So basically like almost every other trade? Every buyer needs a seller and vice versa.

If you're active in the market, why do you think you're right on any particular trade and the person on the other end is wrong?†

* If you're buying, why is the other person selling? What does he know that you don't?

* If you're selling, why is the other person buying? What does he know that you don't?

The 'safe bet' is to go with index funds (US: S&P 500, Russell 3000) and simply get market returns for the equity portion of your portfolio.

† They could be selling for "correct" reasons: to rebalance their portfolio, to generate income (e.g., in retirement), etc. They may not think there's anything material to the company in the trade, they may simply need cash.

No; most trades are traded because you expect when you're "left holding the bag" that bag will have money in it.

On any given trade you can end up with something worth more or less than what you started with. Even if you sell and cash out, you may end up "losing" because things went on to perform better than you expected and the person/entity on the other end of the trade knew something you didn't.

The market owes you nothing.

The expectation is that investment is done to derive ownership of something with actual value.

This is a public pump and dump scheme masquerading as a righteous uprising.

Nobody said the market owed anyone anything. Save the sophism. Idiots are getting bilked, those are the answer to your question, and they still exist even if you want to re-define around them.

This is illegal for a reason.

[0] https://www.forbes.com/sites/steveschaefer/2015/07/07/forbes...

[1] https://www.bloomberg.com/news/features/2019-03-08/the-gazil...

"Front running" doesn't just mean "getting there quicker than someone else". It is a specific conflict of interest problem where the same people or firm are acting in more than one capacity - agent and principal or agent for different parties - at the same time (eg I see large customer order coming in then trade for myself/my firm before I trade for the client, potentially moving the market for them which would hurt them if our trades are both in the same direction).

Money is a made up thing. From another comment I made:

> Why is a Audi "worth" $60K but a VW "worth" $30K? A Porsche "worth" over $100K? Why is a Patek Philippe or A. Lange & Söhne Tourbillon watch worth $100K? Why should I pay $300 for one All-Clad pan when for the same price I can get a 10-piece set at Costco?

[…]

> And to go back to my first paragraph: a Porsche is not "worth" $100K to me—because I'm not willing to pay for it, or even for an Audi. But it may be "worth" it to someone else because they are willing to pay for it.

* https://news.ycombinator.com/item?id=25935968

It's a convenient fiction that allows for a complicated society to run relatively smoothly, but it's a fiction nonetheless when you get down to it (IMHO).

https://en.wikipedia.org/wiki/Veblen_good

You didn't break economics with your "why are luxury goods so expensive even though they're not better" argument, unfortunately.

> You didn't break economics with your "why are luxury goods so expensive even though they're not better" argument, unfortunately.

I do not see (a) where my claims imply breaking any economics principles, and (b) did not claim they're not better. As someone with an engineering degree I was taught all about trade-offs in design. Different situations may call for a need for different characteristics of a design: one person's situation may call for VW (simple commuting) while another's a Porsche (dealing with a mid-life crisis).

My point was that different items, which have different prices, have different value to different people. So to say what something is "worth" can be completely arbitrary, independent of price. Similarly, various people can find the same item "worth" differently, depending on what they value, so each is will to pay a different price: this is what auctions are all about after all.

In the case of GME: the people who actually care about the retail company may value it one way, and thus are willing to pay a particular price for each stock; while the people who care about fulfilling their (shorting) option contracts may have a different value and are wilting to pay a different price. What each stock is "worth" is different to each of them.

I think he's saying it's not manipulation, but simply a bet. If I buy GameStop at $100 believing I can sell it for $120 tomorrow, I am buying that stock honestly believing in its current value so I'm not sure you can call it manipulation any more than another investor hoping to cash in on an expectation that a stock will appreciate.

How do you decide whether or not something is manipulation? Everybody invests in stocks expecting them to go up - at what point is it nefarious?

In reality, many institutions are also long GME and capitalizing on the squeeze as well.

It's a pump-dump...which is illegal.

Does this mean investment firms are inherently manipulative, since they coordinate investments for their investors? They're doing the same thing - investing in bulk, hoping to catch the rising tide. When big investment firms and famous traders make announcements it affects the stock price too, you know.

I'm not trying to be obtuse. I just don't see how you can make an objective distinction.

I'd argue you could say everyone investing in TSLA is coordinating a pump-and-dump scheme as that stock is insanely overpriced as well.

There is a clear difference in TSLA. People were not coordinated. They have been investing because they believe the company will grow and the stock will appreciate long term.

GME is a bunch of people on reddit saying "guys if we all collectively buy, we can induce a short squeeze and artificially pump the stock price for a short period of time. Pour all your money in and diamond hand so we can get rich together." Then as it hits the mainstream, the smart people will cash out, and the dumb people will stay on the train and lose a ton of money.

