ago and resulted in the
| Great Depression.
|
| I don't think the solution to the crock that has been going on
| is to "do it back". Setting one or two hedge funds back a year
| or so, or even to close completely, isn't going to do anything
| resembling justice.
|
| It starts to look more and more like just more pigs rolling
| around in the mud together, if you ask me (saying nothing of
| the collateral damage along the way).
| sleepybrett wrote:
| > Pretty sure that was about a century ago and resulted in
| the Great Depression.
|
| A fine sight better than 1789
| xorx wrote:
| Yes, but retail is going to get destroyed in the end.
|
| The power elite _always_ get what they want. Right now there
| appear to be curbs on GME and AMC buy orders for TD Ameritrade
| and Schwab customers.
|
| If you have to pull strings with your drinking buddy from
| Dartmouth to blow up a bunch of propertyless zoomers in order
| to prevent a margin call on the account you've leveraged to buy
| your house in the Hamptons, then that's what you're going to
| do.
| balls187 wrote:
| > Yes, but retail is going to get destroyed in the end.
|
| Mainly because they're playing with their own money, while
| the hedgefunds are playing with House's Money.
| beervirus wrote:
| > Right now there appear to be curbs on GME and AMC buy
| orders for TD Ameritrade and Schwab customers.
|
| Yes indeed. Ameritrade won't even let me _exercise_ the calls
| I already own. It 's ridiculous.
| thebean11 wrote:
| Remember you can file a dispute for things like this.
| Gather as much evidence as you can that you attempted to
| exercise. If you win the dispute they have to exercise at
| whatever the price was during your attempt (IANAL, this is
| just my understanding).
| loosetypes wrote:
| Source for Schwab?
| jscheel wrote:
| Are you trying to do an early exercise, or do you mean that
| they won't let you sell your calls? If you are trying to
| exercise, do you have the cash to cover, or are you trying
| to use margin to do it?
| beervirus wrote:
| Early exercise, plenty of cash.
| piva00 wrote:
| This is absolutely fucking ridiculous. Someone is getting
| fucked by their own leverage, they got caught, isn't that
| what the market is supposed to do? Kill the overleveraged
| non-sense to redistribute wealth to more efficient
| investments?
|
| It isn't a bank run to be blocked for the sake of society,
| this is just a bunch of rich people paying the price for
| risking too much... Boils my blood so deeply.
| QuesnayJr wrote:
| So you think GameStop shares are genuinely worth $375?
| GameStop traded around $20 a share for the past couple of
| years. You think that right now the company is worth
| almost 20 times what it was worth two years ago?
| piva00 wrote:
| Where have I stated that?
| chromaton wrote:
| It's worth whatever somebody will pay for it. And right
| now the short sellers will pay a lot for it to stop their
| losses.
| kqr wrote:
| This is part of the game, though.
|
| The hardest part of gambling is not coming up with the
| big winning bet -- it's getting whatever counterparty to
| pay you once you've won. It's always been this way, in
| sports, in horses, and on Wall Street. People come up
| with all sorts of reasons to not pay you and you have to
| shape your strategy around this.
|
| Aaron Brown talks about how being a successful gambler is
| not about a few high-stakes wins, or a super-consistent
| record. It's about winning the right fraction of bets, so
| that nobody suspects you're a winner.
| chromaton wrote:
| Business Adventures has the tale of the Piggly Wiggly
| short squeeze of 1923. The old boys of the NYSE changed
| the rules to help the shorts and undo trades after the
| fact.
| mikepurvis wrote:
| The Big Short talks about this too-- people trying to
| figure out how to bet against subprime mortgages in a way
| that the entity on the other side of it will actually be
| in a position to pay out (and be able to be compelled to
| do so).
|
| Perhaps ironically, one of the central characters of that
| story, Michael Burry, is none too pleased at the current
| situation: https://www.bnnbloomberg.ca/michael-burry-
| calls-gamestop-ral...
|
| EDIT: The Big Short, of course, not Moneyball.
| seanosaur wrote:
| Nitpicking, but I think you're referring to The Big Short
| rather than Moneyball.
| mikepurvis wrote:
| Right, of course-- thanks. My brain was short-cutting to
| "the one that got made into a movie."
| exoque wrote:
| You mean 'The Big Short', Moneyball is about baseball. ;)
| asdfman123 wrote:
| You can still buy AMC on Robinhood. I just did.
| HNfriend234 wrote:
| Also they apparently have the "biden economic team" looking
| into the situation so it does go to show that lobbying
| dollars allows you to get your concerns addressed rather
| quickly.
