"The Squeeze of a Lifetime" or The GameStop stock frenzy, explained. Vox

[sagesnow]

If I understand this right, Independent daytraders from a Reddit group ganged up to out smart "Old House Fund Managers" who were betting that GameStop would lose market value (by buying call options). The Independent Reddit Traders were buying shares and forcing the price up (buying stock and put options). In the end, Independent Reddit traders wound up bankrupting some "Old House"Fund managers who were betting the GameStop stocks would go down. Do I understand this correctly?
https://www.vox.com/the-goods/22249458/gamestop-stock-wallstreetbets-reddit-citron

[BlueTsunami2018]

1. Yes.

They’re now doing it with AMC theaters. A kid I work with just made four grand in a day from it and it’s just going up. Wish I’d have jumped in, why should the worst of the worst make all the money?

[Fiendish Thingy]

2. As much as I like to see hedge fund guys get burned, this could go south in a bad way

As more folks jump on the bandwagon with different stocks (now AMC, who’s next?), if enough short positions are called at once, market liquidity will freeze, bringing everything down, just like 2008.


It was fun while it lasted, hope folks come to their senses quickly, otherwise the burned big boys will call in favours at the FEC to go after the Reddit kids...

[underpants]

3. 👀

Reading later thanks

[TheRealNorth]

4. The irrationality can only go so far...

Before reality hits the stock price like a brick hitting glass, and all those people that didn't get out (usually the last to the party) lose their money.

[FakeNoose]

5. It's a pyramid scheme, like all the others

A few early investors win bigtime, a lot of losers end up in a barrel of sewage.

[SeattleVet]

6. It's essentially turned into a well-organized 'pump-and-dump' scam.

[TheRealNorth]

7. The irony of it all is that the people that began it are masquerading like they are "Robin Hood"

Of course, they will be gone (if they are not already) while the people they tricked into pumping up the stock will be left to take the hit.

In the end, it's just one set of unscrupulous Capitalists being screwed by an even more unscrupulous group of Capitalists that decided to sweeten their pot by tricking people into throwing their money away so they can "stick it to the man".

[Tommymac]

32. You don't get it. They (the Reddit folks) DON'T CARE that they lose money.

And I am in their corner.

They didn't do this for themselves, they did it to show how corrupt Wall Street is.

They in effect UNIONIZED their efforts to out the real crooks in the Hedge Funds.

Occupy is NOT dead.

[coti]

16. I think rather than PnD the Redditors see it as a way

to transfer wealth out of the hedge funds, once the squeeze is on, and into the participants' pockets. But yeah, the people coming in at the end will probably get hurt, once the hedges clear their short positions (and later start new ones).

[Renew Deal]

21. Would shorting Gamestop now make sense?

Don't they win no matter what happens?

[coti]

22. It definitely could. nt

[coti]

24. Well the shorts came in pre-market and took GME down from 450 or so to the 270's.

Will be interesting to see what happens in about ten minutes here when the market opens. See if the bulls can push back or if the shorts will induce the panic they want.

Exciting stuff...

[coti]

25. LOL, they halted it a minute in. nt

[fishwax]

23. they've already shorted more shares than there are available to sell

so shorting is (a) a big risk because you're selling something you don't own that is in very high demand with basically no available supply, but at the same time (b) a desperate hail mary that may in fact be necessary for the hedge funds, because otherwise the price just keeps going up and the losses keep stacking.

[SeattleVet]

27. That's called 'naked shorts' and it's illegal.

There is no way that the shares can actually be cleared and traded, since there are a LOT more shares shorted than actually, physically available. IIRC, it was something like 138% of the available shares.

Years ago a short required an actual stock certificate to be traded. Several years ago that changed, and the hedge fund vultures figured out that they could short more shares than were really on the market, and hopefully not get caught.

The current situation has exposed them, in a much bigger way than just losing a few billion bucks.

I get the feeling that some of the big guys are going to be in a ton of legal trouble when the dust finally settles on this.

[Ex Lurker]

30. Most of them aren't trying to get rich

They're motivated by sheer anger. They want to destroy the Wall Street manipulators and if they lose money in doing so, it's worth it.

[Takket]

8. i saw a news report on this and couldn't understand it.......

so i did some reading and i can't believe this is even legal. it isn't "investing" which isn't that supposed to be the point of owning stock? to invest in a company? putting your money into it so the company can grow along with your stock value?

and you cannot tell me ANY of the people that play this game aren't doing it with insider information.

The roulette wheel is a more honest way to make or lose money than this nonsense.

[Blue_true]

11. It is just naked gambling.

Many decades ago, when a person purchased a stock certificate and that was it, that person was investing in the company’s growth prospects.

But then derivatives came along. They are basically modeled after commodities contract mechanisms, where middle companies “hedge” against a negative change in the price or supply of an underlying commodity. At least for commodities, it makes sense, a biscuit making company, for example can manage it’s costs by buying wheat contracts at a price, allowing it to use that ingredient price for business costs planning purposes.

But for stocks, it is naked gambling. Big financial companies normally sell Call Options or Put Options, they get immediate income from the sale of the options and then hope that the stock price does not change in a way that they have to buy or sell the underlying stock at a lost.

