Comment by reissbaker | Hacker News Reader

Comment by reissbaker | Hacker News Reader

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"Melvin and Citadel can BUY GME themselves to mitigate the risk."

Melvin buying GME is not "mitigating," it's closing the short position. If you close your short position high, you got screwed and you lost money. They did close it recently... At a massive loss.

"I firmly believe that the hedge funds that held GME short positions have bought into GME to mitigate their exposure. They likely bought in algorithmically using robinhood data and are making money off of retail right now."

How... Would "making money off of retail" in a pernicious sense be possible right now? If a retail trader on WSB bought in at $20, and sold at $200, they got 1000% ROI on their trades. Do you think that a bank secretly snuck in greater than 1000% ROI? The WSB trader got 1000% ROI, but the bank got 2000% ROI on the set of trades? The stock would have to be trading at $600 and the bank secretly pocketed $400 for that to happen.

Sure, the HFT front-run orders. But they are constantly buying and selling the shares they trade, they're not just buying. They don't get the buy-and-hold wins that the slow retail traders got off of a rally like this. HFT make money by providing liquidity, not by buying and holding GME.

Also, just as a technicality, Melvin is not a high frequency trader. They are not the same people front-running Robinhood orders. Melvin lost big time.

"My message to the people here: ... you are still losing"

My message to the people here: if you got >1000% ROI, you won. Don't let randos on HN make you feel bad.

(Close your position though.)

Citadel invested in Melvin this week on the cheap.

Citadel is the main internalizer for Robinhood.

I don’t think it changes much about your post but the connection between HFT and Melvin is public and directly financially relevant.

Citadel != Citadel Securities

Yet they have the same headquarters, same CEO and same principal investor...

Oh, Citadel made money off of GME — but Melvin didn't. Melvin had to take investment in what I can only imagine were very unfavorable terms from Citadel because they were bleeding money so badly. Then they were fools and didn't close their short position immediately, and lost even more massive amounts of money. As a sidenote, I doubt Citadel's investment in Melvin is looking very good right now. (Since somehow Melvin seems to have not been bankrupted, maybe it will look better in a few years if Melvin recovers.)

I would also be fairly surprised if Citadel made, say, 1000% ROI on their total GME trades this week. Giant bull runs are fine for HFT, sure; everyone wins when stonks go up (except for shorts, who lose big time). But giant bull runs are generally better for buy-and-hold investors than for HFT, because the buy-and-hold investors weren't doing all the useless intermediate buying and selling that the HFTs were. If a stock goes up and to the right, the best (retrospective) move is to have invested all of your position early, not to have constantly invested a bit of it over time as it went up like HFTs do. Basically: GME's performance favored avid WSB investors who got in early, much more than it favored HFTs front-running Robinhood for pennies on every trade. To quote Matt Levine, "you don't need special evil HFT powers to see" GME going up, it was happening for weeks [1]. You didn't need HFT powers to see WSB posts about the squeeze, or about short interest being 130% of the float. If you were an avid WSB user, and you got in early, you really did take Melvin for a ride. Sure, Citadel did well too — but your returns would still probably blow theirs out of the water.

IMO, WSB won the biggest.

(I do worry about the retail traders who bought in late due to the hype; this rally doesn't seem sustainable.)

1: https://twitter.com/matt_levine/status/1354131836323196928

No, if Melvin is buying calls they are not covering. They are making a profit they can use to mitigate their losses covering later.

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