GameStop: Anger as trading in GameStop shares is restricted | Hacker News Reader

GameStop: Anger as trading in GameStop shares is restricted

bbc.com

84 pointsdeedub85 comments

The submitted title was "GameStop: Amateur investors continue to outwit Wall Street" but the BBC changed theirs.

For pointers into the massive graph of submissions on this topic, see https://news.ycombinator.com/item?id=25933543.

> "This isn't investing, this is gambling"

Yep. Agreed. Spot-on. That's what Wall St does. If you don't like it, try and stop it. But for everyone, including the hedge funds.

Treating the derivatives markets like a casino (and taxing appropriately) sounds like a great idea.

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.

You can’t just dismiss all that as nothing.

Yet somehow they've been outwitted by a bunch of Redittors. Maybe you're giving them to much credit.

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?

Which is why the squeeze will be fascinating if a high percentage of the WSB crowd really are going long.

These clowns shorted 170% of float. If that's not pure gambling teetering on market manipulation, I don't know what is.

It's mostly just one hedge fund. It would be an overgeneralization to call all hedge fund clowns...

Similar to calling all retail investors amateurs.

I didn't but a large portion of retail investors are likely amateurs.

Oh I know you didn't I was just pointing out the parallel to the point being made. :) Similarly the majority of people trading options are gamblers.

"These clowns" e.g. Citron and Melvin Capital. I know.

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.

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.

Sounds like you're agreeing with me? Not sure what your point is. Obviously these trades are not based on any sort of fundamental analysis.

Wall street made a bet and now retailers are getting tagged as bad actors for taking the other side.

never been to game stop, but there is one next to my supermarket. I see almost always 2-3 groups of people in there, never empty. Germany though.

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.

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.

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.

Seems like throwing out the baby with the bathwater. Many derivatives are just insurance.

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%.

depends on when the positions are liquidated.

everyone who bought yesterday is fighting exchanges whose only option for GME is "sell" because buying is restricted.

I don't know how some of these shorts will find 20 million shares by tomorrow.

>I don't know how some of these shorts will find 20 million shares by tomorrow.

you're confusing shorts with options. shorts don't expire. They can be held indefinitely as long as you have the margin to keep up with the losses.

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.

Shorts have delivery dates.

They do?

>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.

https://www.investopedia.com/ask/answers/05/shortsaleclosed....

Shorts don't expire, but the short sellers can call in on that short and there's also interest at exceptionally high rates.

> everyone who bought yesterday is fighting exchanges whose only option for GME is "sell" because buying is restricted

I can’t really understand how the exchange is saying “no, you’re not allowed to buy, but you can sell all you want” is legal.

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.

Robinhood is currently operating under Restricting the GME stock. The only option is to sell, there are no 'buy options'

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.

Yea... you know other exchanges that “I” can’t use, like Canadian ones are still allowing buying right?

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.

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.

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.

Does it matter that your're underwater by 50%? The goal was to beat Wallstreet, They did.

The hedgefunds should definitely take note not to play a dangerous game because losing is always on the table.

Well exactly, if you're holding a single share and you lose $200 dollars in the end, obviously it's not the end of the world.

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.

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.

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.

> 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.

> 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.

How are you going to become a bag holder of a stock shorted over 100%? Hedge funds will have to buy you out.

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?

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!

from what I've read, selling gme is the one thing they are allowed to do with it

That’s a great question, can they unilaterally shutdown trading?

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."

Robinhood is a private company, and are allowed to decide what types of people they want to let trade on their platform.

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.

OK, we've got this. Can we now stop sharing this every 5 minutes? Amateur investors lose money in the end.

hide/flag the post and move on

I agree with the comment above yours, HN turned into Reddit for the last week.

sure, but what's the point of complaining about it? if enough people flag it will go away. so just flag and move on.

you might enjoy reading n-gate - a weekly satirical review of hacker news. They'll surely have a nice post about GME, AMC and others.

I strongly predict it will end with:

"And no technology was discussed"

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.

Not to mention any speculators who took short positions yesterday.

The high/low so far today is $514.50/$112.25. As I write this it's down 65%. What a surprise.

Platforms are banning buys for retail, ofc it's going down. If rh and td didnt ban it I bet it would be even higher.

But what's the endgame? That the stock will go up forever, so that the existing investors are perpetually being paid by future investors?

short squeeze could kick off tomorrow.

the days to close has fallen to 1.4 right now.

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.

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)

I think the endgame is that it isn't perpetual: the final "investor" is the original short-seller.

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).

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.

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.

Just know when to exit.

Matt Levine:

"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."

* Until observed

Schrödinger's stock price

Its easy for a stock to decrease in value when most of the American trading platforms don't allow Americans to buy it.

More than 10 Trading Halts in just a couple of hours. https://www.nyse.com/trade-halt-current

Nobody is “outwitting” Wall Street here. That will become particularly apparent in the coming days.

I’ve read posts on /r/WSB where people talk about having put all of their savings into this.

I only hope that they’re just teenagers with little savings.

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.

> It is for sure GME will hit 30

May I suggest you look into purchasing long-dated GME puts then? The price for the $320 GME PUT expiring in 1 year is $240.

Well, I wish I did what you told me heh.

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.

https://arstechnica.com/gaming/2021/01/the-complete-morons-g...

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