There's shortly going to be chaos when everyone learns a basic lesson: you have to sell into strength, not weakness.
When the stock hit $100, people bought. Same at $250. It'll be the same at $420.69, $1,000 - whatever. But whenever it crests, it'll sink FAST. A sell order at $1000 will get filled at $200. Everyone knows it.
Which makes for an interesting collective action problem: you have to hold hold hold - and then be the FIRST to dump. Not the third, the FIRST.
Short term, the price spikes as the hedge funds collectively go "would you take $300? How about $400? $1,000? $10,000?" and eventually enough people sell.
If they don't (let's say there's no price they'd sell at), a few things can happen:
The short-seller can sell their short position directly (transfer liability) to someone who thinks they can convince the stockholders.
The Company can issue more stock, diluting all shareholders, and sell to the short-sellers.
The short seller simply goes bankrupt, at which point liability gets settled in court (details depend on how they shorted, middle-men, etc.) - other people like brokers could get dragged into this too as they may guarantee the trade.
> The Company can issue more stock, diluting all shareholders, and sell to the short-sellers.
It seems to me that most of WSB crowd forget this kind of things.
IDK but another sane option would be that the regulator just pause trading on such stocks "until further notice" (I don't even know whether this is possible, but I guess that politicians can do whatever they agree to and pass a law or regulation)
Even if they don't, even if the funds go bust, only the early sell-offs from WSB will profit, while diamond-hands might be left with tons of $15 stocks that they paid $350 for...
Possible, but extremely unlikely. I heard a lot of the short contracts have an expiration date of Friday. No idea if that's really true or not. Issuing new stock has a long lead time. If it wasn't in the works a month or two ago, it won't happen in the next few days.
That is probably referring to options, not short sales. During a short squeeze the effect is basically the same, whoever sold "naked" call options will have to buy shares (or buy back the option, or buy some other option to offset the loss) to cover their position. Like short sellers, people who sell naked calls will start facing margin calls from their brokerage and will be forced to close the position at whatever price they can find (either for the options or the shares they would have to deliver if the option is exercised).
Brokerages would be in a lot of trouble if literally nobody was willing to sell at any price. When someone sells short, they must borrow shares; usually a brokerage will facilitate this by borrowing shares from another customer, who can receive some interest payments. If nobody was willing to sell at any price, the short seller would be unable to close their position before going bankrupt; but the other customer, who was long, would still be owed shares. In this case the brokerage must assume the short position, for a potentially enormous loss, and would have to continue paying interest to whoever the shares were borrowed from.
Most brokerages would not allow a short position with such poor liquidity -- they would force the position to be closed to avoid taking on that kind of risk. Forced buying is exactly what is happening right now, as the price rises short sellers wind up with margin calls and are forced to buy at whatever price they can get (or they must deposit other cash or securities to offset the losses in their margin accounts). That drives the price higher and triggers more margin calls and more buying, until eventually all the shorts have been forced to close their positions. Brokerages will likely raise the margin requirements for a symbol like this to avoid a situation where a short sellers end up bankrupt with negative account values after closing the position (which means the brokerage will take a loss). Note that raising margin requirements will accelerate a short squeeze, since it creates more margin calls, but brokerages would rather get the positions closed sooner than later.
There's always about the same amount of money bidding above and below the current price. The market maker keeps it in balance, by matching buy bids and sell bids which are close to the middle of the range. This matching process sets the price and makes sure that there is always liquidity.
The price may shoot way up, or plunge, but this process almost always works, so there's almost always liquidity.
It is not hard to find low-liquidity symbols, though typically these are smaller companies or unusual products of some sort. I have seen brokerages declare some symbols to be restricted in some way (higher margin requirements, or not eligible for margin at all) because of poor liquidity. Market makers do not always swoop in to provide liquidity and may not be willing or able to trade large enough numbers of shares to satisfy investors during extreme circumstances (e.g. during a crash or a short squeeze).
