A lot of the people involved aren't just buying and holding. They're specifically buying/selling short dated out of the money options in order to move the price. Some understand the market microstructure and the various levers they have to make the price move using what is effectively leverage.

> Seriously. It's that easy. It's not illegal.

Finance is highly regulated and arbitrarily so. If you think the lawmakers and regulators will throw their hands up and say geez, it's technically legal, carry on, you're sorely mistaken.

Ideally finance is meant to be about allocation of capital. If a market is allocating capital to a dying company just because meme, then the market isn't serving its purpose. I don't see how this is different than what is constantly being criticized such as flash crashes, contagion and large moves based on rumors, other than the group benefiting (fiscally irresponsible internet strangers vs fiscally irresponsible professionals)

I know, hedge funds bad, and they do this crap all the time. That may be true, but this isn't going to end well for the average consumer. My prediction is reddit will shutdown wsb because that's what reddit does. And there will be more laws made targeting individuals engaging in this sort of activity (basically coordinating with groups of people). This may hurt newsletters and other financial venues. The large hedge funds will be fine, we might see a few bailouts, and life will go on.

I totally agree, but it's not like there's a level playing field now. If the new regs enshrine the current reality in law then maybe there'll be more hope for fundamental reform.

Basically what we probably have now is a behavior that is legal so long as no one engages in it. Losing a fake option is not losing anything.

> I don't see how this is different than what is constantly being criticized such as flash crashes, contagion and large moves based on rumors, other than the group benefiting (fiscally irresponsible internet strangers vs fiscally irresponsible professionals)

Isn't that the whole point WSB is making? This is not different and the media treating it as something crazy or new is disingenuous.

This is a sideshow. Feds or regulatory body will crack down, we'll just accept another banned community that is "a threat to our democracy" and we'll move on. I don't think what is essentially financial de-regulation is a movement that's going to pick up steam some time soon. There's vagueness in securities laws and this will continue. Meanwhile banks will periodically be sued for tens of billions that will fill the coffers of attorney generals, justice departments and various state regulators [0]

> Isn't that the whole point WSB is making?

Yes, partly. I think much of it is about having some fun and having a sense of community.

[0] https://www.wsj.com/articles/big-banks-paid-110-billionin-mo...

Then why would any company ever get sued?

It’s not your job to decide what is an efficient place for capital. The market is serving its purpose exactly right now by allowing the free trade of shares in GME. If people want to spend their money on a GME share to be a part of something, that’s their prerogative.

You know what else the market allocates capital to? Gold funds, who do nothing but sit on giant vaults of gold. It’s about the stupidest allocation of capital possible but nobody is clutching their pearls about that.

Telling people what is inappropriate to do with their money is a great way to get them to do it more. The whole reason we have a free market is because historically the big people in charge can’t allocate capital more efficiently than free-for-alls.

But how can you regulate that people get together and buy stock? They need... 1) Internet bulletin board. That's it. The barrier of entry is just so damn low, and that's in part also why this has happened. In hindsight I'm surprised it hasn't happened before but I suppose Covid-19 brought this on.

I think it would be easier to regulate something that at least takes a certain amount of investment in terms of insight or knowledge, but here you can just take any random heavily shorted company and like... get people on a popular board to buy stocks over a day.

This time, sure, it was Reddit and the subreddit may be suspended. Next time it'll be a Discord or Telegram board or something. It's just... so easy

It's not so easy. There are concentrated tech players. There's decentralized systems but they aren't there yet in terms of usability for millions of people to just log on and use seamlessly like they do w/ Reddit. It may get there eventually, but its nowhere close to being available.

And then you have different layers of protocol that are all more or less centralized. AWS, gcp, Azure isn't going to host illegal or risky content. And even if you get around that, you'll have to contend w/ the ISPs that can just block arbitrarily if they so choose.