You are right, there is a lot of insider information involved, also manipulation of a stock price by big financial companies, if they have sold a lot of options and the stock price is going against them.

There are two basic types of Options sales, a naked Options sale and a covered Options sale. In the case of a covered sale, the company owns the number of underlying shares that it sells the Options for. In a naked Options sale, the seller doesn’t own the stock, but “borrow” it from owners - for example, if you own 1000 shares of the Acme Toothpaste company, your Broker may sell options against your shares and “borrow” them from you - technically, you are supposed to be asked if the shares can be borrowed, but that may not happen - you would not be on the hook, the Broker would be if things go against it, BUT, if the Broker gets wiped out, you may have issues getting access to your shares, especially in the case of a bankruptcy by the Broker.

[coti]

14. You're also right that the market is basically gambling

and an often fixed form of gambling, at that. The manipulation that goes on daily for most higher-volume stocks is ridiculous.

[Blue_true]

28. With the mathematical algorithms that the big players employ, all

that is needed is for a stock to move a fraction of a point for them to pull in millions for stocks with big trade volume. So the situation becomes one of setting out cookie crumbs near a cookie-monster and expecting it to not gouge itself. If companies can make millions by manipulating a stock to move 1/8 of a point, they are going to play that game all day long, regardless of what the company’s underlying fundamentals are.

[Tommymac]

33. The Reddits did it to shine the light on Hedge Fund Scumbaggery.

They in effect Unionized to show that the game is rigged - legally.

This is not stocks themselves, but derivatives. Totally different thing, but a source of huge $$$ for big companies.

Basically Gambling without a license.

My hat is off the the ones who started this. Some will make money, some will ose it - but they have exposed the dirty smelly innards of Wall Street and it's legal cons.

Occupy is not dead. Just matured.

[sarcasmo]

34. Did I hear right, that hedgfunds can trade after market hours?

[Blue_true]

9. I was under the impression that the Hedge Funds would SELL

Call Options if they thought the underlying stock price was going to decrease. Essentially, by selling the Call options, they would sell the Call Option buyer the stock at a higher price, then when the stock drops below the strike price, they would buy it at the lower price and close their position (lock the options buyers into watching the Call Option expire worthless to them).

Selling a Put Option does the reverse, the seller is betting that the underlying stock will increase in price, the buyer of the option is betting that the stock price will decrease in value.

I may be wrong, this is not an area that I know a lot about.

[sagesnow]

12. I believe that so many of the Independent Redditt traders bought so many put options that

Last edited Thu Jan 28, 2021, 09:24 AM - Edit history (1)

it artificially pushed the GameStop stock higher and higher forcing the Old House Fund Managers to loose their positions because they were betting that Gamestop stock share prices would fall. That caused Old House Fund Managers to lose their money.

[coti]

13. You're correct. nt

[Blue_true]

29. Proof positive that a blind squirrel can find an acorn.

[Volaris]

10. Yep. The hedge fund guys got out-hustled by a subreddit thread, and now they're all butthurt.

Fuck em lol.

[hatrack]

18. That's it - Wall Street and investment banks have been fucking this country for decades . . . .

And now all that "smart money" - bailed out by us in 1998 (LTCM), 2001 (Tech Bubble/9/11), 2008 (housing and financial collapse), 2017 (Shitstain's corporate tax giveaway) and 2020 (COVID) got a taste of free-market competition, and as a result is whining like a convention of poncy hairdressers.

Fuck.

Them.

[Hugin]

20. There it is!

Yeah, someone found out how to game the High Frequency Trading bot's algorithms to their advantage in a largely gamed Market after Trump got through playing it into the ground. Now the people who own and operate the trading bots (Hedgefund, dudes) are all butthurt.

[superpatriotman]

15. It's up $135 this morning -pre market

Another 40%

American Airlines (AAL) - another Reddit ‘pick’ is up -pre market, too

[coti]

17. Might be fun to watch when the market opens.

I expect the shorts will hit hard starting new positions and try to start a panic.

[Generic Brad]

31. Dang. I sold my AAL stock last week

When I bought it I had intentions of investing long term, but when it rose so quickly, I felt something was amiss and sold my shares. Yes, I missed out on this week's gains. But I am not trying to get rich. If it drops back down to a more sensible price, I will probably invest again. I just have very little stomach for volatility.

[Buckeyeblue]

19. This is the overall problem with the stock market and the way companies are managed

Stock prices all have some whimsy built into them. Unfortunately, CEOs manage to the stock price, and hope for the best with the whimsy.

As long as the Redditt group sticks with smallish companies, I don't see much harm. But if the decide to jump on a bank, it could be interesting.

[MissMillie]

26. This short-sell stuff is part of the 2008 market crash

And the hedge fund operators are a-OK with manipulating the markets in their own favor, regardless of who else gets hurt.

This time they got their asses handed to them. And unfortunately, they probably WILL get a bail-out.

The sad part is that the day traders now own a bunch of artificially inflated stock, and they're going to end up losing, and there will be no bail-out for them.

But you'll notice that all of a sudden, the hedge fund guys are open to some sort of regulation. Apparently what's good for the goose is not good for the gander.