GameStop Opened at $300+ Today
imgur.com
imgur.com
When the stock hit $100, people bought. Same at $250. It'll be the same at $420.69, $1,000 - whatever. But whenever it crests, it'll sink FAST. A sell order at $1000 will get filled at $200. Everyone knows it.
Which makes for an interesting collective action problem: you have to hold hold hold - and then be the FIRST to dump. Not the third, the FIRST.
WallStreetBets will be anarchy...
Given that there is more shorts then actual stock. Would it mean that the shorts would be forced to take a loss and buy that stock?
I have very rudimentary knowledge of how this works, asking as I wonder how it actually works.
Yes, that's what a short squeeze is. They are losing more and more money as this goes up, and at some point they won't have more money to lose. They'll have to buy (in order to cover their short), which will further drive the price up.
So yeah, if the long holders just keep holding, it'll keep going up and those that are short will owe more and more to their lenders (and paying more and more in interest, I think). Even if they want to cover their short, there's not enough shares to go around for them to buy. This is why it's being called an "infinite squeeze". They've shorted the stock more than there are actually shares out there, so it's difficult to cover.
There's some more factors at play when you consider option contracts, I think.
People have already forgotten Optionsellers.com it seems
The real key is daily volume vs. volume shorted.
Shares outstanding - about 70M
Daily volume - about 24M
So if shorts were the only ones buying, it would take about 3 days of normal volume to unwind their positions.
But with the price going up, many others are competing with the short sellers to buy shares right now. So volume will go up and/or it will take longer to unwind.
Recently, the daily volume has gone up to 110M shares. A lot of those shares are being bought and sold more than once per day.
There's nothing magical about 100% of outstanding shares. But it's a huge problem that the shorts outstanding are so high relative to daily volume.
If they don't (let's say there's no price they'd sell at), a few things can happen:
The short-seller can sell their short position directly (transfer liability) to someone who thinks they can convince the stockholders.
The Company can issue more stock, diluting all shareholders, and sell to the short-sellers.
The short seller simply goes bankrupt, at which point liability gets settled in court (details depend on how they shorted, middle-men, etc.) - other people like brokers could get dragged into this too as they may guarantee the trade.
It seems to me that most of WSB crowd forget this kind of things.
IDK but another sane option would be that the regulator just pause trading on such stocks "until further notice" (I don't even know whether this is possible, but I guess that politicians can do whatever they agree to and pass a law or regulation)
Even if they don't, even if the funds go bust, only the early sell-offs from WSB will profit, while diamond-hands might be left with tons of $15 stocks that they paid $350 for...
Most brokerages would not allow a short position with such poor liquidity -- they would force the position to be closed to avoid taking on that kind of risk. Forced buying is exactly what is happening right now, as the price rises short sellers wind up with margin calls and are forced to buy at whatever price they can get (or they must deposit other cash or securities to offset the losses in their margin accounts). That drives the price higher and triggers more margin calls and more buying, until eventually all the shorts have been forced to close their positions. Brokerages will likely raise the margin requirements for a symbol like this to avoid a situation where a short sellers end up bankrupt with negative account values after closing the position (which means the brokerage will take a loss). Note that raising margin requirements will accelerate a short squeeze, since it creates more margin calls, but brokerages would rather get the positions closed sooner than later.
The price may shoot way up, or plunge, but this process almost always works, so there's almost always liquidity.
Anarchy? That place thrives both on their people making giant wins AND giant losses.
Since Musk tweeted about it, that price target has stuck for Gamestop.
They do. It is a very high risk endeavor though and missing the mark could lead to bankruptcy and success could mean action from the SEC. But catching someone in a short squeeze is pretty damn profitable.
Part of the success here probably has to do with underestimating the influence of wsb. This isn't the first time they've taken down short sellers (Telsa), but it's the most high profile time.
https://www.marketwatch.com/story/kalobios-short-sellers-fac...
The VW situation happened on a wildly different Wall Street and under a wildly different SEC. Things have changed since 2008 and pursuing that strategy today would be significantly more risky from a regulatory perspective. The SEC sent a clear message with Phil Falcone.