Even if short-sellers are forced to buy 140% of the existing stock, while much of the stock is in the hands of people who refuse to buy? There's way too many buyers and too few sellers. And the buyers are forced to buy.
> Given that there is more shorts then actual stock. Would it mean that the shorts would be forced to take a loss and buy that stock?
Yes, that's what a short squeeze is. They are losing more and more money as this goes up, and at some point they won't have more money to lose. They'll have to buy (in order to cover their short), which will further drive the price up.
For the people who aren't shorting they can just hold it (indefinitely theoretically), but the people who are shorting it have contracts that will expire, thus they have to buy up more shares to counteract their shorted contracts?
The way shorting is done, is you borrow shares from someone who owns some, and then you sell it. You now have cash. Later, you can go and buy it from someone (for hopefully less than you sold it for) and return the share. You keep (or lose) the difference.
So yeah, if the long holders just keep holding, it'll keep going up and those that are short will owe more and more to their lenders (and paying more and more in interest, I think). Even if they want to cover their short, there's not enough shares to go around for them to buy. This is why it's being called an "infinite squeeze". They've shorted the stock more than there are actually shares out there, so it's difficult to cover.
There's some more factors at play when you consider option contracts, I think.
I don't see that's there's anything magical about 100%. In a short squeeze, the shorts buy stock on the open market at a high price and immediately return the stock. Some of this stock will find it's way back onto the open market. The shorter can buy that same stock a second time at a different price and immediately return it.
The real key is daily volume vs. volume shorted.
Shares outstanding - about 70M
Daily volume - about 24M
So if shorts were the only ones buying, it would take about 3 days of normal volume to unwind their positions.
But with the price going up, many others are competing with the short sellers to buy shares right now. So volume will go up and/or it will take longer to unwind.
Recently, the daily volume has gone up to 110M shares. A lot of those shares are being bought and sold more than once per day.
There's nothing magical about 100% of outstanding shares.
But it's a huge problem that the shorts outstanding are so high relative to daily volume.
Options can be used to create a position that behaves like a short, except without the cash being deposited and without having to pay interest on borrowed shares. Sell a call and buy a put with the same strike, and choose the strike so that the call premium equals the put premium.
selling a naked call requires quite a lot of margin, and akin to short selling stock - the downside is unlimited. Your option just doesn't go to zero, it starts at a negative value (what you got for selling a call) and can go to either zero and you get to keep that tiny premium or rip your face off when things like gamestop happen.
People have already forgotten Optionsellers.com it seems
The same is true of short selling. Like I said, short call/long put is equivalent to a short sale (of 100 shares). How much margin is required depends on the type of margin account an investor has and what their other positions are (for some account types).
The SEC will step in and force GME to issue more shares is my guess. GME won’t care and they probably will collect a nice premium on what any CFO running a company like GameStop would dream of.
A while back Elon Musk joked that the price target for Tesla was $420.69. The number 420 has historically been associated with marijuana use, claimed to be a police radio code for possession of narcotics (despite no police department found to be using it). 69 is associated with a sexual act.
Since Musk tweeted about it, that price target has stuck for Gamestop.
I made some decent money holding puts the last few days. I would bet you're not alone in your thoughts, but I also wouldn't bet on when this will actually happen.
Some of the household traders seem to be partly doing this out of spite towards hedge funds. It's like we're seeing the first mass protest conducted via financial markets.
I assume the collective capital of the Robinhood/WSB crowd is not particularly massive compared to what many large fund managers have at their disposal (not to mention the leverage they have access to). If a bunch of Redditors can squeeze a large cap stock just because it has a high level of short interest, why don't institutional players use this strategy?
Martin Shkreli famously did this with a tweet. So did Phil Falcone. One is in prison (for unrelated securities fraud) and the other was permanently barred from the investment industry by the SEC for securities fraud and market manipulation. Falcone was motivated by equal parts profit and revenge, though, so his case was particularly egregious.