You really don't see the difference?

It seems like both stocks are targets of manipulation to me.

I suggest you read up on shorting and pump-dumps. TSLA investors believe the company is changing the world and has enormous growth opportunity.

From my perspective, you're being willfully ignorant.

> You keep conveniently ignoring the short squeeze.

Are you honestly implying there is no short squeeze for TSLA? David Einhorn has written multiple articles on this very topic.

https://markets.businessinsider.com/news/stocks/david-einhor...

A forum with 2 million members advertised and coordinated a massive purchase of shares. Gamestop's market cap was less than $900m at the time. Gamestop was shorted at %140 of its float. There were daily posts describing how the forum has enough collective capital to hold a significant portion of the company.

None of that happened with Tesla. There isn't a community of millions all planning to buy Telsa at the same time for a 2 week period. Its not being championed as a noble cause for retail investors.

How are you okay with this happening? The people who actually get hurt are gullible uneducated poor people that were promised a way to get rich quick and stick it to the global elite. Do you feel no sympathy for the victims of this scheme or any other MLM/ponzi "greater fool" bullshit?

Hasn't Musk been fined -repeatedly- by the FTC for doing exactly that?

https://www.theguardian.com/technology/2018/oct/28/elon-musk...

It's okay to like Tesla but please don't spread lies.

He was fined for misleading investors not for coordinating a distributed group effort. Musk absolutely wanted to take Telsa private but was unable to and made an early announcement.

While I agree with your skepticism of the govt trying to stop "manipulation", what happens when this hits scale?

https://en.wikipedia.org/wiki/Albanian_Civil_War

At some point the music will stop and everyone hodling GME is going to lose their collective shirt. Everyone knows it. You can say "it's simply a bet", and you're right except for the simple part.

Anyone with half a brain should be able to recognize that GME moving from a 900m market cap to a 30b market cap in a few weeks is completely nonsensical.

For example, if the dividend that was paid out per share of GME on, for example, March 15th, 2019 was $0.38, and you owned 1000 shares (and ~4k investment), then you received a payment of $380. In many companies, these dividend amounts and schedules are extremely predictable.

You can then use that money to buy food, or build a house, if you wanted.

The fundamental value of many stocks is tied to the dividend that it will pay you for owning it. Obviously "growth" stocks (stocks that as designed to increase in value, rather than pay a dividend, because funds are used to buy-back stock instead, thus raising the price) is valued differently, but there is still a fundamental value based on the financial situation of the underlying company.

Let's assume that you're right, and that nearly every tech stock, automotive stock, and stock for any company the average person has heard of, or is in an index, is drastically overvalued. Is there any event that would cause the value to "correct"? Some shift causing people to sell their TLSA and buy F, whose value is "more correct"? And if not: what makes the value based on this more correct than the value you can access through trades?

In Dec 2018, MSFT had 92B of SE with a market cap of 1.2T. In Dec 2020, MSFT had 130B of SE with a market cap of 1.7T. They earned money which added to their SE, and they returned some SE to shareholders via dividends and share buybacks over those 2 years.

If in Dec 2020 MSFT sold all of its assets, settled all of its liabilities, and closed its doors, it would theoretically be able to pay 130B in dividends to shareholders. The share price would drop by 92% (1 - 130B/1.7T).

So 92% of its share price is based on its future earning potential. This number goes up or down as the market expectations for their future earnings potential goes up or down.

Dividends reduce SE, which is typically why the share price drops by the amount of the dividend on the ex-dividend date. Share buybacks reduce SE and reduce the number of shares outstanding, which increases each Shareholder's equity stake.

GMEs share price is out-of-whack because some market participants are making decisions based off what they believe the fundamental value to be, and other market participants are ignoring the fundamentals and buying at any price.

GME's share price may be out-of-whack to those interested in the retail business.

But to the people who have (shorting) options contracts to fulfill then the share price may be reasonable, as the alternative to these people is to renege on a contract, which could bring all sorts of unappealing consequences. GME having a price of even $1000/share may be "cheap" to these people.

The same item can be valued differently by various individuals, each for their own particular reasons. This is what auctions are all about.

By what mechanism does this happen? Paying dividends doesn't affect the amount of shares outstanding nor meaningfully impact the market cap?

If apple were to do a 1 time 150 billion dollar dividend, you would almost certainly see their market cap drop by a similar amount the day after. However apples market cap is 2.39 trillion so that is still only 6.27% of their market cap and could get drowned out by normal daily swings. Highly doubt it though and I would expect to see a corresponding runup to the event to claim the dividend and a corresponding drop after.