Yes, you can get around all those, but not on the scale to make a meaningful impact and the barriers will deter all but the most fervent supporters, and they likely wouldn't have enough money or influence to cause the havoc they're causing today.

https://mastodon.online

Some people trying to make a point are going to make a lot of bucks as well.

And some people trying to make a buck are going to lose a lot of money. Not everyone can get out of an inflated stock with gains, pretty much by definition. And those least likely to understand the point are also probably the ones buying into the stock late (and at an inflated price).

The mix of who makes and loses money is going to affect how society sees this. It will look somewhere between an egalitarian social movement, or a few now-wealthy loudmouths who took everyone else for a ride.

Making money in a bubble is all about timing... and it gets ethically complicated when some traders have control of the timing (in this case by declaring whether the vendetta against Melvin is over or not).

Note that I have made no ethical considerations for Melvin; they knew what game they were playing and are not victims here IMO.

For the sake of argument, one can say that actions of forums like WSB should also be regulated to protect them, just like laws for compulsory wearing of helmet (while riding two-wheelers) or putting seatbelts (while riding cars) exist, even though one would think that education and common sense would make them do this automatically out of self-preservation instincts.

But since I am not an expert in finance or stock markets, I really am not in any sound position to comment on the specifics here.

My broader general argument (not at all related to WSB or the financial industry) is just that education alone is insufficient, and regulation is often required too for maximum efficacy.

This seems too authoritarian.

On this, we agree.

Now, if you do believe it's wrong and it should be educated against, how would this work? Do you think that this is wrong beacsue people are going to lose money? Maybe then it makes some sense to give better education, but this is obviously a special moment and it's hard to educate people so that they don't engage in a social phenomenon. Not to mention, a lot of educated people may be making some pretty educated bets and winning a lot of money; other educated people may just be 'paying' money for a cause that they believe in.

How would one go about educating people? There's been a lot of ink spilled on this story and it seems to have captured the public's imagination. Not all of the reporting is accurate, but all the major media outlets get out the point that this is essentially reckless market manipulation by a group of loosely banded individuals coordinating online.

I doubt anyone participating in this will cut it out if just told to by some authoritative body.

This is the market at work. This was taken too far and the market has a method for correcting this behavior and we're seeing it now. The difference is retail is going to win AND there's no backroom deal to be made to stop the bleeding.

We NEED financial reform but we need to look at what allowed this situation in the first place, not ways to silence what are effectively the whistle blowers.

Why wouldn't someone be allowed to lend out a security they own to someone else?

If not allowed, why wouldn't I be allowed to make an agreement where I pay you the difference between a future stock price and some fixed value?

> The difference is retail is going to win AND there's no backroom deal to be made to stop the bleeding.

The backroom deal will be a phone call to the CEO of reddit, discord, disqus and similar and tell them to cut it out. Simple as that. No coordinating mechanism, this will die.

Can you explain what individual or company can own 140% of available shares?

The reason that short interest is calculated on public float is because that makes the most sense for normal situations. We just happen to have stumbled into one of those unusual situations.

Guess what the SEC has done about this blatant naked short selling. Nothing.

So while in theory naked short selling is illegal, in reality it is tolerate and allowed.

The shares don't have your name on it. It has like Robinhood's name on it, holding on behalf of the customer.

You're talking about the hedge funds, right?

I'm not saying reddit is manipulating the market either (maybe! I dunno). Just clarifying this point.

These laws will not be legal under US law, because US congress is not permitted to make a law abridging an act of speaking, or expressing an idea, or opinion.

> Finance is highly regulated and arbitrarily so.

The level of arbitrariness of legal process in legal systems of ex-UK colonies is in league of its own in the world, and USA is particularly prominent at that.

In US, financial regulations are some of the most vaguely defined of laws, in the rest of the world, they are usually are the most verbose, and formal in definition.

A law whose execution is wholly arbitrary is not a law at all, and a country allowing arbitrary interpretation of laws is lawless.

This is why what is "technically legal" is legal. What is defined in the law as legal, or not defined as illegal is what is legal. This is why no smarty pants bureaucrat should be allowed to wiggle out arbitrary powers by coming with "interpretations," "extended definitions," or "legal theories."