I don't believe the story has come close to reaching its peak yet either. I suspect there will start to be some major headlines still this week, which will bring in more speculative interest.
Then, at some point, the story fizzles. The gains stop and the price will collapse. It's going to be an interesting week or so watching this all play out.
Where is the line is between market manipulation and just... the market? I couldn't tell you. One or a few people working in coordination to create a short squeeze and they're definitely going to get a call from the SEC. A few thousand Redditors working in coordination to create a short squeeze? I guess we'll find out what the SEC thinks.
To be clear I’m not saying it’s definitely illegal because I’m really not sure and I think you could make the argument either way. But I absolutely would not characterize it as “completely transparent, truthful, and legal”.
I think the SEC could at least make the argument that WSB redditors collectively were essentially activist investors acting in concert and failed to make the relevant disclosures to put the market on notice. And, in the eyes of federal securities laws, failing to disclose material information is akin to deceit.
I‘m not saying the SEC will (or even should) make that argument but I am saying that this is absolutely not nearly as cut and dry as you think. Not by a long shot.
And working as a group does not need to be an explicit agreement like you think it does. You’re certainly entitled to your opinion as I am mine. Having experience dealing with the SEC as a securities lawyer I’m of the opinion its anything but cut and dry.
How are ideation dinners legal, or obvious conflict of interest when a market maker has stakes in a hedge fund - are they transparent about their shady collusions be it implicit or explicit? Atleast wallstreetbets is readable by anyone and everyone.
That doesn't make sense. Any restrictions on speech (e.g. prohibiting lying in commercials, prohibiting yelling fire in a crowded room, etc.) always need to go through the lens of whether there is a "legitimate government interest", because the courts have been very clear that any restrictions on speech much have a clear rationale. If the SEC wants to argue that posts on a public website forum are somehow collusion, they need to argue why those posts are not protected by the first amendment.
Of course, it's easy to come up with a clear rationale for why one would limit speech in this case, and "commercial" speech is much more open to restrictions. However, I don't see how one could argue "I'm buying a shit ton of GME, and I think you should too, because I want to screw over the hedge fund guys" is any different, just because it's on a forum, from all the other types of investment advice and theories that goes out all the time.
Wallstreet is the outer rim of hell.
[1] https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...
EDIT: My bad, the hedge fund was not closed, just its GME short position. I amended this.
No. It closed out its GME short. It then got a bailout from Point72 (f/k/a SAC) and Citadel. To my knowledge, the latter and Melvin are not affiliated.
Source on that? Even at this prices GME is ~$20b market cap in an exchange that represents ~$25t in market cap. I don't know that it really poses a systemic risk to anyone who didn't take out insanely risky short positions on the company in the first place
In this case I would recommend to stay out of the game. Just enjoy the show.
Hopefully I'm wrong, for all the people involved's stakes.
Its fun to watch but like most of high risk high reward activities you will likely lose or get lucky and then lose when you try to repeat that luck.
With that mindset you are pretty safe. You don’t “invest” in lottery tickets. It’s entertainment with money you can afford to lose.
I hope that’s the case for each and every person who bought this stock.
The WSB bet is extremely risky of course, but there's absolutely a chance that it will pay off enormously. How big that chance is, I couldn't begin to estimate.
From what I've seen, the people who are getting in late know very well that they're likely to lose money, but they're fine with that if they get to stick it to the hedge funds.
I wouldn't call people who short 140% of available shares good at anything
I guess that only applies when the 'right' people are involved?
Parent is so quick to try to score a point arguing definitions that they entirely missed the point.
The situation is pretty bonkers but I hope in the end that the hedge funds have learned a lesson.
In fact, it's tautological to state that if they got burned, then they are not that good. Or perhaps the entire thing is pareidolic nonsense.
They just forgot that efficient market hypothesis is just that, a hypothesis. Real world markets behave differently thanks to finite resources and secondary markets (essentially leveraged derivatives caused 2008 crash and I believe they'll cause another before regulators wake up from their sleep).
It's similar to blaming the roulette wheel when the gambler fails and praising the gambler when they succeed.
Someone correct me if I'm wrong, I only learned about it yesterday.
