Hedge funds loosing their shirts to nerds and soccer moms.
If the entirety of the human were, functionally, a complex organism then the result of this sudden and energy-expensive outgrowth will likely be a sudden and intense immune response that will have effects beyond those directly involved.
Probably not going to end well, but they'll learn something from it.
Unfortunately, I disagree. I think there will be stories written for the next bit about the handful that make bank, very few stories written about the people who lose their shirts and end up with their financial life in ruins.
When nonsense like this happens again, no one will remember the downside.
The smart people learn from other people's pain.
And unsurprisingly they've fronted money to at least 1 of the hedge funds on the wrong side of these trades. They're probably making bank. A couple of particular hedge funds will lose money.
But what happens to the people who are carrying GME when this frenzy ends and no one is willing to buy GME at a $24Bn market cap valuation.
They end up being the ones who paid for everyone else to "lose their shirts".
That's a complete distortion of what's actually happening. If this were actually happening and people knew about it there would be absolute outrage.
The truth is that Citadel is one of a few firms that pay Robinhood for the option to take the other side of trades. It's pretty innocuous but people get upset about it and turn it into "Citadel get advance knowledge of Robinhood trades".
Citadel is in the business of making markets. Instead of taking a position on a stock, they just happily take the other side of most trades. They make their money by offering slightly below the "true" market price and in exchange they provide liquidity to the market so that you can sell your stock pretty much whenever you want. The idea is that most trades are pretty random and for each trade on one side you have a trade on the other side that balances it out and Citadel keeps the difference between the "true" price and what they pay/sell at.
The problem is that sometimes lots of stock will be sold for a good reason (imagine someone finds out that there's an accounting fraud at some company). In this case, Citadel loses money because the trades don't balance out and the stock just goes down.
From Citadel's perspective, traders on Robinhood are much more likely to be random people with no extra info (retail investors) and so they're willing to pay Robinhood to route the orders to them because it reduces the risk of adverse selection. In exchange, Citadel has to give a price that's at least equal to the best price in the market or else they're not allowed to fulfill the order.
The SEC disagrees
https://www.cbsnews.com/news/robinhood-sec-fine-65-million/
"Federal officials said that between 2015 and 2018 the company only partially explained on its online FAQ page how it makes money, omitting details about its largest revenue source — trades. Robinhood takes a user's stock order and sells it to a larger trading firm that executes the trade, a process known as "payment for order flow," the SEC order states."
I'm not so sure about the soccer moms thing. The FT has a chart of how many small players there are, and although it's shot up it doesn't look huge to me. Seems to me the WSB crowd IS making money, but there's probably more institutions jumping on for a piece of meat too.
"Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding." (As he explained in a footnote, this does not necessarily imply massive naked shorting.)
I don't know how things have changed since then. Maybe this morning would have been a good time for GameStop to issue more shares?
This too will go down, violently.
I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k. Take my wife out for a nice dinner or something.
> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.
Sure, if you call the top, otherwise you'll turn $1k into -$20k pretty quickly
I don't think anyone is actually long on gamestop at $350 per share, but trying to short is not about company expectations at this point, it's about timing this hysteria wave, and if you mistime it you get destroyed by infinite risk and your broker liquidate your position and you leave with not 10k, but -100k.
Unless you plan to use 10x leverage or trade options, which I doubt if you don’t trade individual stocks, you can’t 10x by shorting. On the flip side, if you shorted at $20, you would have lost your entire portfolio if you shorted with 5% of your capital.
Shorting here is trying to catch a falling knife, don’t do it.
Because short sellers accept potentially unlimited liability in the event of a price increase. Remember the old maxim: the markets can remain irrational longer than you can remain solvent.
The operating theory of the WallStreetBet hivemind is that the short sellers (collectively) are in so deep that further price increases will force them to close out their positions by buying back stock at a loss. Short sales are ultimately made on margin (because they're a debt of a share), and margin accounts will be called in at some ratio.