The next-best alternative is one of them. We are currently in an economic situation where money is literally being printed by the trillions, there has not been a offsetting set of funds going back to the government (thus increasing the money supply), and interest rates are 0 (and stated to stay there for the forseeable future). There is lots of money, that has to go to something, which raises the price of everything (or devalues the dollar, depending on how you look at it).

You ask 'Is there any event that would cause the value to "correct"?'. As a definitely-not-economist, I would guess any event that modifies either of the aspects I mentioned above. Reducing the money supply (perhaps taxing capital gains more reasonably), or increasing interest rates.

[0] I want to point out here that each individual entity buying something will have a different "correct price" for them, based on individual factors, especially at scale. One of these is individual risk, and how the risk associated with a given stock correlates with other risk in your life. If you live in an oil town, investing in a correlated asset should require a better potential payoff, and thus a better entry point, than someone who has no other oil exposure (if the industry collapses, do you really want to lose both your job and your investments?)

PS:

> It doesn't make sense for TLSA

I never said, and would never make the argument, that TSLA is "correctly" valued. But I'm also not insane so am not going to try to short it.

2. Discounted cash flow: how much revenue this business is expected to make in the next N years

3. Dividends

I will grant that multiples vary wildly by industry, but in theory that's a reflection of earning potential of the industry as a whole.

A group of people are coordinating a short squeeze. They are selling a get rich quick scheme and marketing it as anti-establishment. People who are late to the party and fall for the anti-establishment rhetoric will be the ones who lose their shirts.

That being said, if you're worried about pushing prices away from fundamental value, how about negative crude prices?

I didn't say anything about morality. This is a purely functional argument. When something is sold for its fundamental value, nobody loses. That's why its good for society for things to transact at their intrinsic value.

> That being said, if you're worried about pushing prices away from fundamental value, how about negative crude prices?

It was crude futures that were negative. Crude oil has storage costs. Those costs rarely overwhelm the value of the asset, but in particular circumstances they can. That is what happened when crude futures went negative. It seems illogical, but if you actually understand it, it all makes sense and fits neatly inside an intrinsic value narrative.

The original claim was that squeezing an ill-advised short wasn't less moral than deliberately collapsing a currency and taking $1bn of funds from a government, or engaging in sketchy HFT practices. You said "then you don't understand this, or any of the things listed", implying that you believe that squeezing the short WAS less moral.

> Crude oil has storage costs. Those costs rarely overwhelm the value of the asset, but in particular circumstances they can.

"Storage costs" is a convenient and inoffensive way to say "the few remaining buyers with enough spare capacity smelled blood in the water and were able to price gouge".

Sure. But you don't need morality to make the point. I will make that point though: things trading at their intrinsic value is more moral than not doing so, because it means nobody loses.

> "Storage costs" is a convenient and inoffensive way to say "the few remaining buyers with enough spare capacity smelled blood in the water and were able to price gouge".

Err. No. It means the storage capacity was completely gone, and people were scrambling to find new storage capacity. It doesn't seem like you're very familiar with how these things work.

People are free to buy or not-buy any stock, and to sell or not-sell any stock that they already hold. Everyone trading is an adult and is free to do it (notwithstanding things like insider trading, etc).

There is nothing illegal in the activities that I've seen: just people/institutions trading and holding stocks in an open market.

Some of those people are/will be making money through these actions and some are/will be losing money. As Nick Maggiulli recently posted (on a somewhat unrelated topic):

> If it wasn’t obvious before, it bears repeating now—some people are going to beat you at investing. Some of them will be dumber than you. Some will be less knowledgable. Some will even be completely wrong about the future. But they will beat you just the same. There is no great arbiter of justice in the investment world. There is no cosmic force that ensures that only the knowledgable make money. If there were, then I would be a far richer man today.

* https://ofdollarsanddata.com/let-them-vote/

As someone who rides a motorcycle, I think it's stupid not to wear helmet, gloves, etc., and yet in Michigan it's legal to ride without a helmet. IMHO it's dumb, but many people do it and ¯\_(ツ)_/¯

Currently some people think GME is worth US$347.51 per share and are willing to pay for it. ¯\_(ツ)_/¯

It's their money and they can do whatever they want with it. I invest in index and bond funds (80/20), but if someone wants to YOLO on this: not my circus, not my monkeys.

Not to contradict you, but just a reminder that short selling is based on something significantly different than "trading and holding stocks". The ability to promise to buy/sell stocks in the future at a given price has become so accepted as an ordinary feature of stock trading that we generally cease to notice how revolutionary of a concept it actually is. It's hard to see any rationale for prohibiting such arrangements - they are entirely consensual, and appear to have no additional impact on things that instantaneous buy/sell orders wouldn't also have.