Where is the line is between market manipulation and just... the market? I couldn't tell you. One or a few people working in coordination to create a short squeeze and they're definitely going to get a call from the SEC. A few thousand Redditors working in coordination to create a short squeeze? I guess we'll find out what the SEC thinks.
My understanding when it comes to market manipulation based on speech is there must be some element of deceit. I.e. saying "We should all buy GameStop because they'll have better technology than Netflix" is a lie, and if people believed it would be classic pump-and-dump market manipulation. Saying "We should all buy GameStop to engineer the short squeeze of the century and fuck over greedy hedge funds" is completely transparent, truthful, and legal.
> Saying "We should all buy GameStop to engineer the short squeeze of the century and fuck over greedy hedge funds" is completely transparent, truthful, and legal.
To be clear I’m not saying it’s definitely illegal because I’m really not sure and I think you could make the argument either way. But I absolutely would not characterize it as “completely transparent, truthful, and legal”.
I think the SEC could at least make the argument that WSB redditors collectively were essentially activist investors acting in concert and failed to make the relevant disclosures to put the market on notice. And, in the eyes of federal securities laws, failing to disclose material information is akin to deceit.
I‘m not saying the SEC will (or even should) make that argument but I am saying that this is absolutely not nearly as cut and dry as you think. Not by a long shot.
I actually think it is pretty cut and dry. "Acting in concert" would require some sort of actual agreement between parties, e.g. "I'll buy if you buy." That's not what is going on in WSB. Everything I've seen on WSB should be protected as free speech, as people are just voicing their opinions and explaining how short squeezes work.
Free speech has nothing to do with it. Nothing. Absolutely nothing.
And working as a group does not need to be an explicit agreement like you think it does. You’re certainly entitled to your opinion as I am mine. Having experience dealing with the SEC as a securities lawyer I’m of the opinion its anything but cut and dry.
How are ideation dinners legal, or obvious conflict of interest when a market maker has stakes in a hedge fund - are they transparent about their shady collusions be it implicit or explicit? Atleast wallstreetbets is readable by anyone and everyone.
> Free speech has nothing to do with it. Nothing. Absolutely nothing.
That doesn't make sense. Any restrictions on speech (e.g. prohibiting lying in commercials, prohibiting yelling fire in a crowded room, etc.) always need to go through the lens of whether there is a "legitimate government interest", because the courts have been very clear that any restrictions on speech much have a clear rationale. If the SEC wants to argue that posts on a public website forum are somehow collusion, they need to argue why those posts are not protected by the first amendment.
Of course, it's easy to come up with a clear rationale for why one would limit speech in this case, and "commercial" speech is much more open to restrictions. However, I don't see how one could argue "I'm buying a shit ton of GME, and I think you should too, because I want to screw over the hedge fund guys" is any different, just because it's on a forum, from all the other types of investment advice and theories that goes out all the time.
> why don't institutional players use this strategy?
They do. It is a very high risk endeavor though and missing the mark could lead to bankruptcy and success could mean action from the SEC. But catching someone in a short squeeze is pretty damn profitable.
Part of the success here probably has to do with underestimating the influence of wsb. This isn't the first time they've taken down short sellers (Telsa), but it's the most high profile time.
It's not easy to generate the kind of momentum you need to pull off something like what's been happening. WSB has been pushing GME for months. Then things got heated with them and the major shorts, it brought more attention to it, and GME shot up quite a bit. That amplified the story even more, which brought it more demand for GME. That cycle has just continued, building more and more interest each time.
I don't believe the story has come close to reaching its peak yet either. I suspect there will start to be some major headlines still this week, which will bring in more speculative interest.
Then, at some point, the story fizzles. The gains stop and the price will collapse. It's going to be an interesting week or so watching this all play out.
