to be glued to Gamestop this week!

[DiamondHanded]

I can't be the only one, who else is hooked on #GME?

I'm quite surprised at how much influence Elon Musk has. Any experienced trader sorts care to suggest how this will pan out?

@Wickstead

Can someone who has a few mins to burn please explain to the initiated what’s going on?

Yes I’ve Googled it
No, I haven’t managed to find an article that explains it all in lay terms.

A Hedge fund makes a bet that the stock price fo a company is going to go down. Imagine they bet $1million for every 1% the price changes. To do this, they effectively sell a stock at the current price, and have to buy it in the future.

If the price of the stock goes down 20% they buy the stocks they've already sold, and make $20 million.

However, if the price goes up 20% they are down on paper $20million. If it goes up 50% they are down $50 million.

If the price goes up too much they are forced to liquidate their position, because they are down so much money on paper. What they have to do to exit the gamble is to buy stock, which forces the price even higher. This price increase will in turn cause other hedge funds who are also short to have to exit, causing even more price increases.

This is what is called a "short squeeze", and can lead to huge price increases in heavily shorted stocks.

Normally one hedge fund can target another one that they know is short. What is incredible about this situation is that it is hundreds of thousands of Redditors using the same tactic.

All of this will end badly, and most of the amateurs will lose money.

@Wickstead

Can someone who has a few mins to burn please explain to the initiated what’s going on?

Yes I’ve Googled it
No, I haven’t managed to find an article that explains it all in lay terms.

Basically you can borrow stocks from a broker. So say you borrow a £10 stock from them, and then immediately sell it. You have the £10. The stock then drops to £7, so you buy that stock and then that becomes the brokers. So you’ve made £3 profit. If the stock was to rise, you would lose the difference.

So the GameStop thing: hedge funds had put a fuck ton of shorts on their stock. So when a Redditor started promoting buying stock, they lost an insane amount of money. The ‘short’ investments which were slowly getting bigger (GameStop losing money in their stock) started dropping massively (GameStop stocks gaining a huge percentage).

And now they’re losing money left, right and center. And there’s very little they can do. Which is why it’s so great, because people with very little are starting to take down the very, very rich.

but basically this has happened before- hedge fund investors got greedy and it shot the price up

That is nothing like what has actually happened.

@Ostryga

You missed one of the most important points. Over 100% the shares have somehow been shorted. Therefore its impossible for the hedges to buy enough shares to close their positions.

Thanks, all

[quote JellyBabiesFan]@Ostryga

You missed one of the most important points. Over 100% the shares have somehow been shorted. Therefore its impossible for the hedges to buy enough shares to close their positions.[/quote]
How can it be legal to sell more than 100% of anything? It's as if 2008 crash never taught anything.

DH works for a hedge fund (not one as stupid as Melvin) so we are not allowed to trade individual stocks. I think it will all end in tears tbh but it is fun while it’s lasting.

There definitely should be systems in place to prevent short selling of more than a certain percentage of a company, but short selling in itself is not a bad thing - it increases liquidity and is an important part of how the market works. What's happened to Gamestop is not a good thing - most of the retail investors will lose their money when the bubble bursts, and this is essentially market manipulation, which has no place in a functioning market.

It’s definitely been interesting to watch! I saw that the cineworld share price has been quite volatile here too, as there’s some chat room talk of it being the uk equivalent as it’s heavily shorted?

I don’t know if it’s possible to have the same squeeze in the UK though due to regulations?

Is this a typo?

I've heard of Gamban but not Gamestop?

*Gamstop, not Gamestop.

Gamestop is a crazy business anyway.

Dp has been following thisbon reddit all week. Im not even going to pretend to fully understand the stock market. Ive always wanted to buy shares but dont understand it at all to do so, might look into them apps.

But ive read elon musks rants about this, he is firmly against the redditors.

Is this a typo?

No. The business is called gamestop

@Shaniac

Gamestop is a crazy business anyway.

Dp has been following thisbon reddit all week. Im not even going to pretend to fully understand the stock market. Ive always wanted to buy shares but dont understand it at all to do so, might look into them apps.

But ive read elon musks rants about this, he is firmly against the redditors.

I think you will find it is the opposite, he is actually firmly for the redditors.

"How can it be legal to sell more than 100% of anything? It's as if 2008 crash never taught anything."

The 2008 crisis wasn't caused by shorting stocks. In fact as HBOS was crashing, they were requesting that the regulators stop shorting (HBOS's problem is that it was a criminally badly run business, and shorts had every right to point this out).

The ultimate problem here is interest rates are too low, causing people to speculate in crazy ways rather than invest, and a wall of printed money is hitting the market.

Talk me through how shorting increases liquidity?

@tttigress

I disagree shorting should be permitted ‘as it exposes dud stocks to the market’.