But this is an illusion. The ability to go short/long on a stock is completely different from the ability to buy/sell it, despite it being based on all the same mechanisms. It's a truly radical concept that has slipped under our radar because it could be described without any new concepts or terms.

* https://en.wikipedia.org/wiki/Short_(finance)#History

Bond markets started early than that:

* https://en.wikipedia.org/wiki/Stock_market#History

The judgement of the value of this I will leave to others to decide.

My point was almost consonant with yours - it's almost as old as stock trading, but nobody realized how fundamentally different the concept is. They didn't realize it in 1609, and they certainly don't recognize it now.

Most naive conceptions of how stock markets work would never allow for these sorts of contracts. The fact that they've (nearly) always been a part of actual stock markets just points to the same sort of gaps between the actual operation of the financial services industry and how most people think things ought to be that the current GME gyrations are (according to some) also pointing at.

Neither is it "radical" in any type of market. It just means selling something you don't actually have yet (something you're "short"). Think of a middleman who sources classic cars. He contractually agrees to sell a 1991 Ferrari for $60k. He doesn't yet own the vehicle, but knows he can source them for $50k. Unfortunately for him, a recently popular meme has gassed the price of Ferraris, and he now has to pay $70k for the car. He's still obligated to sell at $60k, so he begrudgingly takes delivery and loses $10k, having "sold short" the car. Is he revolutionary or radical?

They also serve quite different purposes for a society/economy.

Futures are useful to a broader group of people precisely because they don't need to involve physical settlement. Many people use commodity futures to hedge exposures to the price of assets which are not the underlying in the future but where there is a relatively predictable relationship between the two prices. Others use them to speculate on prices despite having no ability to deliver or take delivery of the underlying. Some contracts are even purely cash-settled.

(Edit: made clear that it was the point that futures always involve an underlying which already exists I disagreed with.)

This is a bit of an oversimplification. Market manipulation for instance is forbidden my most regulators, and defined by the SEC as "transactions which create an artificial price or maintain an artificial price for a tradable security".

It would not seem irrational that people willingly gathering on internet to buy GME with the explicit objective of crashing hedge funds are considered market manipulators.

Since this started with a hedge fund shorting 140% of a company, I tend to disagree.

I don't know why the story is with Reddit/WSB.

What kind of incompetent fools are these "professionals" that their risk departments didn't flag this? And if it was flagged: who allowed the over ride and allowed it to go through?

The fact that the rest of the market (Reddit/WSB or anyone) caught these funds with their pants down simply shows that The Market® works: a short squeeze is simply a reaction to too much demand and not enough supply.

Whether or not Elon's tweet brought in a bunch of people who want it to be a pump and dump is another story.

And these guys aren’t even taking money from those late to the party, so much as from the short sellers (vultures) who were happy to see the company go into the ground.

Elon Musk hates short sellers with a passion. They try to sabotage a business.

When trading is halted on a stock that is in freefall, I can understand that. But here they are halting a stock that is rising based on short squeezing! Honestly 148% naked shorting by private hedge funds should be illegal, and you’re gonna tell me that the government should side with the short sellers against a crowd of everyday people who are INVESTING INTO A COMPANY THEY LIKE?

How exactly is wall street the little guy? They snap their fingers and get trillion dollar bailouts instantly. Regular people barely get a $1200 check. And now even speculative SHORT POSITIONS are supposed to be protected??

This sounds like how a casino finds out that a game has a loophole and then tells people they can’t actually keep their winnings. And the fourth wall is broken. Apparently hedge funds can short any stock and if regular people notice and beat them back, then it’s the speculative hedge fund that’s trying to kill the company, that should just go ahead eh. How dare regular folks threaten the tried and true methods of speculation?

* Short sellers have to buy lots of GME from us on Friday, so we'll be rich if the stock has a high price then.

* The rest of us are buying and holding lots of GME so you should too.

There's a long term bull case for Gamestop at the $5/share levels of August. There's a bull case for Gamestop at the $17/share levels of early January. I might not believe them personally, but someone can make that case without being insane.

There's no bull case for Gamestop at $468.50 a share this moment as I type. There is no way that Gamestop goes from slightly negative EPS to $23/share earnings (a P/E of 20). And that's what it would take to put money in the bag.

All that is here is a Ponzi scheme.

Yes there is. The bull case is for those people who have options contracts that they need to fulfill.

If they do not fulfill those contracts there will be consequences: perhaps reputation loss, perhaps law suits, perhaps SEC investigations (with fines and/or jail time).

For those people, GME at even at $1000/share may be "cheap" compared to the consequences they face.

Yeah, we know these are real people who exist. But there's a finite number of them, and we're talking about what happens after they've all either paid up or gone broke and everyone else is stuck with the shares of Gamestop they paid $450 for.