Yes, two examples: Porsche in 2008 with Volkswagen and Martin Shkreli with KBIO in 2015. Neither faced any significant legal consequences and both made a huge return.
The only reason Shkreli got away with it was because the DOJ brought (unrelated) criminal charges. If the DOJ hadn’t stepped in the SEC absolutely would have.
The VW situation happened on a wildly different Wall Street and under a wildly different SEC. Things have changed since 2008 and pursuing that strategy today would be significantly more risky from a regulatory perspective. The SEC sent a clear message with Phil Falcone.
Citadel and Point72 stepped in and closed the hedge fund position ($3 billion) on GME [1]. The regulators are not moving/commenting just yet, I am curious to see the repercussions of this and if Reddit crashing the markets it the new norm.
> [Melvin Capital] was also closed by its owner, Citadel
No. It closed out its GME short. It then got a bailout from Point72 (f/k/a SAC) and Citadel. To my knowledge, the latter and Melvin are not affiliated.
Source on that? Even at this prices GME is ~$20b market cap in an exchange that represents ~$25t in market cap. I don't know that it really poses a systemic risk to anyone who didn't take out insanely risky short positions on the company in the first place
It's possible that they simple moved the positions to P72 or Cit's books so they could claim they no longer hold the position. The intent would be to encourage retailers to declare victory and sell. IANAL so I could be off, but if it were legal, it is definitely plausible.
I wish I groked all the dynamics at play. I don't fully understand it but it's a wild ride to see this happen. I heard AMC is going through a similar squeeze this week and I don't know how much I would dare to invest with my limited knowledge.
of course you don't put in money that you are not willing to loose. I bought some GME at around 40 and sold the same day at around 90. I don't have "diamond hands", as they like to say at WSB.
With absolutely zero domain knowledge and not really familiar with the situation, I've got a strong gut feeling that it's gonna be easy to get burned here.
Hopefully I'm wrong, for all the people involved's stakes.
Exactly. My friend made about 10K off of $200 in GameStop calls. He got the advice from his buddy who is a WSBs junkie. That buddy is also bankrupt and his only source of income is WSB. I cant image what his taxes will look like this year.
Its fun to watch but like most of high risk high reward activities you will likely lose or get lucky and then lose when you try to repeat that luck.
I see the stock market in general as a lottery. Or a mix of a lottery and a bit of ponzi scheme, but the lottery has a positive expectation value, unlike real lotteries. And the ponzi scheme still has some real value behind it.
The WSB bet is extremely risky of course, but there's absolutely a chance that it will pay off enormously. How big that chance is, I couldn't begin to estimate.
From what I've seen, the people who are getting in late know very well that they're likely to lose money, but they're fine with that if they get to stick it to the hedge funds.
It's actually more dangerous if they don't get burned. Then they think they can get away with their gamble again, but they put even more money in next time.
Why stay out of a stock that’s fluctuating wildly for reasons unrelated to their performance? One whose price is determined by factors probably not known to most investors?
Not illegal at all, but someone will pay at the end. There was something similar going on in the past with the Hunt brothers (look it up on Wikipedia). Everybody who followed them got burnt severely because the big guys suddenly had the rules changed.
The short sellers are paying (a lot of) interest on their positions and they need those shares. The higher the price goes, the higher the interest rates get.
People long $GME can maintain their positions indefinitely while the short sellers bleed.
This situation could have been prevented if the short sellers acquired enough calls to cover their position in the event of a price spike. One would think that a rich-ass hedge fund manager would do something basic like that.
Rational from the POV of investors looking to extract some short-term returns. Completely irrational in that nobody seems to give a shit about Gamestop and they're actual performance as a business.
A stock price is never just about the fundamentals of the company. It's not rational to think of stock prices only from that limited perspective. You _must_ consider the supply and demand for the stock and the people that are currently trading it. They are a part of the equation.
An argument could actually be made that Gamestop should be worth about $250 a share, assuming they capitalize on this short squeeze by issuing new shares and turn things around/pivot well.
