I get this knee jerk reaction but there is something to be said about the risk analysis, sophistication, etc of said hedge funds. They’re not gambling in the same sense, but sure in some sense they are. Even having an entry level “risk model” is more sophistication than most home traders.
Bruh, lets be honest its GameStop. That company IS going the way of blockbuster. "pure gambling" is a stretch everyone can read the tea leaves here. Honestly pre-covid when was the last time you went into a GameStop and saw more than two other people.
But it doesn't have to go the way of blockbuster, it appointed 3 new directors to its board with e-commerce and tech experience. It seems to be looking to transition to an e-commerce platform.
Its going bankrupt in the medium term if nothing changes, but that ratio of shorts would only make sense if it was going bankrupt in a quarter or two, where Gamestop actually rallied on revenue with the release of the new console generation.
Risk analysis and sophistication are in no way orthogonal to gambling. They are hallmarks of gambling at the highest levels. Horse handicapping among horse racing gamblers is extremely similar in every form to the stock market. Even "simple" games like poker have extraordinarily complex risk analysis schemes at the highest levels and you can listen to all sorts of stuff in the World Series of Poker broadcast commentary alone.
A handful of speculators were hurt. Now the WSB crowd is facing a large loss -- and guess who they are losing all that money to? You can bet that hedge funds with "dry powder" jumped on the opportunity to take short positions on GME as they watched the price and implied volatility balloon. All the people buying options and buying the underlying stock -- who do you think they were buying from?
Or to put it another way, there is a difference between being a skilled poker player and sitting down at table in hopes of winning fairly versus doing what the MIT Blackjack Team did.
That isn't to say that traditional Wall Street people haven't done anything wrong in the past or are in the right in any way here. It is simply pointing out there is a big spectrum in "its all gambling" and this activity seems like it is closer to the MIT Blackjack side.
Derivatives involves a lot of betting. It also involves legitimate hedging. A farmer can lock in their revenue, and a manufacturing company can lock in exchange rates.
While the title might be true for the "amateur investors" that got in early, I strongly believe that most of them are not outwitting anyone and will be bagholders. As of this post basically everyone who bought yesterday are underwater by 50%.
> Does it matter that your're underwater by 50%? The goal was to beat Wallstreet, They did.
1. If you end up losing money in the end, I'd hardly call that "beating".
2. "wall st" isn't a single entity. The hedge funds shorting GME might have lost money, but there's plenty of companies that made money on the side, eg. the asset management firm that unloaded their GME shares.
They didn't beat wall street, they just dinged a handful of speculators. Who do you think is on the other side of that 50% loss? I am going to assume that a whole bunch of speculators swooped in yesterday to take advantage of the situation and they just walked away with some easy money, courtesy of the WSB crowd.
> The hedgefunds should definitely take note not to play a dangerous game because losing is always on the table.
Taken at face value, this advice boils down to never doing anything that involves a large risk. No civil rights movement, no D-Day invasions, etc.
There's certainly a reminder here about tail risk, and the ability of the market to stay irrational longer than you can stay solvent. However, the takeaway isn't "only take on big risks if failure is impossible." Taking calculated risks is an important life skill, and so is realizing that humans have pretty bad intuitions about risk.
In hindsight, we may find some funds that had 30 different short positions similar to this one. This one position blew up badly, but if the others come out moderately ahead, and they came out ahead net-net, then maybe this just validates their strategy.
That's quite the hyperbole you've got going. I was just suggesting that ONE bad round of investments going bad shouldn't make a hedgefund apply for bankruptcy. and my take isn't to "only take big risks if failure is impossible" (Which is a paradox, you risk failure or failure is impossible)
"then maybe this just validates their strategy."
Well, no, the GME stock rally made them insolvent for such a long time that only the SEC intervening might save them. (Again, not suggesting that's the SEC's motivation)
30 day non-volatile shortstocks should require significantly higher margins than they already do because debt increases nonlinear when the market goes up. but no, higher margins would mean you can invest less so the SEC better protect everyone on wall street from market gambling. The SEC operates on a complete grey area and many people who have 'beaten' wall street ended up being caught and nerfed by the SEC.
'our mission is to protect investors and maintain fair, orderly, and efficient markets'
The SEC is not your friend. It does not help YOU when the market is unfair, volatile, inefficient. only when big waves form they feel the need to help big players. The SEC is just going to blame amateurs, help the hedgefunds and make no attempt to help the day-traders who many people argue ITT got caught up in the GME stocks.
The problem is that people were starting to get in for pure speculation. Two friends of mine who don't care at all about Wall Street told me yesterday that they bought in, because they read an explanation of why they're sure to see big gains on Friday. If the goal was just to beat Wall Street, hurt some hedge funds and get egg on a lot of people's faces... like you said, they've already succeeded, so putting a stop to it before speculative investors get hurt seems appropriate.
I think the later investors were coming in because they saw the craze on the news, Facebook, Twitter, etc and wanted to get rich quick. I have a few friends who invested yesterday.
Sorry for ignorant question here not acquainted to stock market mechanisms, but: why the time imposition of tomorrow? Who dictates that storters have to return shares and when?
Frankly I thought with puts you state time limits, and with shorts you decide for yourself when you’ll have to give shares back. If that is not so, then I guess I finally understand why everyone says shorts are super risky.