> If you think the lawmakers and regulators will throw their hands up and say geez, it's technically legal, carry on, you're sorely mistaken.

It can probably be written in such a way that this style of speech can be argued through the new law to fall under some of the exceptions, perhaps incitement or fraud.

They may just decide instead of policing the speech, to police the practice, and make being an investor even more arbitrarily difficult.

I can easily imagine a law getting passed that in order to invest in a brokerage account where you have autonomy over the investments requires you to be an accredited investor, and it will be worded so that it is for the benefit of the people who were taken for a ride on massive "pump-and-dump" schemes that originated on misinformation platforms and social media, regardless of whether they were truly pump-and-dump or just tom-fuckery against "big hedge".

Can you post a link to some comparison of arbitrariness of ex-UK legal systems and other systems?

Do you believe in it's right to give power to somebody, whether it will be a government, private party, or a class to rule over allocation of capital, and decide whose capital allocation is good, and whose capital allocation is bad?

There is a country that tried, they name to it was USSR.

They don't make laws for this any more, it will be stopped by some obscure regulatory agency.

This exactly what stock market speculation is about, is it?

Thing is no one is going to prosecute a randomer on the internet for throwing $5k at an option especially when there's no proof that it was done in bad faith.

To be clear, market manipulation is very vague and very broad, and from what I've read the SEC is only going after you if there was fraud or lying involved. Most of WSB's activity is not illegal market manipulation.

P.S. not legal advice

I referenced the % just as a convenient label for that group of market participants.

What is a "fair impression," it's all up to owners of the paper to decide on selling price, nobody else can.

> Not when moving the price is the goal.

Market transactions don't move the price, its people doing them do.

What does it matter what it is "ideally", if it was never that in practice? Ideally communism is a stateless moneyless classless society, let's get working on dissolving the state then?

Funds are also diverse, though. There will be a load of funds who have taken the other side to Melvin, based either on various fundamental insights, or technical, whatever.

Thanks for your input. I've worked during such crises myself and it's stressful.

I get that hedge funds are categorically unsympathetic characters in this play. But people are so angry that fact checking doesn't seem to matter. It doesn't help that a lot of things financial mechanics are esoteric and not commonly known, or that most people don't know the difference between hedge funds, banks, market makers and brokers.

This fund has/had bad risk managers.

What Melvin did was risky and avoidable.

VW in particular was shorted much less but something like 90+% of the shares were accounted for between Porsche and Germany to reach the accounted for shares + shorts position of over 100%.

Let's wait six months. This story is being badly reported all over. I suspect the hedge funds will mostly be fine.

>You get people to invest in a stock that is expected by the industry to go belly up. Seriously. It's that easy. It's not illegal.

Yes, it is, it's an abusive short squeeze, which is market manipulation.

Beyond this, I'm sure there are many funds who try and successfully manipulate the markets, but they try to do it quietly. To do in blatantly in the open is basically rubbing it in the regulators face and giving them no choice but to crack down.

Nobody would notice a bunch of idiots doing this quietly. A 1 million strong mob hivemind will get noticed and will leave no choice for regulators but to come down hard on them.

This is not rocket science. It's the same sort of crowd who planned to storm the capitol, meticulously documented the evidence, posted it online (including confirmation of identity through driving licenses) and then went ahead and did the deed. They basically handed all the evidence to the feds on a silver platter.

I was pointing out the fact that if you go and do it and then brag about it in a public forum, don't be surprised that you get dinged.

It's literally like robbing a bank and then going to the police to hand in the video evidence, only to be surprised when the policemen are not impressed. Yes the big guys should be prosecuted. But perhaps if you didn't explicitly stand on the corner shouting "I'm going to rob a bank and all you guys should also rob banks", the authorities wouldn't be on to you.

