This emergent behavior seems a lot like DDOS, but in the stock market.
A large portion of their profit came from buying used game discs and reselling at a healthy markup. Digital distribution was already hurting that in a major way and COVID is only accelerating the decline of physical media.
Their plan has been the same as several other desperate mall-based stores like barnes and noble: keep the core product to draw people in, but pack the shelves with cheap high-margin "lifestyle" items like t-shirts and toys. I predict in 5 years they will be a corpse that's been picked clean by venture capital, existing as nothing more than a brand that can be slapped on some online game store.
GameStop, AFAIK, is a dead-end strip-mall based retailer who, much like Blockbuster, has failed to adapt to changes in the last few years. They've lost something like a billion dollars and nothing is looking up for them as far as their actual business goes. Gamestop likely doesn't have a plan for revitalization unless that involves liquidation or getting bought out. I expect they're utterly blindsided by these recent events-- they've been very quiet about it. Gamestop surely knows this won't end well for them.
Is there a place for GameStop-like retail in dying suburban strip-malls? Sure. Are they a growth industry? nope! The Hedge-fund guys are ultimately "correct" that GameStop has no future. I just hope that all the reddit kids who bought this stock are fully aware that the last ones holding the bag are going to lose money, but I feel nothing but elation at the hedge funds losing a ton of money over something so ridiculous.
Are those losses occurring? Or is WSB just being self-congratulatory about how much of their own money they're throwing away, and being ignored by the people they're supposedly hurting?
(I genuinely don't know; it's hard to tell from the reporting. Nor am I an expert. I could imagine that some hedge fund is getting margin calls forcing them to cover shorts that would seem to be shaky. If that's the case, I could imagine those rules getting rewritten.)
The insane stock price we're seeing now is in anticipation of a short squeeze, but folks who took the bet before January seemed to mostly agree that the share price belonged somewhere around $30 regardless of the insane shorts. There was hope of a short squeeze being possible, but the downside was considered minimal with the thesis that GME was fundamentally undervalued regardless.
https://www.forbes.com/sites/joanverdon/2021/01/11/can-ryan-...
If there is a sufficient squeeze, and GME doesn't issue new shares, each of those options (especially those purchased earlier) will result in tens or hundreds of dollars of profit to the holder.
What's your math for asserting that Citadel is making "the most money" "by a huge margin"?
Curious how long it would take. Are there regulatory hurdles that take time? If not, I could see that the potential for large profits might make an otherwise slow process suddenly get completed in a short amount of time if needed.
First, the short sellers getting taken to the wood shed absolutely deserve it for placing such an idiotic bet. The short positions outstanding are 150% of the available shares even today. Its a short squeeze even more than its WSB pumping it. And apparently the short sellers just keep coming back for more. They can play that game if they want and I dont feel bad that they lose all their money.
Second, theres no such thing as "short seller pressure". The act of shorting does not lower the price of a stock mechanically. You could argue they are forming a negative narrative but I would call that fair game. You're allowed to say a business is crappy.
Third, WSB pumping and dumping stocks is scammy and definitely not good for the markets. Thats just a mechanism where the early pumpers clean out all the idiots who follow their trade.
Suppose you own a share that you don't want to sell and are willing to loan it to me for a month. I'll have to give it back to you, as well as interest payments in the interim. I can sell that share today, which will push the price down. My entire bet is that I can buy your share back in less-than-a-month for substantially less than that for which I sold it.
If I am wrong, I will have to repurchase the share at or before the end of the month at market-price, restoring the number of outstanding shares to where they were at the beginning.
The bet was good. A lot of companies are doomed to contract drastically. The problem is that someone found out about this specific bet and rallied others around it.
90% of those redditors (maybe 99%) will loose a lot of money.
Sure some Wall Street hedge funds are loosing a ton of money, but most of this money is just going to other hedge funds, that were on the other side of the trade.
The stock will go back to around 10$ when this is all over (soon) - and only a few redditors will be able to actually realize their gains.
That being said, I like this situation. It's a gentle reminder that the stock market is a risky and (way too) complex thing.
I'm not sure they realize, that they are throwing money away - I'm pretty sure they do not. But it may well kill some hedge funds and even cause some market ripples.
But in the end, it will be it - throwing money away. And once the dust settle, and they find themselves with big losses, I bet they will blame ... Wall Street.
Just to be clear - there is already plenty to blame on Wall Street, no need blame them for something they didn't do.
Hatred and spite for "traditional" (and patronizing) investor opinions like this is what is driving WSB.
Yes - there is a short squeeze, but those redditors gains are only on paper. The stock may even go to 10,000$ from here - nobody knows. But at some point, those short sellers will cover or go bankrupt and the stock will be back to its 'fundamental' price - whatever it is, but certainly not 330$ that we see right now.
I really don't think that's the case. I would agree with you on this point in most cases but this is a very unique situation in which everyone will make money once the people on the short end capitulate.
I suppose it comes down to the question of whether people can stomach the ups and downs up until that capitulation. I think once you screen for all the spam and memes on WSB the explanations are very simple to understand. As someone who does not invest in individual stocks(I have done so maybe 3 times in my life, the rest is in index funds), I was able to understand the situation quite clearly.
You don't even need to wager a large amount to make a large amount. The way it was explained makes sense that you could be up 10,000%, so invest $100 and you could end up with $10,000. This allows even small frys to put a little in and let the mechanics of the market do its job and at the worst case you lose money you wouldn't have minded to lose anyways.
At this point, if anyone is thinking about getting in, i would proceed with caution. The stock has already blown up quite a bit so you probably wont be getting those big 10,000% paydays. I am not a financial analyst blah blah blah please dont sue me
It's a different story if the stock is legitimately undervalued, of course. But there's no coherent argument to be made that GME's current price - up 110% since yesterday! - is rational or sustainable. And indeed, if you look on WSB today, you see a lot of people explaining that you'll ruin the bubble if you don't keep buying lots of GME.
The social media hype here is about this being a short squeeze. Large institutional investors have taken short positions and will likely be compelled to purchase to purchase shares at whatever price when margin calls come in on Friday. The current share price does not reflect the potential to profit off Gamestop as a company, it reflects the potential to profit off of the institutions that have taken incredibly risky short positions.
Here, the greater fool is already committed to buying your shares, and the timeline for that purchase is known with enough certainty to make this a fairly low-risk play.
There is indeed a coherent argument for why GME's current price is so high. It doesn't have to do with the company itself but rather the current conditions of the stock.
There are 69.75 million gamestop stocks. Short sellers have borrowed roughly 97.65 million stocks. There are literally fewer stocks available than are needed. Supply is low, demand will be high when short sellers are forced to cover their losses. Think of the stock as an item you are purchasing as opposed to something the correlates to the value of a business and it'll make more sense.
I don't think this is what the intention of the stock market is, but the system allows for it to happen. The system needs to be fixed. You shouldn't be able to short more stock than exists.
why? the margin calls will materialize losses when theres no more demand for shorts. what does that have to do with the magnitude of aggregate short position relative to stock?
I thought the whole point is you have guaranteed buyers because the groups shorting the stock need to buy eventually.
[0]: https://marginalrevolution.com/marginalrevolution/2021/01/we...
[1]: https://twitter.com/zerohedge/status/1354412717231251459?s=2...
Everything is astroturfing/selling pretty much nowadays.
Social media is not reality, though astroturfing/distorting can become reality for better or for worse, depends on your position/tribe. What is on the surface is rarely what is the driving force underneath.