One buys a stock on the premise that someone else will pay more for it in the future.
Most of the time the future is years down the road, because you made a good bet on what business would be profitable. Sometimes the future is the following Tuesday because someone got out over their skis and _needs_ your stock now.
TBH what looks like what is happening right now is more of a game of chicken between the short sellers. We'll find out friday when some options contracts expire. Seems like some shorts are just seeing if they can wait it out.
But there is no one "bleeding" as they won't realize the losses until they sell the contract or it expires.
This is a short squeeze. My understanding is that hedge funds shorted the company massively, covering something like 130% the price of the company. These companies are contractually obligated to buy the stock at whatever price it's at in the future, giving people a good reason to pile into the stock for guaranteed gains. This is causing a frenzy.
Someone correct me if I'm wrong, I only learned about it yesterday.
I am not sure how guaranteed the gains are...basically there is a common enemy right now in the form of short sellers. Once they're decimated (ie forced to buy shares at higher prices than they anticipated), I suspect a good deal of novice traders are going to still be holding shares at elevated prices. At that point they're basically holding shares worth very little compared to what they likely paid for them.
The same hoard trading phenomenon seems to be happening with Blackberry. A number of insiders have already dumped shares, meaning anyone buying those shares isn't buying shares from a short seller, they're buying from people who recognize the price is outrageous compared to business fundamentals.
Bottom line, short sellers are definitely going to suffer, but so are a lot of robbinhood kiddies.
As I understood it, BlackBerry is a different case from GameStop—albeit some redditors are trying to make it do the same thing because it's cheaper. I've been holding that one for years for a reason.
If you're long Blackberry, depending on how much you paid for the shares you might come out on top in the years ahead.
I happen to be cautiously optimistic about the company, but that is over a longer time-frame. The stock has more than doubled in a couple of weeks and seems to open consistently higher over the past few days. I don't think that is related to any real immediate business prospects. The Facebook settlement, Amazon deal and Huawei patent sales are all good news but hardly warranting the current frenzy.
No doubt. I definitely have faith that the company itself is smarter than the current euphoria so I guess I just hope it does nothing to tarnish them because they've made major strides and frankly I'd just like to see a Canadian tech company do some good. Thankfully, yes, I got in cheap.
Compounding this is Robinhood's execution. Back in March 2020, the whole market plunged, and some Robinhood traders were unable to complete their trades in a timely manner.
Will Robinhood's systems and procedures work flawlessly on Friday? My guess is no. We'll find out.
If an individual shorts stock at an investment bank, there is a limit to the amount of money the individual can lose.
The investment bank has some type of collateral, usually the rest of your portfolio. When your net worth hits a certain threshold, perhaps $0 net worth of your portfolio, the bet is over. You lost all your money, and you don't end up in debt. In practice, the investment bank will cut you off before you reach this point.
But if you are an investment bank, there is no one controlling you on a daily basis, so you can dip into the negative in theory.
The problems with doing this are:
- Regulators. Once the regulator finds out you're negative, they will shut down your investment bank. Hopefully, they do this before you hit 0, but they may not get it exactly right.
- Counterparties. Other investment banks will refuse to do business with you when they know you are negative, or close to it. Once this happens, it's game over.
So in both cases, individual or investment bank, there is a practical limit on how much you can lose from one short bet. That limit is equal to your net worth.
You could lose any amount of money up to that on one short. It's risky.
There are also ways to limit your losses. You can purchase other contracts to limit your losses. This is kind of like insurance. In general, you are not required to buy this. Some people and institutions do not do this because of the expense. Most institutions structure each deal so there is no way one deal will risk the entire business. Smart people also take steps to make sure one trade does not wipe them out.
This runs completely counter to my understanding of shorting and I just checked on my brokerage - there is no limit. The unbounded losses bit is the whole point of put options instead of shorts.
