I can see it now... hedge fund bailouts.
The Economy (2020/21)
- Thread starter rideit
- Start date
I can see it now... hedge fund bailouts.
Oh, those POOR hedge funds! Somebody should do something!
Nothing (AFAIK) happening with GME by the the retail investors is illegal. Now you would know better, but I don't see how talking about it is a coordinated effort any more than the financial talking heads on cable.
Stoney, did you actually read the beginning of the reddit thread that started this? The dude who started pooling players ain't exactly a newb.
You have to disclose your position before you can identify a stock. But, people are identifying a position then saying "this company is highly susceptible to a short-squeeze", in a much more elaborate manner. People are then piling on to this now identified as susceptible company to drive the price. Plus a lot of people on it are in industry, so the rules around it are a lot tighter.
Aware. That's the point. The little guys will be fine. He's going to get fucking crushed.
That shit pisses me off to no avail. You made a bad bet. You're fucked. Deal with it.
All of this makes me want to move my entire 401k into treasuries. Clearly the fucking market is overvalued and it's all just gambling.
You can manipulate anything into overvaluation. And theses guys short-squeezed the living fucking out of these companies.
Isn't the problem here the hedge funds who had short positions totaling 140% of that company's stock? THAT is what the SEC should focus on. They had been keeping that company's stock price artificially low for years, to benefit themselves.
Last edited:
Heh - I've been there since April. And I'll tell you what... despite the shitshow that has been this pandemic, I'm sleeping well.
I don't trust this market. At all. And fuck those hedge funds.
At your age shouldn't you be in treasuries anyway?Heh - I've been there since April. And I'll tell you what... despite the shitshow that has been this pandemic, I'm sleeping well.
I don't trust this market. At all. And fuck those hedge funds.
That's bothered the fuck out of me since I was still working Institutional. I never understood how it was legal to sell short more than 100% of outstanding shares, let alone where there are shares that can't be loaned out.
Saw this explanation on FB and makes sense to me as a mildly financially literate person.... @stoney where does this ping on the accuracy meter?
I've seen a lot of confusion about the Gamestop situation, so I'm going to try to explain the whole thing in simple enough terms that you don't need a Series 7 to grasp what happened.
Basically what happened is this: Some hedge funds figured that Gamestop, a company on thin ice before Covid, would not fare well during Covid. So they did what's called 'shorting'. A Short is when you borrow other people's stock and sell it on to a third party with a promise to sell back an equal number of shares to the original owner at a date certain, and at its market price on that date.
So let's say a stock is at $20 and you're confident it will drop to $5. You 'borrow' it at $20, you sell it on at $20, and if it drops to $5? You acquire more stock and sell the shares you 'borrowed' back to the original owner at $5. You've made $15 a share. That's how shorting can make money even when stocks decrease in value.
This can be risky, however. Because in long investing, you are only at risk for your principal balance. That is, the money you initially invested into the stock. If it drops to 0, you're just out your initial investment. That's it. With shorts, your exposure is theoretically infinite. If you execute a short contract at $20 expecting it to hit $5 and it goes to $347 a share? You have to buy it at $347 a share and sell it at the contractual price of $20, back to its original owner. You are out $327 a share.
Now. Typically, hedge funds go out and short vulnerable companies figuring the "dumb money" will eschew the stock, figuring the hedge funds must know something the average Joe on the street doesn't. Maybe they do, maybe they don't. But the very fact that a stock has been shorted by a fund tends to drive the price down, as the average investor avoids it. Hedge funds use this fact to drive down prices and essentially force their shorts into profitability.
They've done this for so long, and with so few losses, that they got really brazen and literally wrote shorts for roughly 150% of the shares that exist for Gamestop.
You read that right. Now you may wonder how you can write a contract that is technically impossible to fulfill and the answer is, of course, wall street deregulation. This is the sort of good thinking that regulators feel is perfectly reasonable because Smart Money is so darn smart, you see.
When Reddit's Wall Street Bets subreddit realized just how shorted Gamestop's stock was, they proceeded to buy up the outstanding shares. All the shares they could find, they bought. The lack of outstanding shares coupled with a 150% short naturally drove the stock up.
It's not like these funds can NOT meet their short obligations. They HAVE to. So the stock was only ever going to go in one direction in this scenario. Up. Way up. Write your own check up. Is Gamestop the company worth $400 a share? No. The shares are, simply because the Hedge Funds MUST buy them. It's pure supply and demand.
You may hear economists and capitalists try to spin this as market manipulation, as an anomaly that needs to be corrected, as evidence that stimulus checks should be curtailed, as evidence of the need for stronger regulation on individual investors, and so on. That's all horseshit.