| koheripbal wrote:
| Very likely is that the SEC is making phone calls to the big
| trading firms. Firms don't restrict transactions like this
| much voluntarily.
|
| They are going to call the Reddit CEO and have wsb shut down
| under the threat of SEC enforcement actions.
|
| Looks like the wsb discord is down.
| jimbob45 wrote:
| Same stuff goes down on 4chan and several other sites. Not
| to mention the fact that the SEC has neglected to
| investigate insider trading for years now.
|
| IMHO why the fuck is shorting legal to begin with. Short
| insurance should be mandatory for short trading.
| koheripbal wrote:
| > the fact that the SEC has neglected to investigate
| insider trading for years now.
|
| Obviously false: https://secsearch.sec.gov/search/docs?ut
| f8=%E2%9C%93&affilia...
|
| > 4chan and several other sites...
|
| Scale dictates enforcement priorities, obviously. Like a
| lot of people, they don't deal with issues until they are
| large and impact the market. They are ABSOLUTELY going to
| intervene here. First with some immediate action, and
| later they'll craft a new rule to guide social media on
| stock advice being not allowed on their platforms (IMO).
|
| > why the f** is shorting legal
|
| Short selling rewards investors who believe that certain
| stocks are overvalued or that the company is covering up
| fraud. They helped bring Lehman Brothers down, as well as
| Enron, Wirecard, etc... In those instances, the shorts
| were instrumental in reverting stocks down to correct
| (sometimes zero) prices. Without them, bubbles would rise
| higher and poop much bigger. That sort of volatility
| destroys liquidity and confidence in the market.
|
| > Short insurance should be mandatory for short trading.
|
| There are naked short limits already, but yeah, this
| issue with GameStop should have those rules re-evaluated,
| because they obviously didn't work in this case.
| tony101 wrote:
| > "First with some immediate action, and later they'll
| craft a new rule to guide social media on stock advice
| being not allowed on their platforms (IMO)."
|
| What about Section 230?
| mrec wrote:
| > _bubbles would rise higher and poop much bigger_
|
| Please don't fix this, it's perfect.
| jcfrei wrote:
| > They are ABSOLUTELY going to intervene here.
|
| I wouldn't be so certain about this at all. Matt Levine
| has a good take on it: https://www.bloomberg.com/news/new
| sletters/2021-01-26/will-w...
| bilegeek wrote:
| Well, the IRS doesn't go after rich people because they
| don't have the funding[1]; they only go after the people
| they can afford to go after[2].
|
| I know the IRS is different from the SEC, Apples to
| Oranges. But like you said, they've neglected insider
| trading; it's probably for very similar reasons, because
| those being investigated just have too much power to take
| down. I'm sure the SEC will hammer these easy targets on
| WSB well before they even dare touch the Big Boys.
|
| [1]https://www.nytimes.com/2019/05/03/sunday-review/tax-
| rich-ir...
|
| [2]https://www.propublica.org/article/earned-income-tax-
| credit-...
| TuringNYC wrote:
| Prediction: SEC will go after one or two retail traders
| who are minorities and blame the entire episode on their
| probably harmless tweet or post.
| sayhar wrote:
| I don't know why you're being voted down here. These are
| legitimate articles in major publications that are
| broadly accepted by experts in the field. Sad!
| koheripbal wrote:
| If you look at the SEC website, they list all their
| current complaints filed against people for Insider
| Trading.
|
| There are many [1].
|
| [1] https://secsearch.sec.gov/search/docs?utf8=%E2%9C%93&
| affilia...
| boringg wrote:
| SEC got neutered when the previous US administration got
| into power. The administration before that was actively
| pursuing cases.
| TuringNYC wrote:
| Could you note any major cases the previous
| administration pursued that didn't involve some lone
| scapegoat trader and/or a minority everyone could agree
| to dislike? Were there any actual cases after the 2008
| mortgage/cdo/cds crisis, for example?
| koheripbal wrote:
| False: https://secsearch.sec.gov/search/docs?utf8=%E2%9C%
| 93&affilia...
| boringg wrote:
| True: https://wp.nyu.edu/compliance_enforcement/2017/10/0
| 9/trump-v...
| koheripbal wrote:
| No - false. They cherry picked a data window...
|
| > January 2016 through the end of the SEC fiscal year on
| September 30, 2017
|
| If you look at the followup data, you can see both
| administrations are similar...