They don't have to cover shorts tomorrow, but there are ITM calls that will be expiring. The idea behind the shorts is to keep the price high until these funds have no choice but to cover.
First of all, the exchanges could never impose that rule, because in order to sell you need to have someone buying. It is discount brokerages imposing the rule, and they are doing so because they saw what looked like market manipulation and are not interested in helping with that sort of thing. They could have stopped trading entirely, but that would have been worse for their customers, who would have watched their positions lose value and been helpless to do anything about it.
Who do you think those shares are being sold to? Robinhood's brokerage side is restricting trades, but their exchange (the "shadow" exchange they use to make money without charging commissions) is still allowing buy orders, or else they have effectively suspended GME on their exchange and have to route the sell orders elsewhere. Again, it is not possible for an exchange to only allow selling of a stock, because every share sold is a share someone else is buying.
Plenty of American brokerages have not imposed any restrictions either, and again, a brokerage is not an exchange and it is important to know the difference if you are going to be a self-directed investor.
If you short more stock than exists, eventually you need to find it. Prime brokers will allow you to naked short but you have to locate shares or buy back in pretty quickly.
>There are no set rules regarding how long a short sale can last before being closed out.
>The lender of the shorted shares can request that the shares be returned by the investor at any time, with minimal notice, but this rarely happens in practice so long as the short seller keeps paying its margin interest.
they could always deal with the lenders, which don't gain anything if their borrowers go bankrupt and they won't even get back their pennystock. And I think these lenders already deal with them quite a bit. And obviously there's still a lot of shares with WSB and I don't see how the current situation prevents offering shares for the rocket-like USD1k.
Not being in the US I don't know this but can Robinhood be sued, like a lot of people seem to be calling for, just for refusing to handle trades on a stock?
Which can be viewed as market manipulation. I'm not in US either but it looks pretty dodgy on their part. A key message of all these new trading platforms is that your capital is at risk. Their users know this, so why are they restricting trades?
They are restricting trades because this looks like a possible crime, and they do not want to be known as crime-friendly brokerages. "Your capital is at risk" is not the same as "it's a free for all."
The T&Cs will almost certainly allow them a huge amount of latitude in what they will let people do with their platform.
Although if a decent amount of retail investors lose money as a result of not being able to sell stock they already own then the blood is in the water for a class action. Saul Goodman is waiting for your call!
That would only make sense if they refused you at the door, or after you had sold all investments. Obviously the fact that these people hold shares complicates it.
Outwit certain parts of wall street, maybe. Any hedge fund making money off of deal flow is gonna make a huge profit when there's a big spread between buy/sell prices.
The endgame was that the hedge funds who overshorted this stock would eventually have to pay massive prices to close out their positions. Retail brokerages coordinated this morning to turn off buy orders in order to bail out the hedge funds.
I guess that while this is theoretically possible (that the retail investors walk away with a healthy profit, at least in aggregate), this is complicated by existing shareholders cashing out (which basically is a transfer of money to them). It also supposes that all the retail investors can act in unison and won't break rank (which will cause the prices to tank).
The endgame isn't about this specific instrument, but the pattern of market manipulation (hell, economy manipulation) which it represents in the context of leveraged short selling alongside a 'too big to fail' regulatory regime.
The endgame is to use collaborative economic force to push rent-seekers out.
Nope! The price only has to stay high until eob Fiday when ~20 million shorts expire and have to be covered by the stupidly inflated price. Then the price will tank and those with short positions will be holding the bag.
Existing investors only get paid when they sell. As soon as they sell they're out of the game. There is no 'perpetually' in this scenario.
Where it can continue to rise is where there are those holding short positions that need to buy shares to cover those positions. They can only buy at a price the seller agrees, and in a short squeeze situation the seller can demand pretty much any price they want (in theory)
"It seems meaningless to talk about the price of GameStop stock, as though a single number could represent such an elusive concept. GameStop stock has all the prices at once."
We will be reading "I lost all my savings" posts in a few days on reddit. It is for sure GME will hit 30, and those bought it at high will be sharing their real life pain instead of memes.
How sure are we that this is really being driven by "amateurs" and not by scammers running a pump and dump scheme under cover of a grassroots phenomenon?
A stock actually has a calculable estimate of value, you know. It's the sum of future cash flows. Gamestop has been losing money for years and their outlook as a brick and mortar retailer for items that are now sold online is poor. The short sellers are correct. The business of Gamestop is bad and it's equity will be worth nothing. A short squeeze isn't going to change that in the long term.
The problem with GME starts with the funds that managed to accumulate a 140% short interest in the stock.
Send those people to jail for illegally issuing unregistered shares of a security, or counterfeiting shares of a security, because everything that happened after that point is entirely their fault.
Alternatively, fine them $10B and issue it as a dividend to the shareholders that bought and held after Jan 1.
I liked Ars Technica's analysis of what happened. The TL,DR is that if a company's stock is so heavily shorted, so much so that the number of "borrowed" shares exceeds the number of liquid shared available, and it is not on the verge of going bankrupt, this kind of short squeeze is possible and you can get a feedback mechanism going to make the price soar, at least in the short term.
If Wall Street wants to address this, they could put limits on the number of shares that can be shorted.
For pointers into the massive graph of submissions on this topic, see https://news.ycombinator.com/item?id=25933543.