Anyone with half a brain ie. analysts and hedge fund managers, can read a balance sheet, have all the ratios calculated automatically, have access to and understand the management teams strategy, dynamics of that sector etc. plus do all their own research and make an informed decision. They may sometimes get it wrong - that’s trading for you.

In the example Theranos. It’s not possible to have that many diagnostic tests from such a small blood sample which most people in that sector knew. Irrespective of the fact they lied about having a working product, any amount of actual due diligence would highlight the fundamentals were flawed. Unfortunately the market likes to believe in unicorns.

If shorting exposes dud stocks it’s also fair to say it wipes off value of perfectly good companies.

Shorting improves liquidity because, in the simplest case, it increases the volume traded, which increases liquidity.
In practice, this results in tighter bid-ask spreads, it allows people selling derivatives to hedge, which reduces the prices of said derivatives, and it allows over inflated stocks to return to a more acceptable level sooner.
Short selling is very risky (as we are seeing), so given the benefits of having it in the market, if someone wants to short sell then, that's their risk to take.

[quote KeepWashingThoseHands]@tttigress

I disagree shorting should be permitted ‘as it exposes dud stocks to the market’.

Anyone with half a brain ie. analysts and hedge fund managers, can read a balance sheet, have all the ratios calculated automatically, have access to and understand the management teams strategy, dynamics of that sector etc. plus do all their own research and make an informed decision. They may sometimes get it wrong - that’s trading for you.

In the example Theranos. It’s not possible to have that many diagnostic tests from such a small blood sample which most people in that sector knew. Irrespective of the fact they lied about having a working product, any amount of actual due diligence would highlight the fundamentals were flawed. Unfortunately the market likes to believe in unicorns.

If shorting exposes dud stocks it’s also fair to say it wipes off value of perfectly good companies.[/quote]
Well Bernie Madoff managed to avoid detection for years, even though people were highlighting that the returns on his fund were impossible. I think there needs to be an insensitive there to expose fraud companies.

It would be really funny if they they cease trading of the stock, call it a circuit breaker, and leave the boat to sink back to normal levels. Hedge funds are saved and speculators get their money back minus the profits. They can change the rules whenever they please, and they just come out and say it was a minority of folks trying to generate a run on stocks and liken it to a run on the banks, tell the world how stupid and dangerous these people are, and the consequences for the economy if they were allowed to get away with it, and if need be make a Presidential announcement and thanks the App companies for doing their very best to stop these anarchists.

Personally I'd be taking profit before its taken from you.

Shorting improves liquidity because, in the simplest case, it increases the volume traded, which increases liquidity.
In practice, this results in tighter bid-ask spreads, it allows people selling derivatives to hedge, which reduces the prices of said derivatives, and it allows over inflated stocks to return to a more acceptable level sooner.
Short selling is very risky (as we are seeing), so given the benefits of having it in the market, if someone wants to short sell then, that's their risk to take

But why is a tighter ask spread better? And why should we care about people buying derivatives being able to hedge? Derivatives bring their own problems, right? I’m not sure I’m convinced of this argument that shorting is good. But I’m not sure why!

I worked in finance and this whole thing is ridiculous. Obviously the online brokers don't like it as you have essentially a huge pyramid scheme. They don't want to end up holding a large position when it all suddenly crumbles. It's basically pump and dump (hold a position, then get a load of people to buy it to drive up the price then dump your position) which you would never ever be allowed to do as an actual trader. You'd end up straight in jail. Hedge funds have massively diversified portfolios so won't be particularly affected. There are everyday people though who have actually put significant proportions of their savings into this and stand to lose big. I do feel sorry for them.

If you go short you essentially have an unlimited risk. So they can easily be down more than they could ever afford to repay. Not only is this an issue for them it creates a huge third party risk for everyone else.

I watched a few Videos which have helped to explain a bit more. Thanks for taking the time to explain also!

@InTheDrunkTank

I worked in finance and this whole thing is ridiculous. Obviously the online brokers don't like it as you have essentially a huge pyramid scheme. They don't want to end up holding a large position when it all suddenly crumbles. It's basically pump and dump (hold a position, then get a load of people to buy it to drive up the price then dump your position) which you would never ever be allowed to do as an actual trader. You'd end up straight in jail. Hedge funds have massively diversified portfolios so won't be particularly affected. There are everyday people though who have actually put significant proportions of their savings into this and stand to lose big. I do feel sorry for them.

People don't understand that the amateurs are the ones that are going to be left holding the bags. Pump and dump is as old as the market, and internet forum PnD in penny stocks or crypto has also been going on for decades.

They also don't understand that a broker like Robinhood with millions of users with one way bets leaves the company hugely exposed. They have to somehow manage all that risk, which is why they are stopping people buying more shares. Would I want my money in Robinhood - no.

I saw that one of the large professional holders of AMC shares has cashed out. You can't blame them - massive liquidity at a hugely inflated value. These large institutions are the ones that will profit from all this.