I've been on the right side of two short squeezes last year purely by accident, and I'd certainly like to repeat the experience if I could. What exactly would be illegal if I was on the right side of a short squeeze on purpose? Predicting it? holding stocks until it happened? Explaining to people less experienced than myself how a short squeeze works?

You say 'intent' but what intent is discussed on these message boards that is so nefarious people with better Lawyers don't discuss it openly?

Stock can be bough for reasons that have nothing to do with it's market value.

I can buy a stock because i want to own it, maybe i want the voting rights, maybe i want to have standing so that i can file a lawsuit for securities fraud. Maybe i am planning hostile takeover. Maybe I want to proudly hang it at my door.

I am fully aware that you can buy or sell stocks for a myriad reasons, including meming. What is against the rules is trading stocks with the express intent of manipulating the market and deliberately squeezing other participants. This is exactly what was being pushed by WSB.

If you want to engage in adult debate, please refrain from personal accusations and strawmen.

https://www.bloomberg.com/news/videos/2021-01-28/gamestop-fr...

I will add that short interest > 100% is a very common risk measure that firms with a short position actively track.

This is trickier than it might sound, because you are in some sense restricting the rights and capabilities of some subset of the shares. That has valuation implications.

I am not saying it can't be done or even that it's undesirable; just that the mechanics of this are nontrivial to enforce.

This occurred to Lehman Brothers. Different industry, but they got shorted to the point that their clients withdrew their funds and they were left in a position that was ineligible/undesired for most loans.

https://slate.com/news-and-politics/2011/08/does-it-matter-t...

Financial opportunity to what? Be specific.

None of the examples there really makes a lot of sense in this case. You think this pump (and coming dump) happening with GameStop would convince lenders to lend to GameStop at better rates? Maybe if they had no clue what was happening and did no due diligence, but that is not the case. And I doubt share price is the only consideration made by lenders, if their share P/E ratio was very low (which shorting would cause) then this would also affect their lending opportunities positively.

You think they were planning to issue new shares? It would have been an amazingly stupid idea which likely would not have been approved by existing shareholders anyway and would have had much the same effect as shorting.

Considerations for an investment bank is quite different from the considerations for a game retailer.

EDIT: The claim that short selling contributed significantly to the demise of Lehman Brothers is also disputed: https://en.wikipedia.org/wiki/Lehman_Brothers#Short-selling_...

Right. All of a sudden the WSJ is publishing an article about the founder getting kicked out where he claims the subreddit is full of white supremacists. Really? Give me a break. FT is claiming many are “alt-right” all of a sudden. Bad reporting all around.

> Yes, it is, it's an abusive short squeeze, which is market manipulation.

I’m not sure I buy it, and I’m not sure there is a fundamental difference between dinner club (as Matt Levine wrote) where hedge fund managers talk about their favorite stock picks and people on an open forum openly talking about companies that they think should be purchased or sold. Is it not market manipulation when a short seller publishes a scathing report, or when a CEO goes on CNBC or Bloomberg and gives a good opinion of their company or a different one? Which has more reach?

I think the most sensible and straightforward thing is further regulation of hedge funds and large financial institutions. If they are going to act irresponsibly and then cry about it, well, maybe they need adult supervision? The positions of hedge funds versus, uh, retail traders on an Internet forum is an unequal one from the start, anyway.

Not to mention the ridiculous media blitz coming from institutions. Jeez what a way to really create a lack of trust and further erode our democracy. If I find a drug dealer working for the FT can I write an article about how some people who work there are drug dealers? It’s obvious what they’re doing.

In the extreme case this could be true of almost any company. Imagine if GME were just a shell and a brand. Then they raise money, get a great board, hire industry experts, and go... whatever.. compete with Steam, turn the physical stores into e-sports venues, pivot to game development, whatever. Use the money to get the expertise, and you already have the brand and attention, which is now worth a lot more. That is kind of what happened with Tesla to some extent, although they already had a great brand a genius owner.