|
| https://www.law.nyu.edu/sites/default/files/Fig3-SEEDNov2
| 020...
|
| ...and then if you actually read my above link, you'd see
| numerous Insider Trading prosecutions (which was the
| original false claim made above).
| boringg wrote:
| You are correct that they cherry picked information.
| However you are still incorrect on the original assertion
| that SEC is not in fact neutered. There have been more
| enforcement actions but insider trading enforcement has
| been the lowest in decades:
|
| source: https://www.npr.org/2020/08/14/901862355/under-
| trump-sec-enf...
| koheripbal wrote:
| Front Running is illegal, and companies get busted and fined
| for doing that.
|
| High Frequency trading is actually GOOD for retail investors
| because it reduces spreads and increases liquidity.
| cwhiz wrote:
| Ha! Not only does front running happen all the time, but high
| frequency trading is de facto legal front running. Just beat
| them on a shorter or faster wire.
|
| The whole thing is rigged.
| koheripbal wrote:
| That isn't Front Running - by definition.
|
| Front Running is when you receive an order from a large
| client and you yourself trade in the same stock before
| them, and then sell the stock to them, or allow the spread
| to narrow and pocket the difference.
|
| High frequency trading is not front running unless it
| illegally takes data from the client trading desk - which
| would be both obvious and highly illegal.
| cwhiz wrote:
| There is a reason high frequency trading is typically
| referred to as legal front running. Sure, it's not front
| running by legal definition, but in practice it is
| absolutely front running. Beating trades to the market
| and making micro-gains on a mass scale.
| growse wrote:
| > There is a reason high frequency trading is typically
| referred to as legal front running. Sure, it's not front
| running by legal definition, but in practice it is
| absolutely front running. Beating trades to the market
| and making micro-gains on a mass scale.
|
| It's only referred that may by people who have no idea
| what they're talking about.
|
| Front running isn't about "beating" anyone to anything.
| It's about stealing non-public information about an
| actor's intent to trade and using it to make trades
| before that information becomes public, and specifically
| before that trade executes. It's the theft bit which is
| the reason it's illegal.
|
| What HFT firms are doing is simply rushing to execute as
| fast as possible on generally available information.
| They're not acting on information that's not legally
| available to everyone else, because that would be illegal
| misuse of that information. This sort of thing is pretty
| easy to detect, and the SEC comes down pretty hard on it.
| FriendlyNormie wrote:
| Found the Jew.
| cbozeman wrote:
| No it isn't. You know why front running isn't illegal?
| Because it keeps happening and companies keep getting fined
| for it.
|
| A "law" that allows you a merely pay a fine isn't a law, its
| a revenue-generating procedure.
|
| Murder is illegal. You can't pay $500,000 to the authorities
| and then go on about your business.
|
| For a law to have any weight, you have to be inconvenienced
| regardless of your financial status.
| koheripbal wrote:
| > You know why front running isn't illegal? Because it
| keeps happening and companies keep getting fined for it.
|
| This is not a logical sentence. They are obviously getting
| fined because it's illegal. The traders involved are also
| terminated, fyi.
|
| All banks are required to submit automated reports on Front
| Running detection algorithms daily to the regulators. Every
| trade is evaluated by the compliance systems.
|
| If you think the fines are not big enough or that the
| algorithms are missing things, then make that more logical
| argument.
|
| Stay away from hyperbole because it discredits you.
| _jal wrote:
| > If you think the fines are not big enough
|
| With crimes like these, it is nearly definitional.
|
| It is trivial to put a price on the value of an action
| like this; if the fine for the action is less than it
| grosses, it is just a tax.
| mLuby wrote:
| > if the fine for the action is less than it grosses, it
| is just a tax.
|
| And not just the actions regulators catch, but the others
| too. do { new Crimes() } while (
| fine(Crimes.detected) < profit(Crimes.all) )
| berns wrote:
| > This is not a logical sentence
|
| It's illegal by definition. But since they can pay a fine
| for a net gain, you can say that they legally profit from
| doing something illegal.
| koheripbal wrote:
| Which is why the fines are always greater than the net
| gains.
|
| Obviously. Do you think the SEC is full of morons?
| pueblito wrote:
| I'm sure the SEC is full of extremely intelligent and
| well educated people. I'm equally sure that most of them
| are corrupt and are part of the revolving door.
| girvo wrote:
| That's only true if the SEC catches all instances of it
| by a particular company, no?