Normally you set a limit when you short. You don’t agree to pay an unlimited amount of money.
https://en.wikipedia.org/wiki/Short_(finance)#Risks
Otherwise you'd make yourself liable for a literally unlimited sum of money. Any short could completely bankrupt your entire personal finances or your entire institution in that case.
The investment bank has some type of collateral, usually the rest of your portfolio. When your net worth hits a certain threshold, perhaps $0 net worth of your portfolio, the bet is over. You lost all your money, and you don't end up in debt. In practice, the investment bank will cut you off before you reach this point.
But if you are an investment bank, there is no one controlling you on a daily basis, so you can dip into the negative in theory.
The problems with doing this are:
- Regulators. Once the regulator finds out you're negative, they will shut down your investment bank. Hopefully, they do this before you hit 0, but they may not get it exactly right.
- Counterparties. Other investment banks will refuse to do business with you when they know you are negative, or close to it. Once this happens, it's game over.
So in both cases, individual or investment bank, there is a practical limit on how much you can lose from one short bet. That limit is equal to your net worth.
You could lose any amount of money up to that on one short. It's risky.
There are also ways to limit your losses. You can purchase other contracts to limit your losses. This is kind of like insurance. In general, you are not required to buy this. Some people and institutions do not do this because of the expense. Most institutions structure each deal so there is no way one deal will risk the entire business. Smart people also take steps to make sure one trade does not wipe them out.
But sometimes mistakes happen.
The same hoard trading phenomenon seems to be happening with Blackberry. A number of insiders have already dumped shares, meaning anyone buying those shares isn't buying shares from a short seller, they're buying from people who recognize the price is outrageous compared to business fundamentals.
Bottom line, short sellers are definitely going to suffer, but so are a lot of robbinhood kiddies.
I happen to be cautiously optimistic about the company, but that is over a longer time-frame. The stock has more than doubled in a couple of weeks and seems to open consistently higher over the past few days. I don't think that is related to any real immediate business prospects. The Facebook settlement, Amazon deal and Huawei patent sales are all good news but hardly warranting the current frenzy.
Will Robinhood's systems and procedures work flawlessly on Friday? My guess is no. We'll find out.
The short sellers are paying (a lot of) interest on their positions and they need those shares. The higher the price goes, the higher the interest rates get.
People long $GME can maintain their positions indefinitely while the short sellers bleed.
This situation could have been prevented if the short sellers acquired enough calls to cover their position in the event of a price spike. One would think that a rich-ass hedge fund manager would do something basic like that.
I have a guitar that I could sell on the open market for ~$300.
But I don't want to sell it.
If someone offered me $300 for it, I'd say no. If they offered $400, I'd still say no. I'd say no at $900.
Why? Because I don't want to sell it and I don't have to.
There is some price that will change my mind, of course, but it has nothing to do with the actual value of the guitar.
Most of the time the future is years down the road, because you made a good bet on what business would be profitable. Sometimes the future is the following Tuesday because someone got out over their skis and _needs_ your stock now.
But there is no one "bleeding" as they won't realize the losses until they sell the contract or it expires.
For one, the calls look like they’re still overpriced relative to the puts. So manufacturing calls via put-call parity would be a starting point. (Spot checked the puts—they seem to break even under 100 per share out to November, so not much juice left there.)
It’s also only the leveraged funds burning out. And they don’t only own GameStop shorts. So money will be made bailing them out and cramming down their existing LPs.
This kind of a pyramidesque system almost guarantees that the most pain will be felt in the reversion to the mean, not flexion from it.
I just see a wake of losers all around from. Melvin's Hedge Fund? There are people and their portfolios behind that taking a hit.
Few people got in early and are seeing multiples in returns. Now they are on WSB "Now is the time to rebuy, GME to 1000$, GME to the moon!!!" because they needs loads of suckers to throw in late to keep propping the price up. But the later comers are going to lose their shirts.
The whole "Robin Hood" narrative is weird. Let's call a spade a spade; a few people are going to get rich at the expense of a lot of individuals over these shenanigans.
Too hot to make big money off ATM IMHO. 114% is nothing considering the risk.
r/WSB does not seem to believe it. I believe we should know for sure one way or the other by Saturday, but I could be wrong about that.