Every company (and stock) works under changing circumstances: regulatory changes, competition, technological innovation, economic/financial circumstances (economic prosperity, rate environment), etc.

Just because a bull case may not exist for GME-as-ownership-unit, does not necessarily mean a bull case does not exist for GME-as-contract-closure-instrument. If you want to focus on GME-as-ownership-unit, as a share in a retail business, that's perfectly valid. But that's not the only perspective.

Right now there's a bull case for GME(-as-contract-closure-instrument): that may not be the case in the future. But that's no different than any other commodity (IMHO).

No, not at all.

It's well known that this stock is massively overvalued.

It's a mania, or a crowd-induced Ponzi scheme.

This is different than investors predicting outcomes based on fundamentals or their view of growth.

The plebes will be left holding the bag and probably lose much more money than the banks and it will affect them more greatly.

If you want to focus on GME-as-ownership-unit, as a share in a retail business, that's perfectly valid. But that's not the only perspective.

Basically, mobs are fighting against hedge funds using random companies as battle grounds - the markets are there to support those companies, not destroy them.

So what we are seeing is kind of an inflection point that the system wants to tamp down.

It's actually pretty distressing to see how many intelligent people think they are doing some kind of good here, like burning down a few stores to force the owners to leverage some kind of fire insurance policy to destroy the 'evil insurers'.

The shorts were the ones destroying Gamestop, though.

How A Book About Flies Came To Be Priced $24 Million On Amazon: https://www.wired.com/2011/04/amazon-flies-24-million/

Again, that's what you'd think and it's technically true that you can know who is running what system, but the systems are too complex to say they are really working on behalf of anything except the rules of min/maxing.

How do you explain bidding the price of a textbook up to millions of dollars is "working on behalf" of anyone?

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.

In reality, when a short covers they buy back the stock and pay back the broker or market maker they borrowed it from. Then the broker or market maker sells it again. Then the short can buy back the same share, over and over again, as long as they can find someone to sell it to them. That "as long as they can find someone to sell it to them" is what's going on here - if everybody HODLs, the stock doesn't circulate, and the shorts have to pay increasing amounts to incentivize other weak hands to sell. But total short interest > 100% doesn't mean anything other than that there are a lot of shorts whose need to cover might blunt some price declines. Unless those particular shorts are right up against their margin limits, they can just hold the short position open until WSB loses interest.

Shall be an interesting week.

Edit: looks like it's already falling apart, the price is down 30% on post-market trading! Expect things to get real once the market opens up.

Is that true? I tried and failed to verify.

Shorting a stock at $300, when it was trading at $16 last month is pretty much the definition of huge upside.

Note that if you short at 300 and it flash jumps to 1000 you are toast.

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.

* The U.S. Securities and Exchange Commission (SEC) had previously conducted multiple investigations into his business practices but had not uncovered the massive fraud.*

https://en.wikipedia.org/wiki/Bernie_Madoff

While there isn't 125% available to buy in one go, there is trading happening, HedgeFund2 can be buying and returning their loaned shares this week, HedgeFund3 can be buying and returning theirs next week, HedgeFund4 the week after, and at no point does any group need to buy 125% of available shares all in one go; where does the time limit that causes the squeeze come from?

Further, all hedge funds have internal risk limits, which include limits of their exposure to a single equity. Should the collateral requirements exceed this limit, then their internal risk compliance team will ensure that the short position be at least partially closed to keep them within their limits.

The shorts collectively have losses on paper of $35bn+, which is a lot of money even for well-capitalized Wall Street funds.

How is it possible for a stock to be 125% over shorted? What does this mean?

Have a read from Matt Levine's "Infinite Game" from yesterday:

https://www.bloomberg.com/opinion/articles/2021-01-26/will-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.

* How shorting works normally:

Alice thinks the price will lower this week. On Monday, Alice borrows a stock from Bob. She sells that stock immediately on Monday. On Friday at the end of that week, she buys a stock again and hands it back to Bob, plus a small fee for his troubles. If the stock price went down during the week, you can see that Alice made a profit.

* What happened for Gamestop:

Melvin thinks the price will lower this year. Melvin borrows a stock from Rudy. Melvin sells that stock, and unbeknown to him he sells it back to Rudy. Melvin borrows another stock from Rudy which unbeknown to him he sells again to Rudy. While there exists only 1 stock, Rudy now has 3 stocks of which he borrowed 2 to Melvin. Melvin owes Rudy 200% of all available stock, which he needs to hand back at the end of the year.

* What is the short squeeze Rudy/Reddit is currently doing on Melvin Capital?