| AdmiralAsshat wrote:
| > These points doubtless make me appear to be a complacent shill
| for the financial industry, talking down to the rubes. For the
| record, I'm still angry about the way workers were ripped off in
| Britain more than three decades ago, and about the way the little
| guy ended up bearing the brunt for the financial implosions of
| 2000 and 2008. But it looks horribly to me as though the same
| thing is going to happen again -- and I don't think the answer to
| today's many ills is to empower poor people to bankrupt
| themselves with margin accounts and derivatives.
|
| Who is this hurting, exactly? The author is making it sound like
| messing up the short stock is somehow hurting "the little guy" in
| the long run, and I wouldn't see that happening unless:
|
| a) Gamestop is somehow in a bunch of mutual funds tied to
| employee pensions/401k's
|
| b) The "little guy" refers to the Reddit traders that are making
| a killing right now, with the expectation that eventually the
| stock price will crash again.
|
| As best I can figure, most of the /r/ guys are doing this as a
| form of trolling and aren't expecting to get rich off it or pour
| their live-savings into it. And again, as best I can figure, the
| only people this "hurts" are the ones who were originally
| shorting the stock. So if this comes down to guys on Reddit
| pissing in Wall Street's cornflakes, it's hard for me to feel
| sympathetic for Wall Street.
| chrisseaton wrote:
| Aren't almost all companies like this an integral part of
| almost everyone's pensions?
|
| Through your pension you're probably an investor in tens of
| thousands of companies and funds.
| Nimitz14 wrote:
| No.
| yellowapple wrote:
| Right, which means that a single company having a weird day
| probably won't have much of a noticeable impact on those
| pensions at all.
| xxpor wrote:
| Who the hell has a pension any more?
| Apocryphon wrote:
| You're not wrong, but are there pension funds that include
| revenue made from shorting stocks? Seems like a reckless
| practice if there are.
| gnicholas wrote:
| I am far from the most knowledgeable HNer on this topic,
| but my understanding is that pension funds are more
| conservative than most, but that they do get involved in
| riskier asset classes as well. They probably allocate a
| portion of their assets to hedge funds or VCs because
| otherwise they miss out on lots of upside. Of course, there
| can be downside as well...
| maigret wrote:
| Shorts are often (usually) a legit way to reduce risk - if
| the stock falls, you're not losing everything. But that's
| less entertaining to report about, so you rarely read about
| this in the non-technical news.
| DennisP wrote:
| Yes but those aren't naked shorts. You don't get short
| interest in 140% of the total shares available from
| people hedging their holdings. That did happen with GME
| and it's what the r/WSB people picked up on.
| admax88q wrote:
| And if it doesn't fall you lose money. You can't just
| reduce risk without also reducing gains.
| bee_rider wrote:
| But in the case of something like a pension, reducing
| risk is often the goal, right?
| admax88q wrote:
| The goal is to make enough money for pensioners to live
| off.
|
| If the goal was to reduce risk then pensions would be
| better off being held in cash. But pension funds dont
| have enough cash to meet needs so they have to grow.
| stephen_greet wrote:
| I think the author is arguing here that the solution to
| combating institutional gambling via trading is not to allow
| retail investors to also gamble.
|
| Should someone who has no idea what they're doing be able to
| leverage themselves up 100X to buy a call/sell option by
| pressing a few buttons in Robinhood because they read about
| YOLO stock on Wallstreetbets?
|
| As someone who has lost a lot of money by following the Reddit
| sentiment on an investment, I think the author's point here is
| fair.
|
| This is not to say I wasn't an idiot. I was. But at a hard time
| in my life I needed more money so I gambled big and lost big. I
| worry other people will fall into the same trap.
| TuringNYC wrote:
| This Reddit Post is very revealing:
|
| https://twitter.com/inactivist_/status/1354537152445521923/p...
| anotherman554 wrote:
| Being without a relationship has never made me want to go to
| Vegas and gamble my 401k on blackjack.
| MisterBastahrd wrote:
| Not really. The people who are moving this money are largely
| not the people with a few hundred bucks to their names. The
| entire lot of those types don't even move the needle.
| [deleted]
| hnuser847 wrote:
| That's the lamest take I've seen yet. They identified a short
| squeeze opportunity and exploited it. No Freudian analysis
| needed.
| taigeair wrote:
| if you check out the forums, most of them have wives
| pera wrote:
| this actually makes me want to buy a couple of gme stocks
| throwaway4good wrote:
| As if a few hundreds worth of GME stock would matter to a
| billion dollar hedge fund.