> Many short sellers place a stop order with their stockbroker after selling a stock short—an order to the brokerage to cover the position if the price of the stock should rise to a certain level. This is to limit the loss and avoid the problem of unlimited liability described above. In some cases, if the stock's price skyrockets, the stockbroker may decide to cover the short seller's position immediately and without his consent to guarantee that the short seller can make good on his debt of shares.
Otherwise you'd make yourself liable for a literally unlimited sum of money. Any short could completely bankrupt your entire personal finances or your entire institution in that case.
See, this is what I mean by clueless. Price and valuation are completely different concepts. An asset that will never generate any cash has a valuation of zero, but its market price could be anything.
I press f on the worlds smallest keyboard to pay respect to the billionaires betting they could grind the company out of existence through aggressive shorting who lost money on this.
The real conclusion would be to realize that the people "good at valuation" are glorified gamblers and not on another plane of existence from the rest.
In fact, it's tautological to state that if they got burned, then they are not that good. Or perhaps the entire thing is pareidolic nonsense.
Disagree. The short-sellers are correct about GameStop's valuation. In a liquid and competitive market they would profit and help the price move into the direction of correct valuation.
Well, the market thought otherwise and market is always right.
They just forgot that efficient market hypothesis is just that, a hypothesis. Real world markets behave differently thanks to finite resources and secondary markets (essentially leveraged derivatives caused 2008 crash and I believe they'll cause another before regulators wake up from their sleep).
Isn't that essentially magical thinking? The market is what it is, and their strategy failed. It doesn't really make sense to blame the market when the scheme fails and presumably celebrate the individual or group's purported brilliance when the scheme works. What actually happens is the ultimate arbiter of who profits and who doesn't, not the hypothetical fairer environment that "should" have existed to reward certain strategies.
It's similar to blaming the roulette wheel when the gambler fails and praising the gambler when they succeed.
The whole affair isn't, and wasn't, about GameStop's valuation, or even about Gamestop as a company whatsoever. It's about stock market mechanics and the ability to leverage them to make a profit.
The value currently is not in GameStop itself but in the need for the short sellers to buy back the shares. So there is value in buying & holding. How much is still open..
The situation is pretty bonkers but I hope in the end that the hedge funds have learned a lesson.
There is a weird asymmetry between moving a stocks value up and moving it down. Shorting is weird and sort of dangerous as we're seeing here and doesn't move the price down very directly. By contrast, a group of people can move a price up pretty easily.
I fully agree that hedge funds shouldn't get a bailout, and I don't think they will. Banks and hedge funds might both be "Wall Street" but they have very different relationships with the government. Hedge funds are not systemically important.
On the other hand, I don't understand why you hope they go out of business. Have they done anything bad by shorting GameStop? If they believed the stock was overvalued, are they wrong to bet on that belief?
>If they believed the stock was overvalued, are they wrong to bet on that belief?
You characterize it as a "bet". The whole point of a bet is that sometimes you lose. We don't allow for corporations to lose in the USA, only the common person.
No because instead of counting their money after shorting they were greedy and shorted again and again which led to a ridiculous amount of shorts (140% of shares).
As we can see now this was not only foolish but self-destructive. The only scenario where I see this paying off is when GameStop went bankrupt and there was no sign for this at all.
People love when greed gets punished and this is what we are seeing here.
Shorts are fine, the problem is having an underregulated risk mitigation tool that’s effectively limited to the wealthy.
But even disregarding that, a hedge fund’s job is literally to manage risk using more complex financial instruments.
A complacent hedge fund that overextends itself don’t just need to fail, they need to burn long and hard
Sadly, they usually get “bailed” out (by their buddies in their industry, not the government), like we just saw with Melvin. Which in turn creates enormous inefficiencies in our economy..
They're based on asymmetry of information, the shorter having more insight than the lender. And their purpose is to convert that information into money at the lender's expense; by the time he gets his shares back, they've tanked.