Well, in reality, Melvin Capital has 1.5 stocks borrowed for every stock in existence (I'm not sure how much of the total stock was actually liquid, so I'm not sure how many rounds Melvin needs to go through to cover all their shorts).

Today it is the end of the year. Melvin needs to hand Rudy back the stock. However, the only person he could buy it from, is Rudy himself. Now Rudy is free to set an arbitrary price for his stock AND meanwhile buy up all other available stock at ridiculous prices. The only stock Melvin can buy, is from Rudy, or from other people at at least Rudy's price point. And Melvin needs to buy that stock to then hand it back to Rudy, after which Rudy can sell it yet again at an even higher price point for Melvin to hand it back again. Rudy makes a lot of profit, by squeezing out Melvin after making the market illiquid and overpriced. Effectively, the game is such that the entire capital of Melvin is now for Rudy. Melvin must buy something from Rudy, no matter how high Rudy sets his price.

An alternative is for Melvin to borrow another stock from Rudy, handing it back to cover for the last borrow. However, this way Melvin is only digging himself into an even deeper hole stacking up fees (the fee Melvin pays for Rudy's troubles is currently at a 130% interest rate).

* What is on the line?

Melvin Capital is 3 billion. The question is how much Reddit is Rudy, how much stock Reddit managed to control. If Reddit manages the squeeze, the squeezers will basically share among each other 3 billion. If Reddit does not manage, a lot of people will hold a lot of Gamestop stock at probably way lower prices than they bought.

Melvin Capital appears to have received a capital injection of 3 billion from Citadel today, doubling the stakes in an all or nothing with Reddit. So wallstreetbets is now standing to either gain 6 billion or losing a lot of money. Which sounds big to us, but is probably just another Wednesday for wallstreetbets...

they would be forced to liquidate their other holdings before going bankrupt no?

[1] https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...

Are they accurate to the hour? My impression was that this information wasn't reported at a regular cadence, but I have no idea.

Some people are saying that Melvin Capital lied. That seems unlikely: my guess is that you'd go to jail for a long time if you lied about your purchases to manipulate the market on such a grand scale.

Isn't it more likely the company will go bankrupt and the traders will 'only' have their most recent £10M bonus to fall back on?

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.

You buy the stock for $200 but of the $200, $100 is money that you've borrowed. Because the stock is now at $350 your assets cover the margin easily. but if the suddenly becomes liquid and gaps down to $2, you owe $100 and only have $2 dollars in assets with which to cover your margin loan. You get a margin call and the bank force sells your stock then takes your car, your house, etc to cover the $98 you still owe.

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.

The stock rocketed up today and the puts rose about 20% as well (which is crazy and counter-intuitive). So, I was entirely wrong and made money anyway. Once I realized I couldn't account for what was happening, was totally wrong on the direction, and being offered a token gain to get out, I got out.

Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.

Because the higher you are, the closer you are to a crash. Peaks take time to build, but crashes can happen overnight (or premarket).

If you write a put, you're long the stock. To hedge yourself, you'll need to short it. To the extent that that is difficult right now, nobody will be willing to write puts. (Strictly speaking, the put is so out of the money right now, that one would not have to short much today. But as soon as the stock price falls and approaches the strike, the writer of the put would need to start shorting. "Hey, anyone got some shares I could borrow?")

On the other hand, if you want to take a negative view on the company, buying a put is sensible thing to do. That'll drive the price of the puts up.

This is called IV expansion.

I think a good example of this is the Ethereum flash-crash on Coinbase in.... 2017? Something happened (IIRC someone submitted a very large market-sell, maybe by accident), but it completely wiped out half of the order book.

This triggered all of the stop-losses that people had submitted. But... almost the entire order book was gone. So they sold very low. Which triggered more stop-losses. Which sold lower, and so on.

In the end stop-losses ended up largely selling to one super-lucky-account-that-I'm-sure-set-this-up-as-a-joke-and-forgot-about-it who had a limit buy in for 10c/ETH.

IIRC the price was ~350 when this started. When people were able to start buying again, the price jumped up again (obviously).

But this lucky person was able to buy ~5k ETH at 10c, because all the stop-losses triggered.

¯\_(ツ)_/¯

In truth, you are not even guaranteed to be able to find a buyer.

IIRC, that’s closer than the naive interpretation (“you will sell at exactly $320 if the price drops to or below that level”), but it's still not quite right. Unless I'm mistaken, a stop-loss @ $320 is actually “if the price is at or below $320, submit a market sell order”. In theory, it could execute above $320, though at or below is vastly more likely. And, as you note, you aren't guaranteed it will execute at all.

[0, as posted by colllectorof] https://lbry.tv/@rossmanngroup:a/why-mainstream-media-s-slan...