|
| You can also go to 4chan where you can find selfproclaimed
| nazis who thinks they are fighting the jews on wall street.
|
| It is all very idiotic.
|
| As someone noticed elsewhere here on hn; regardless if it is
| a pump and dump manipulation or a short squeeze, GME will
| eventually come down. Maybe not in a week but surely in a
| year.
| alfl wrote:
| If there is a reversion to mean it will slaughter the retail
| investors.
| TuringNYC wrote:
| It happens all the time, and retail investors dont get bailed
| out. Here is a lowly perspective from the retail investor: ht
| tps://twitter.com/inactivist_/status/1354537152445521923/p...
| ISL wrote:
| The retail investor only wins if they realize their
| profits. If they don't, those profits are shifted to a
| third actor (or never removed from their tormentor's
| pocket).
| [deleted]
| krok wrote:
| > These points doubtless make me appear to be a complacent
| shill for the financial industry, talking down to the rubes
|
| For context, in 2008 John Authers was a (very senior) Financial
| Times reporter on Wall Street. He became aware that there were
| queues of financial workers outside retail branches of banks in
| South Manhattan. These people had cash in various US banks,
| more than the insured deposit limit, and were withdrawing it
| and/or shifting it between accounts to protect themselves
| against the bankruptcy of major banks. They has a better idea
| than the newspaper-reading public of what was about to go down.
|
| John decided that this wasn't worthy of being covered in the
| FT. He did however queue up himself to move his own money so it
| was protected.
|
| You can judge for yourself whether that makes him likely to be
| a complacent shill for the financial industry, talking down to
| the rubes.
| scarmig wrote:
| For the interested:
|
| https://www.ft.com/content/1fcb4d60-b1df-11e8-99ca-68cf89602.
| ..
|
| "Was this the right call? I think so. All our competitors
| also shunned any photos of Manhattan bank branches. The right
| to free speech does not give us right to shout fire in a
| crowded cinema; there was the risk of a fire, and we might
| have lit the spark by shouting about it."
|
| Enraging. You're allowed to shout fire in a crowded theater
| if there is, you know, a fire. Tapping all the people in the
| box seats on the shoulder to give them a heads up about the
| fire so they can get to the exit before everyone stampedes
| for it is sociopathic, not social-minded.
|
| I guess it's to his credit that he admitted to this, in the
| same sense that I'd credit a murderer confessing his crime
| and bringing the police to the body.
| jerry1979 wrote:
| unwalled:
|
| https://www.businesstelegraph.co.uk/in-a-crisis-sometimes-
| yo...
| SimonPStevens wrote:
| While I mostly agree, it is a touch more subtle than this
| metaphor.
|
| Shouting fire in a crowded theatre doesn't typically cause
| the fire to get worse.
|
| A major newspaper breaking news of an impending bank run,
| does have the likelihood of actually being the thing that
| triggers the bank run, or maybe making it much worse.
| scarmig wrote:
| Just because I love torturing an analogy until I can get
| it to confess all its sins...
|
| It's most like a theater having a squad of firefighters
| on hand, who most people ignore, as the theater has told
| them that the usher will let them know if a fire gets out
| of hand. One day the usher sees all the firefighters
| freaking out and quietly running for the exit, and his
| response is to flee for the exit himself and leave
| everyone remaining to fend for themselves.
|
| I do get the moral complexities here, but the takeaway
| for us plebs in the audience is to not trust the usher to
| look out for our lives.
| oh_sigh wrote:
| It's more like no one actually saw fire, but the back half
| of the theater snuck out and ran away because there were
| rumors of a fire. Authers saw this happening and had a
| chance to tell the people in the front of the theater that
| the whole back half had thought there was a fire and ran
| away, but he decided to just slink out the back and leave
| the front half to get burned.
|
| I'd be ashamed to call myself a journalist if that was how
| I behaved.
| biolurker1 wrote:
| Reddit guys do expect to get rich from it and they are pouring
| their life savings on it. Come by wsb and take a look.
| VectorLock wrote:
| >As best I can figure, most of the /r/ guys are doing this as a
| form of trolling and aren't expecting to get rich off it or
| pour their live-savings into it.
|
| I saw a lot of those "pour their life-savings" into it
| postings. A lot of "yacht or food stamps" type sentiments being
| shared.
| city41 wrote:
| On the flip side, if you watch the comments go by in the
| megathread, quite a few people are just buying 1 stock (often
| times just a fraction of a stock).