This GME thing is just one little piece of an overall new zeitgeist. I'm not about to even try to predict the next crash/bubble-pop, though. I just don't have the stomach for this kind of market. When a change comes, it may not happen in a predictable way. I think there's at least a chance we could somewhat be in uncharted territory here.

The populism on this issue is completely out of touch with reality.

1) As the stock pops due to irrational upwards pressure - the hedges funds might lose a bit, but in reality a lot of 'regular people' will be left holding the bag.

When the stock inevitably crashes, those 'regular people' will lose a lot and it will probably be a more meaningful loss to them.

2) There is no easy way to make money doing this - you're literally promoting a collective ponzi scheme (!) whereby the only money made is by people putting more money in.

3) Bankers have a role to play in markets and that's by properly valuing them. Obviously there are tons of shenanigans, but otherwise, it's an essential role. 'Pumping and dumping stocks' is not value creating it's actually quite destructive. While Game Stop may appreciate being helped in some way, they are not going to appreciate their stock going insanely volatile. Why do you think they would actually want this?

The populism on this issue is really out of hand.

"So it's simple to discover and execute, and there is a financial incentive, " - please - no, this is completely irresponsible.

It won’t happen in minutes either, it will take days for this to happen. That’s why everybody is going crazy about this. WSB saw a perfect situation and exploited it. This isn’t a case where the stock will drop in mere minutes.

The crash will be worse, and it will affect people personally - the plebes are going to lose a lot of money on this one in a few days when the market moves on.

That it will take days to unwind doesn't really matter - it will top out at some point, and it will go down. The timeframe is less relevant.

We'll have to wait and see a bit, but the huge pop in Gamestock was likely more the result of funds covering shorts, not retail investors continuing to buy at these prices. So it feels really disingenuous to blame retail for these wild swings when they would not have been possible without the irresponsible hedge fund trading that came before.

Do you refute my claim that it's simple to discover and execute? They're essentially just banding together on public information here. GameStop, Blackberry, Nokia, AMC, they're all affected and I'm just counting days of developments here.

As for the financial incentive, it is _absolutely_ driving this behavior. The taste of cash. Most will of course lose money on this, but this is not my point. My point? There is a financial incentive! I'm not talking about morale or ethics, I'm talking about why I think this might be a watershed moment. The masses realizing this is at all possible.

Hell, throwing away cash on lotteries is also a terrible way to build fortunes, yet it's a massive industry and lives are ruined over this as well.

People who should've known better got caught with their pants down and I have absolutely no sympathy for hedge funds.

I'm saying populist shenanigans don't really defeat banker shenanigans.

https://money.cnn.com/2018/03/01/investing/herbalife-bill-ac...

[1]theoretically, in practise I'll predict it's about to be Septembered into oblivion

edit: formatting

Because the subreddit is famous for just losing money and lots of people just not knowing what they're doing. I'm sure there are a few traders on that reddit but I suspect it's like a professional programmer joining a dev bootcamp community. A whole bunch of people who are just learning and are doing crazy things. (I did crazy things when I was learning, hell, I sometimes do crazy things now)

I spent all night going through many of those threads, and I have to say they are ready to join Bitcoin once the SEC cracks down on them and freezes their Robinhood accounts and possibly even their bank accounts linked to Robinhood.

If Melvin does go down it will be its own success, but now they're going full vigilante investor mode, and putting money in BB, AMC etc... this won't stop unless the State intervenes and could set a precedent and as you say create a 'watershed moment.'

It won't be long until they realize what the long con really is: central bank based fiat currency that created these boom-bust cycles in the first place.

I initially mocked them when I heard about them taking GME to its recent rise, and still kind of do as WSB is a joke even by their own admission; but that doesn't mean it cannot create positive change. After all comedians just use humour in their jokes to highlight and poke fun of some of Society's most absurd aspects with varying levels of success in reforming it.

Dave Chappelle's latest monolouge at SNL after the election highlighted this very well.

Agree. I think we're all seeing that hedge success for many is more about market influence than actual market prediction.