Hence my calling it a pump and dump... They are pumping the stock up with highly positive videos like the one you posted and comments on WSB to get the price higher faster so they can sell and make a max profit. But for this to happen, they are going to need a buyer who buys at the very top.

Who is that buyer going to be? No savvy investor will go near buying a pump and dump with a ten foot pole. Sadly, it will be the newbies on WSB and the newbies watching this Rossmann video who buy at the top and lose everything as it plummets down.

You might say, "Well I am not going to be that newbie"... But only a very few will sell at the top... Maybe 1-5%. A few more will make solid returns. But all that profit for those guys on top will come from gullible retail investors. That is why MSM is calling BS.

But, the premiums can be pretty juicy.

Looking at the 29Jan 320 Call options, if you were good, and called today’s top. Then you could’ve wrote the call at 145. Then held it for 90 mins, when it bottomed out at 89. Netting you a cool $56 per contract.

If you wrote 1 contract on this play, then 56 x 1 x 100 = $5600.

So, $5600 of net profit in 90 minutes. If you’re lucky. It’s best to have a large war chest to play this strategy.

But, if you’re unlucky, then a short squeeze can even happen during normal trading hours, and it would probably wipe you out.

You can call the wrong top, and the spreads are so wide, that the loss is heavier to exit the position.

And if you ran this strategy yesterday, at a lower price point, and held it overnight, then you would’ve been wiped out this morning, when the stock spiked in overnight off-market trading. So it’s best to keep this strategy to a daytrade.

I don’t recommend this strategy to anyone. The odds of you consistently calling the top, correctly, all the time, is very low.

And the crazy phenomenon going on right now, is that the retail traders, are somewhat collectively operating like a hive mind. Whether they can really succeed to achieve their objective of hitting $1000/share, remains to be seen. But, I’m not going to challenge this one, at this time.

On the other hand, if I am right that this is about the peak, then I get $20,000.

I could either close my position, or I could potentially buy the same call option strike with a shorter expiration for cheaper... Most likely the run up on GME will be over by then. If not, I could just buy another call option with a further strike on top of it.

Perhaps my strategy should be selling call options dated for 79 days from now with a strike of 320 for $190... Then buy call options for when I think this thing will end... Say 9 days out with the same strike for $152. If things go crazy high, then I can use my buy call option to cover the sell call option. If it doesn't, then my profit is $192-152 = $40.

My theory is the stock has run insanely high, and even Elon Musk has made comments that are priced in. At this point, WSB users may have all their money they want in this play invested... Who else comes in to sustain the current price or drive it higher? What if GME execs decide to sell some shares to raise funds? Or if the SEC asks them to to stop the short squeeze? The stock almost reached the WSB pie in the sky goal of $1000... How many people are going to make sure they aren't the last fool in the stock holding the bag?

But if I am really wrong, and the stock went to $5000 on a short squeeze, that would hurt. $5000-320= 4,680 x 100= $468,000.

I probably should buy a shorter run buy side call option to cover my risk. $20,000 with high probability outcome vs $468,000 with a low probability outcome...

Who exactly sells call options anyways? Someone has to be selling these naked in order to provide the volume that is out there, right? Probably people doing it behind an LLC shield so they can't take unlimited losses and will leave their broker ("too big to fail") holding the bag?

Or did you get margin called?

GME shot up to 452, then 90 minutes later, it fell to 126.

But, that was today’s scary high. Then, it fell to the depths of 126, just 90 minutes later. Crazy.

I think it was Ben Graham who said the markets can remain irrational longer than you can remain solvent.

Opening a spread would make you a ton of money for sure, but seems unlikely one would be sold.

Perhaps you mean he could buy a higher priced call.

Can you expand on this? Why would they be on the line for $20k+ (or anything) after selling the option?

Not just when the option expires. You can be assigned anytime after you sell an option.

Correct me if wrong, but my understanding with Robinhood is that you Sell to Close (by default anyway), which just goes back into the market. No further obligation?

If you sell an option, you Sell to Open. If you want to buy it back (at a profit/loss and you're not assigned), you Buy to Close which goes back into the market and closes your position. If you are assigned (i.e. the buyer of your option exercises his right to buy 100 shares at the strike price), you have no option other than to buy those shares at market price if you don't have any and deliver it to the option buyer.

Caveat vendor.

We know well that random people on the Internet aren't reliable. For those who respond, why are you taking it at face value?

You got lucky - you have nothing to brag about. Your actions are 100x worse than anything i've seen in WSB.

I mentioned that quote from someone that thought in the same lines as the OP, had more money and was a professional in the area, and still lost his shirt - twice.

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.

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.

It's a bit disingenuous for people to make it seem like there's thousands of people putting their life savings and retirements into stocks - and even so, I would guess that many of the people who do claim to use "life savings" actually mean "the 10k I had in my bank savings account" because they're only 23.