Then the lender should not lend out their shares, no?
There are obviously problems with who actually has access to short stocks, but in theory they are a reasonable counterbalance:
If you believe in the stock, buy it, if you don’t believe in it sell it.
And if you don’t currently own any shares, you can borrow shares from the people who believe in the stock, sell them now and cash out when/if the stock goes down.
The information imbalance is fundamentally a part of how we operate our markets, since information literally can’t instantly be distributed to everyone (regardless of what faith-based “economists” try to convince people to believe about the efficient market gospel)
You could say the same thing about Longs. They're based on asymmetry of information where the person buying has more insight than the person selling. If the stock goes up then the seller will have effectively lost money (via opportunity cost).
I think shorting stock is fine and I understand why taking short positions is useful in creating downward pressure on stocks. I'm angry because "the free market" is anything but free and it's people like me who have to fund bailouts for millionaire gamblers. In other words, I'm mad at our society's rules of privatized gains and socialized losses.
Is there any evidence they won't just figure a way to ride this out until it crashes. It's going to crash and when that happens it's going to be the "little guy" that bought late holding the bag.
> won't just figure a way to ride this out until it crashes
For one, the calls look like they’re still overpriced relative to the puts. So manufacturing calls via put-call parity would be a starting point. (Spot checked the puts—they seem to break even under 100 per share out to November, so not much juice left there.)
It’s also only the leveraged funds burning out. And they don’t only own GameStop shorts. So money will be made bailing them out and cramming down their existing LPs.
This kind of a pyramidesque system almost guarantees that the most pain will be felt in the reversion to the mean, not flexion from it.
If they had infinite money they could do this. But shorting a stock is usually done on margin and if you lose enough money on a short position you’ll get a margin call asking you to deposit more money with your broker. If you don’t do that they’ll buy to cover your position for you.
They already have. They closed their position and got a cash infusion from other investment firms. They will move on and be fine. Meanwhile aside from a handful of savvy players, WSB is going to leave a wake of people losing their nest eggs.
They claim to have closed their position, but haven't had to demonstrate that. On the one hand, closing their position would have been the smart thing to do. On the other hand, claiming to have closed your position (but not having done it) would have been a smart thing to do, and cheaper if people believed it.
r/WSB does not seem to believe it. I believe we should know for sure one way or the other by Saturday, but I could be wrong about that.
Ah, interesting. I guess it just got to be too much for them.
I just see a wake of losers all around from. Melvin's Hedge Fund? There are people and their portfolios behind that taking a hit.
Few people got in early and are seeing multiples in returns. Now they are on WSB "Now is the time to rebuy, GME to 1000$, GME to the moon!!!" because they needs loads of suckers to throw in late to keep propping the price up. But the later comers are going to lose their shirts.
The whole "Robin Hood" narrative is weird. Let's call a spade a spade; a few people are going to get rich at the expense of a lot of individuals over these shenanigans.
this is a tiny slice of justice from 2008/2009 that Occupy Wallstreet demanded and never got. The fact that they get plucked like a goose by memers on reddit and on their own professional turf is almost poetic.
Some of them. Some long investors are also not operating in good faith and benefit from spreading misinformation about the company and their competitors.
WSB drives the sentiment, but there's not enough volume in retail trading to drive these kinds of moves. Institutional participants also see the writing on the wall re: the short squeeze and are positioning themselves to profit from it.
If you see an actual institution spreading misinformation, report that institution to the SEC. If it's from someone hiding behind a keyboard and posting on reddit, ignore it, because no institution is buying based on the suggestions of WSB.
I think it's often from the sense that short sellers are "rooting for the company to fail" and while there are certainly positive market functions that short sellers provide I'm not sure that sentiment is too far off.
In this case, though, you have hordes of rabid sentiment mongers pooling their ideals to the end of even encouraging apparent minors to put all of their meagre savings into high-risk stocks.