| admax88q wrote:
| > The "little guy" refers to the Reddit traders that are making
| a killing right now, with the expectation that eventually the
| stock price will crash again.
|
| The reddit traders are only making a killing if they're selling
| these inflated positions. At some point somebody will be left
| holding the bag, odds are it will be a bunch of people from
| wallstreetbets and other retail investors that are late to the
| party. There's no chance game stop is worth the its current
| price.
| fredophile wrote:
| It's a short squeeze. The guys left holding the bag are
| people that are covering their short positions in the
| company. The average retail investor is not shorting stocks..
| There will probably also be some people that try to jump on
| the trend too late but that isn't who is being hurt right
| now.
| rtkwe wrote:
| For the people with the stock now to make real money
| they'll have to sell eventually either to the people who've
| shorted or to a normal investor right? Then after the short
| position closes the stock price will fall at least some
| because the demand will fall. Unless the only person buying
| stocks near the end is the shorter and everyone unloads
| their shares to them someone's buying above the price $GME
| will fall to.
| Traster wrote:
| The second that the shorts have covered the price isn't
| going to drop to $90, it's going to drop back to $20 and
| most of the WSBers who were holding out for $2000 will lose
| their shirts. The shorts are going to lose, no doubt. But
| once they've lost, the stock price is probably $20. A lot
| of WSBers are going to be holding stock at that point, and
| possibly on margin. And that stock is going to be a crappy
| retail stock. At which point it'll be a slow drift as they
| cut their losses and move onto the next meme stock.
|
| The stock price today is irrelevant if you're not going to
| sell, and that's what WSB Thto be saying. The price is
| going to drop much faster than it rose.
| swiley wrote:
| They won't lose their shirts, just the beer money they
| spent on a meme. Plenty of them really don't care.
| [deleted]
| xmprt wrote:
| Things may have changed since you last used reddit but
| now I regularly see people playing with $1000s of dollars
| joking about buying weekly options and trading on
| leverage that they don't have and then not understanding
| the implications of that when things come crashing down.
| ahepp wrote:
| you may be overestimating the responsibility of the
| people involved
|
| I remember reading about people mortgaging their house to
| get into bitcoin, etc.
|
| I don't know how the coming days will play out, but I'm
| quite confident when this is all over we'll be treated to
| stories in the NYT about how someone lost their life
| savings, alongside calls for regulation.
| swiley wrote:
| I used to hang out in that subreddit before I deleted my
| account. Most of them are a) lurking b) goofing around
| with maybe a few hundred dollars (I was in that category)
| c) people from hedge funds
|
| There was a tiny minority that did stupid things like buy
| $20k of options on credit cards but there's a minority of
| stupid people like that everywhere.
| Aloha wrote:
| I dont feel bad for the guy who loses two grand at the
| casino, why should I feel bad for them?
| mrkstu wrote:
| They can cover their initial capital outlay pretty easily
| by selling a small number of shares on the way up.
| freeone3000 wrote:
| It's also very hard to exit a falling position. It was
| hard to exit a _rising_ position this morning -- the
| stock was on trading hold multiple times. By the time you
| notice it 's falling, it's too late to sell
| kevinsundar wrote:
| You can manage risk with stop-loss. Its not really that
| hard. You can use this to "lock-in" profits without
| selling.
| nullc wrote:
| That isn't how a stop-loss actually works. You aren't
| guaranteed execution above a particular price.
|
| You could lock in gains using puts, but when you go and
| price out doing so you'll see exactly how much the market
| values the risk in the position.
| andrewprock wrote:
| Stop loss is really the wrong term mathematically. In
| truth, a "stop loss" is really better thought of as a
| "max price". If you set it up to sell when the prices
| drops to $320, you are guaranteed that it will sell at a
| price below $320, not that it will sell at $320.
|
| In truth, you are not even guaranteed to be able to find
| a buyer.
| restingrobot wrote:
| You're forgetting the stock is 125% over shorted. There
| literally isn't enough stock for shorts to cover their
| current positions. That's why there is potential for
| infinite, (huge) gains as long as everyone holds.
| alexfoo wrote:
| According to Ortex it's back under 100% float to loan.
| oars wrote:
| As someone who's new to this world of stock trading but
| now understands what a "short" is, could you elaborate on
| this?
|
| How is it possible for a stock to be 125% over shorted?
| What does this mean?