I also had a horrible thought, what if someone came in and bought short positions at inflated prices with his lunchbox money instead? Then that person is trying to wait out the redditors.

Wow. So many angles.

Too rich for my blood.

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.

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.

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...

There is obviously much more complex math to optimize this.

I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them).

It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).

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.

Wouldn't new ones be shorts against the inflated prices?

It could easily be other retail investors shorting the reddit pump and dump.

I suppose as long as no one innocent is hurt, it doesn't really matter if some redditors and hedge funds are cleaned out. But it seems more and more likely that the only thing that will have been done here in the end is to enrich the market makers.

Around 1BB shares of gamestop have been bought/sold over the last two weeks. So shorts covering represent at most 7% of the volume.

This volume doesn't tell us anything about the actual change in stock held by various entities nor how easily 70MM shares could be obtained from entities.

If the hedge fund blows up, the brokerages that loaned them the stocks to short are left holding the bag, and if that blows up SIPC/brokerage insurance, many retail investors or taxpayers may be left holding the bag.

What fundamentals make you think that? That's substantially discounted vs revenue.

if the gamestop is still shorted at 130-150% of total issued shares (finra report coming soon) that means the shorters are going to be paying interest and getting margin called as GME prices goes up. the fees for borrowing GME to short have been 30-60%. That is absolutely insane, if you can even find shares to short, which I haven't seen any for the past day.

GameStop did 6 billion in revenue 2020. At $5 per share that’s a ~348mm valuation.

The value of a business with the same revenue as Gamestop, but with a normal profit margin and a stable or growing market is a very different beast. The only way Gamestop has any value is either to keep cutting the unprofitable stores until they just disappear as a company, like Sears did, or leverage the brand to pivot to digital. This is fairly difficult since the consoles are all locked to the console manufacturer's store, and Steam is already dominant on the PC.

The same applies to Bitcoin, though, for the past 10 years. Someone's holding the bag at $30K as we speak...

Gamestop can (theoretically) go the same way.

The volume for GME today was like 89,734,235 vs an average of 24M . How does "retail" traders can keep the stock up 100% from the previous day for the second or third day running? And the stock went up 100% from close during after hours yesterday, and that is not retail traders.

Potentially there are also pros on the WSB side of this game but I think they would potentially face legal risks that the individuals don't have to worry about.

A large part of the culture at WSB is to self-mock as "retards", "autists" and so on; fuckups and losses are celebrated alongside gains. Someone who loses thousands on a bad bet on this will be as celebrated (and mocked) as someone making thousands.

I’d guess that in the future if you run into someone who traded GME this week, you’re more likely to meet a loser than a winner.

It's probably mostly hedge funds closing their shorts

The short percentage of the float was 140% on 12/31. The institutional guys are not the rational ones here.

Which while the short interest is greater than the float is the guy with the excess short interest.

They are patsy in the market at present. You can always offload onto them because their loans come due. You don't have a loan so can wait as long as required.

Not sure exactly what to call it, but it seems to be a difference in consent to gamble $$, if that makes sense.

This isn't your typical pump and dump. The plan is to bleed Melvin of every last cent, and transfer it to WSB. Melvin is forced to buy, no matter the price.

While some individual redditors might lose money, as a group they'll make a huge profit.

Looking at the current options prices, if / when this is all over GME will probably land within that range.

Yes, there is a lot of crazy new money going in here at super high prices, but all of the regular WSB users going in on this stock weren't planning on bag-holding, etc. It was a value play.

https://www.usatoday.com/story/tech/news/2018/01/29/vmware-c...

The approach may have been suggested for Dell/VMWare, but at the moment GME is a totally different beast.

Getting acqui-listed thru GameStop would probably be less expensive than paying some phoney like the former speaker of the house [1] and you get a bunch of retail locations to boot. The existing management of GameStop cashes out a year later as they step aside a la Apple-Next.

0 https://www.nytimes.com/2005/12/25/weekinreview/2005-in-a-wo...

1 https://www.reuters.com/article/us-enpc-ipo-idUSKBN25K26O

*This post is random Internet BS and does not represent financial advice. If you or anyone you know feels a need to “buy” an equity, stock or other advanced financial product please consult with a board certified psychologist.

Once the stock picks up steam though, it attracts people who purely just want to make a fast buck, and less true believers.

But you think making a gamble that seems like less of a sure thing is less greedy than if you think it's a sure thing? The more of a sure thing you think it is the greedier you are? That's not really clear to me.

But maybe it's really about the "true believer" thing. You think people in later were only there to make money, but those in earlier were "true believers" in something other than making money? What? They also planned to make money though?