There's something as highly corrupt about that to me as much as anything else at play here.
>Also spoken as "an eye for an eye will leave the whole world blind"
I've noticed that this proverb only seems to comes up when disadvantaged people (who are already missing a metaphorical eye) strike back at the people who put them in that disadvantaged state to begin with.
No, it was a lesson I've learned hard in my own life. When I was younger I was caught up in the pinch of the 2008 market. I had to quit university and move across the country to find some work.
I harboured a lot of bitterness and built up ideals that were not based in reality. It took some time for me to realize that it's never as simple a situation as you want it to be, and no amount of pain inflicted against the simplified other that you've created for yourself will rectify anything.
Blindly attacking anything that resembles the enemy you've crafted in your own mind will just end up hurting a lot of others like yourself, and most of all: oneself.
For the record, it was Ghandi who said that. It's about rising above the condition of those who hurt you in order to not become the thing you resented. What do you benefit the world simply usurping your detractor(s)?
The short sellers knew the risk. Hedge fund managers know what a short squeeze is, and should have realized that opening (or holding) a large short on a stock that already has a short ratio over 100% is just asking to be squeezed. The people who should be rewarded are those who understood this risk and capitalized off it (/r/wallstreetbets).
>If they assessed GameStop's value accurately, they should be rewarded.
According to the "invisible hand" of the market, they didn't, since supposedly rational investors on Reddit decided to buy lots of stock to go long. If you're going to claim the Reddit investors are actually irrational, then I have some bad news about most other investors as well.
It is currently trendy to hate on them because of Tesla fanboys. Tesla, in turn, hated them because Musk has been overextended before and probably could have been killed at various points.
Just another example of weirdly flavored hero worship mixed with greed and the American obsession with cars.
I don't know if it's related but I can't log on to Vanguard today. Long load times, lots of errors, or I get the message "Portions of our site are temporarily unavailable."
(edit) It's working again. But now I see that everything else on the market is going down. Coincidence, or are the hedge funds cashing out profit from other places to cover what they're losing in this squeeze?
Short sellers basically bet against troubled stocks. /r/WallStreetBets called them on it by pumping some of those stocks up, costing short sellers billions.
Those betting against the short sellers profit. The short sellers are obliged to buy stock to cover their short positions which are suddenly quite expensive. Their buying then further creates demand pushing the price up even more - a short squeeze.
WSB realized the short sellers had bought more shares short than there were shares available to buy, therefore creating a squeeze and inevitable price increase. They then encouraged everyone to buy shares to screw the shorts and make money.
No other stock is currently shorted at > 100% of outstanding shares, so it will not repeat in the same way.
Perhaps after this, it will not repeat for a very long time, since one might hope hedge funds would be more careful about shorting more shares than exist!
I wasn't following any of this until a few days ago. Are there any fundamentals here, did GameStop ever pivot from their CD exchanging/rental business somehow? I have a hard time imagining how they could without trying to compete with Steam and EA's platform.
The ideal situation for them here is that they hold enough of their own stock to sell some now and try to pivot with all the funding.
As far as people looking to speculate - you probably genuinely are too late, despite me being a supporter of riding bubbles like this, since obviously it works, sometimes.
While true that the current situation is pretty far detached from the fundamentals, it's not 100% speculative.
GameStop just named Ryan Cohen and 2 other execs from Chewy on the board after Ryan pitched an e-commerce based strategy similar to what they did with Chewy. People have some faith in that, certainly enough to believe that the shorts are misplaced.
When the stock hit $100, people bought. Same at $250. It'll be the same at $420.69, $1,000 - whatever. But whenever it crests, it'll sink FAST. A sell order at $1000 will get filled at $200. Everyone knows it.
Which makes for an interesting collective action problem: you have to hold hold hold - and then be the FIRST to dump. Not the third, the FIRST.
WallStreetBets will be anarchy...