| xenocratus wrote:
| The broker who is actually holding your stock can lend
| them out and you can indeed end up buying your own stocks
| more than once. You can explicitly request the broker to
| not do it and, in this kind of situation where 125% of
| the stock is shorted and some *need* to buy it... well :)
|
| Have a read from Matt Levine's "Infinite Game" from
| yesterday:
|
| https://www.bloomberg.com/opinion/articles/2021-01-26/wil
| l-w...
|
| To quote:
|
| > Falcone owned some bonds of a company called MAAX
| Holdings Inc. "After hearing rumors that a Wall Street
| financial services firm was shorting the MAAX bonds and
| also encouraging its customers to do the same, Falcone
| decided to seek revenge." So he bought all the MAAX
| bonds. Then he bought more: Short sellers would borrow
| MAAX bonds (presumably from him), and then sell them to
| him, so that he ended up with "22 million more bonds than
| MAAX had ever issued." Then he stopped lending them out,
| forcing the short sellers to buy bonds to cover their
| shorts. But there were no bonds to be bought, since he
| owned them all (and more).
|
| > Falcone stated that the Wall Street firm should just
| keep bidding for the bonds. Falcone acknowledged that the
| Wall Street firm would suffer some losses doing so, but
| told the senior officer and the others that sometimes you
| are just on the wrong side of a trade.
| akgoel wrote:
| If you short, you are borrowing a stock from Alice, and
| selling it to Bob, hoping to buy it back later from Bob
| at a lower price. But, you can then borrow again from Bob
| and sell to Charles. Ad infinitum.
| nl wrote:
| An unrealized gain (ie, "everyone holding") isn't
| actually money though.
|
| The sensible people will take their (massive) profits,
| and those who believe the "as long as everyone holds"
| rhetoric will be left with losses, probably on margin.
| drited wrote:
| The company could issue new stock (to get a lifeline of
| cash from inflated price)
|
| I know someone who tried to convince VW management to do
| that during the Porche/VW squeeze. They didn't but I see
| no reason why another management team wouldn't act
| differently.
| silexia wrote:
| I sold a GME call option with a strike price of $320 and
| expiration in July today for $200. A pump and dump by
| novices is easy money if you know how to play it.
| Everyone knows this is going to crash, the question is
| when?
| teekert wrote:
| Why do you call it a pump and dump by novices when it
| seems to be the opposite that was being done by shorters,
| they just got caught and now they have to pay, seems like
| the novices just beat them at their own game. [0]
|
| [0, as posted by colllectorof]
| https://lbry.tv/@rossmanngroup:a/why-mainstream-media-s-
| slan...
| solaxun wrote:
| You got balls, yes the IVOL is insane and that's a nice
| premium, but if for some reason you have a repeat of
| today, you're out $20K plus. This thing will crater,
| yeah, but shorting it is insane and option volatility is
| ridiculous right now.
| silexia wrote:
| I agree with you... There is a (small) risk the stock
| goes to $1,000 or $5,000. My portfolio won't face any
| margin calls even with those numbers though... And
| eventually the price will come back down.
|
| I think it was Ben Graham who said the markets can remain
| irrational longer than you can remain solvent.
| gjm11 wrote:
| Nope. It's usually ascribed to J M Keynes, buy apparently
| it was actually one A. Gary Shilling:
| https://quoteinvestigator.com/2011/08/09/remain-solvent/
| undefined1 wrote:
| > but if for some reason you have a repeat of today,
| you're out $20K plus
|
| Can you expand on this? Why would they be on the line for
| $20k+ (or anything) after selling the option?
| rgossiaux wrote:
| The option seller needs to buy the stock to deliver the
| shares when the option expires, so if the price continues
| rising their losses are unbounded (by contrast, their
| gains are bounded by how much they originally sold the
| option for).
| swiley wrote:
| Man I would have closed that position this morning if I
| were you. Holy crap.
| superfrank wrote:
| That's the idea, but there will also be a bunch of retail
| traders who get caught up in the frenzy and end up losing
| too much when the bubble pops.
|
| Maybe it's their own fault for being greedy, but they do
| still exist. It won't only be hedge funds left holding the
| bag.
|
| Also, there is a worry about multiple hedge funds going
| bankrupt and causing a cascading effect when they are
| forced to close out other positions which would hurt
| average people. I'm not blaming WSB for this, the hedge
| funds got caught being greedy and deserve everything
| they're getting, but we do need to try to prevent their
| failures from affecting the market as a whole.