That "short squeeze" would cause the price to spiral ever further, and that price increase would then force any remaining short sellers out of the market.
See https://moxreports.com/vw-infinity-squeeze/ for a well-known, circa 2008 short squeeze that happened to Volkswagen.
The issue with the operating theory is that it's fuzzy; there's no way to know what price point will trigger such a short squeeze.
> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.
Only if you are highly leveraged yourself, exposing you to those dramatic losses if you mis-time the market even slightly. If you do want to take the down-side of Gamestop, it'd be safer to buy a put option to limit your potential loss. However, the high implied volatility also makes the trade a bit expensive right now.
(Edit to add: I have no financial interest in Gamestop, up or down.)
Who wants to tell him?
Because everyone with an internet connection and half a brain knows that the shorts are totally screwed if the WSB turds keep buying.
I can't believe these "professional" funds would keep short positions open on an equity with crazy-high short interest...that's like Trading-For-Dummies grade fail.
What's more amazing is many of their clients will be destroyed in the largest bubble in history, where money was given out to every idiot with a TD Ameritrade account.
But, chances are, a lot of them will make incredible gains by betting on the misery of hedge funds who themselves bet on misery. No tears shed for the hedge funds or the account holders who are now basically zero'd out. Imagine having your life savings in one of these funds...in the biggest bubble in history, your account went to ZERO!
At these boosted stock prices all it's going to take to sink anybody is an after hours announcement of additional shares being offered.
I couldn't made a lot more money but I try not to be greedy.
>In general, a crafty short seller (a.k.a. most long/short funds) will do the following to ensure the internet doesn’t outsmart them:
> 1. Capping loss with put options — With a put option, you roughly get all the benefit of shorting a stock (minus the premium paid and strike) with a finite amount to lose.
> 2. Capping loss with OTM call options — This is my favorite, and one of the more common strategies. When you assemble a short position, you aren’t stupid hopefully — you understand stocks only go up, and infinity is a much farther number from current price than 0 (using a discrete numeraire, of course).
https://nope-its-lily.medium.com/gamestop-power-to-the-marke...
Look at Melvin - they are trying to convince the market they are still solvent.
Citron closed their shorts at a huge loss.
This really is a case of "seasoned professionals" getting slaughtered on awful trades, and they didn't appear to have a safety net set up.
edit: people seem to think I am cheerleading WSB...far from it, someone there will also get slaughtered by being the last fool to walk in on a risky trade. Trading is merciless, caveat emptor!
edit2: the article above does NOT refute my claims. Melvin took a $2 billion emergency infusion from Citadel. You don't do that if you safely closed your trades without hazard. Sorry I'm going to trust Bloomberg over "nope-its-lily"
There is zero percent chance that this is actually playing out the way WSB is claiming it's playing out.
What makes you say that? Any idea of what is happening?
There's a decent not-meme-based story around GameStop's turnaround, and a number of actual investment firms saw it weeks before they did. Investment firms are betting against each other, as per usual.
Also, now that GameStop has all this extra value, they can actually improve, so the not-meme-based story becomes even more compelling.
From the article in my previous comment:
>Even assuming the worst case scenario here (let’s assuming somehow the put value was $10 and they held until now and the put is worthless, the max loss is $54 million for a hedge fund with $20 billion AUM, for a max risk of about 0.27%), Melvin Capital is sleeping fine. Because they bought puts, and didn’t short shares directly, their max loss is capped (the premium they paid).
It sounds like they did short shares of gamestop. When the first article came out it said their puts had already expired. Gabe Plotkin called into CNBC this morning and said their "short had been covered" meaning that they did short shares.
https://www.ft.com/content/8be64f49-7c90-4fae-8370-c5c5c96d8...
TLDR Melvin Capital is already down 3.75 Billion 3 weeks into 2021...
https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...
"Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund’s manager told CNBC’s Andrew Ross Sorkin."