On the other hand, I don't understand why you hope they go out of business. Have they done anything bad by shorting GameStop? If they believed the stock was overvalued, are they wrong to bet on that belief?
They seem to think that shorts = bad.
As we can see now this was not only foolish but self-destructive. The only scenario where I see this paying off is when GameStop went bankrupt and there was no sign for this at all.
People love when greed gets punished and this is what we are seeing here.
But even disregarding that, a hedge fund’s job is literally to manage risk using more complex financial instruments.
A complacent hedge fund that overextends itself don’t just need to fail, they need to burn long and hard
Sadly, they usually get “bailed” out (by their buddies in their industry, not the government), like we just saw with Melvin. Which in turn creates enormous inefficiencies in our economy..
Why so?
They're based on asymmetry of information, the shorter having more insight than the lender. And their purpose is to convert that information into money at the lender's expense; by the time he gets his shares back, they've tanked.
There are obviously problems with who actually has access to short stocks, but in theory they are a reasonable counterbalance:
If you believe in the stock, buy it, if you don’t believe in it sell it.
And if you don’t currently own any shares, you can borrow shares from the people who believe in the stock, sell them now and cash out when/if the stock goes down.
The information imbalance is fundamentally a part of how we operate our markets, since information literally can’t instantly be distributed to everyone (regardless of what faith-based “economists” try to convince people to believe about the efficient market gospel)
You characterize it as a "bet". The whole point of a bet is that sometimes you lose. We don't allow for corporations to lose in the USA, only the common person.
It's a game and some one are going to lose.
I really don't understand this hatred of short sellers and cheering for people who are often clueless about valuation.
There's something as highly corrupt about that to me as much as anything else at play here.
Also spoken as "an eye for an eye will leave the whole world blind"
I've noticed that this proverb only seems to comes up when disadvantaged people (who are already missing a metaphorical eye) strike back at the people who put them in that disadvantaged state to begin with.
I harboured a lot of bitterness and built up ideals that were not based in reality. It took some time for me to realize that it's never as simple a situation as you want it to be, and no amount of pain inflicted against the simplified other that you've created for yourself will rectify anything.
Blindly attacking anything that resembles the enemy you've crafted in your own mind will just end up hurting a lot of others like yourself, and most of all: oneself.
For the record, it was Ghandi who said that. It's about rising above the condition of those who hurt you in order to not become the thing you resented. What do you benefit the world simply usurping your detractor(s)?
BTW, this could be said about long investors, they're hoping for their competitors to fail.
[1] https://www.institutionalinvestor.com/article/b1pgz6k9kjs50v...
If you see an actual institution spreading misinformation, report that institution to the SEC. If it's from someone hiding behind a keyboard and posting on reddit, ignore it, because no institution is buying based on the suggestions of WSB.
Just another example of weirdly flavored hero worship mixed with greed and the American obsession with cars.
According to the "invisible hand" of the market, they didn't, since supposedly rational investors on Reddit decided to buy lots of stock to go long. If you're going to claim the Reddit investors are actually irrational, then I have some bad news about most other investors as well.
this is a tiny slice of justice from 2008/2009 that Occupy Wallstreet demanded and never got. The fact that they get plucked like a goose by memers on reddit and on their own professional turf is almost poetic.
I mean, there were books and even a movie about it.
(edit) It's working again. But now I see that everything else on the market is going down. Coincidence, or are the hedge funds cashing out profit from other places to cover what they're losing in this squeeze?
As for who will profit, probably not the people who were shorting GME, but at this point it's impossible to say.
Definitely fuels the dank memes though.
I'd assume frenemies then since he's Chairman of Virgin Space
Perhaps after this, it will not repeat for a very long time, since one might hope hedge funds would be more careful about shorting more shares than exist!
The ideal situation for them here is that they hold enough of their own stock to sell some now and try to pivot with all the funding.
As far as people looking to speculate - you probably genuinely are too late, despite me being a supporter of riding bubbles like this, since obviously it works, sometimes.
This stock now has zero to do with the GameStop business.
It is traders fighting other traders causing a wild fluctuation in the stock. GME is just the arena for the fight.