| GordonS wrote:
| > Also, there is a worry about multiple hedge funds going
| bankrupt
|
| Like you, I struggle to feel sorry for them - surely a
| responsible hedge fund shouldn't be shorting a single
| stock with sums of money they can't afford to lose? If
| they really are behaving like that, they must think they
| _can 't_ lose...
| hbosch wrote:
| Many of those shorts are exiting their positions, or
| already have, and taken their losses. They're the ones who
| can afford their losses.
|
| Perhaps there are some funds still holding out their end of
| the short war, but by the time this is all over... like
| over over... it will be retail traders selling inflated
| positions to other retail traders.
| fumar wrote:
| Is this data available anywhere?
| minor3 wrote:
| The short interest is still extremely high and likely a
| number of firms are already liquidating their positions
| to pay off GME. The squeeze should be on Friday when
| every option expires in the money.
| codesnik wrote:
| well, true, but people are still reporting very high
| amount of short positions.
| adrr wrote:
| They paid the price when the stock increased in price being
| forced to buy shares at higher price to cover.
|
| Stock is going to normalize and go back down. Retail
| investors bought the stock at $50+, they are posting
| screenshots to WSB. When people start liquidating their
| position, you need a buyer on the other end of the
| transaction. And you'll end up with a collapse in the price
| as there are way more sellers than buyers. Someone is going
| to be holding the bag and it's going to be anyone who
| purchased above $50. It's going to be similar scenario of a
| failed merger and merger arbitrage guys trying unravel
| their positions.
| vincentmarle wrote:
| > At some point somebody will be left holding the bag
|
| The same applies to Bitcoin, though. Someone's holding the
| bag at $30K as we speak...
|
| Gamestop can (theoretically) go the same way.
| levesque wrote:
| That's not the point. This is a purely technical play,
| fundamental valuation methods have been thrown out the window
| a long time ago. Game stop is maybe worth 5-40$, but these
| reddit WSBers think the stock will keep rising due to the
| short squeeze, beyond 1000$ even. Just grab some popcorn and
| watch the show.
| SomewhatLikely wrote:
| The daily volume is higher than the total number of shares
| for the company. Lots of people are locking in their gains.
| Of course someone else is taking their place at an even
| higher cost basis.
| minor3 wrote:
| > Of course someone else is taking their place at an even
| higher cost basis.
|
| It's probably mostly hedge funds closing their shorts
| xwdv wrote:
| This would be justice though. If you were in it from the
| beginning as a true believer you probably got tons of money.
| If you're just chaser and bandwagoner coming in at the end
| you will be punished for your greed along with the short
| sellers.
| jrochkind1 wrote:
| Why do you think those in it from the beginning are less
| greedy than those coming in later?
| imtringued wrote:
| If anyone forgets to sell their shares that just means the
| short sellers will be left hanging even longer.
| teekert wrote:
| "Making a killing"... I got my first experience in trading with
| Crypto currencies, it always surprises me what stock traders
| call "crazy". Just an observation, I know the downsides of
| crypto etc, etc, it's just... another world.
| [deleted]
| polote wrote:
| > Reddit traders that are making a killing right now
|
| How can you know that ? Some of them are making a killing, but
| how can you be sure it is the majority of them ?
|
| It is easy to say that some hedge founds made bad bet, but I
| strongly think that some other hedge founds were winners. These
| people are professionals at making money from such events !
| ve55 wrote:
| I know everyone is having an absurd amount of fun watching this
| and laughing (so it seems), but I think we should be more aware
| of the many ways in which this is bad, which definitely includes
| millions of retail investors losing their money when they buy at
| the peak, use too much leverage, and so on.
|
| The idea of "Don't invest what you cannot afford to lose" has
| gone from a mantra to an outright joke that many investors now
| purposefully ignore, and not _everyone_ can end up on the right
| side of this at the end of the day.
|
| This is without mentioning what type of institutional
| consequences we may see as a result, which I think there will be
| _many_ including regulatory, but it 's too hard to predict
| exactly what, given the mess that we're in.
|
| Again, the memes and redditors becoming millionaires are funny
| and I wish everyone the best, but there will be a vastly under-
| reported dark side to this story as well; life cannot literally
| just be everyone getting free money from nowhere with no
| downsides.
| TrackerFF wrote:
| WSB users are taking out credit cards with both hands,
| mortgaging their homes, and what not to get in on the run.
|
| Some people are in for some very real and hard lessons - even
| though others will make a killing.
| yoyohello13 wrote:
| Yeah as much as I enjoy this whole thing, the new regulations
| that come out of this will not benefit the average person.
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