They lobbied and fought to be able to short a company to 150%. And smart investors responded, because that level of shorting is a ridiculous opportunity for profit. Reddit did not manipulate the stock. They stopped stock manipulation. They enforced consequences for unwise, flagrant, aggressive, and disastrous shorting of a vulnerable company.
They made promises they couldn't keep to force a stock price down so they could profit from that loss to the company, its employees, and its shareholders. That is not an 'us' problem. That is a hedge fund problem. Anyone saying otherwise simply doesn't want anyone else but the investor class profiting from active involvement in the market.
I've seen a lot of confusion about the Gamestop situation, so I'm going to try to explain the whole thing in simple enough terms that you don't need a Series 7 to grasp what happened.
Basically what happened is this: Some hedge funds figured that Gamestop, a company on thin ice before Covid, would not fare well during Covid. So they did what's called 'shorting'. A Short is when you borrow other people's stock and sell it on to a third party with a promise to sell back an equal number of shares to the original owner at a date certain, and at its market price on that date.
So let's say a stock is at $20 and you're confident it will drop to $5. You 'borrow' it at $20, you sell it on at $20, and if it drops to $5? You acquire more stock and sell the shares you 'borrowed' back to the original owner at $5. You've made $15 a share. That's how shorting can make money even when stocks decrease in value.
This can be risky, however. Because in long investing, you are only at risk for your principal balance. That is, the money you initially invested into the stock. If it drops to 0, you're just out your initial investment. That's it. With shorts, your exposure is theoretically infinite. If you execute a short contract at $20 expecting it to hit $5 and it goes to $347 a share? You have to buy it at $347 a share and sell it at the contractual price of $20, back to its original owner. You are out $327 a share.
Now. Typically, hedge funds go out and short vulnerable companies figuring the "dumb money" will eschew the stock, figuring the hedge funds must know something the average Joe on the street doesn't. Maybe they do, maybe they don't. But the very fact that a stock has been shorted by a fund tends to drive the price down, as the average investor avoids it. Hedge funds use this fact to drive down prices and essentially force their shorts into profitability.
They've done this for so long, and with so few losses, that they got really brazen and literally wrote shorts for roughly 150% of the shares that exist for Gamestop.
You read that right. Now you may wonder how you can write a contract that is technically impossible to fulfill and the answer is, of course, wall street deregulation. This is the sort of good thinking that regulators feel is perfectly reasonable because Smart Money is so darn smart, you see.
When Reddit's Wall Street Bets subreddit realized just how shorted Gamestop's stock was, they proceeded to buy up the outstanding shares. All the shares they could find, they bought. The lack of outstanding shares coupled with a 150% short naturally drove the stock up.
It's not like these funds can NOT meet their short obligations. They HAVE to. So the stock was only ever going to go in one direction in this scenario. Up. Way up. Write your own check up. Is Gamestop the company worth $400 a share? No. The shares are, simply because the Hedge Funds MUST buy them. It's pure supply and demand.
You may hear economists and capitalists try to spin this as market manipulation, as an anomaly that needs to be corrected, as evidence that stimulus checks should be curtailed, as evidence of the need for stronger regulation on individual investors, and so on. That's all horseshit.
They lobbied and fought to be able to short a company to 150%. And smart investors responded, because that level of shorting is a ridiculous opportunity for profit. Reddit did not manipulate the stock. They stopped stock manipulation. They enforced consequences for unwise, flagrant, aggressive, and disastrous shorting of a vulnerable company.
They made promises they couldn't keep to force a stock price down so they could profit from that loss to the company, its employees, and its shareholders. That is not an 'us' problem. That is a hedge fund problem. Anyone saying otherwise simply doesn't want anyone else but the investor class profiting from active involvement in the market.
Mostly. But in layman's terms yes.
A couple of things:
1. Shorting isn't the issue in this case, as much as naked short selling. The reason these guys are getting fucked is because they didn't cover themselves. If they sold short, but bought calls to cover themselves, they'd be fine. Buying a call option gives you the right to buy shares from someone at a fixed price in the future. The smart trade in a short is sell the shares at $20, buy calls at $20 (cents on the dollar usually). Max loss is the cost of the call.
I've shorted stuff before, especially in 2008, but would never go naked. The fact that they weren't covered, even at a minimal cost means that you are truly arrogant to what you are doing.
2. The ability to short more shares than are available in the market blows.my.fucking.mind. I didn't understand how it was okay or legal when I was still institutional and I still think it's a crock of shit. HFs aren't the one doing that though. It's the brokers that are lending those shares. BAC, JPM, MS, GS, etc are the ones lending out shares to be sold short. The issue there is with what the broker-dealers are allowed to do, not necessarily what the HFs are doing. If they could only get their hands on available shares for lending, then this situation wouldn't ever arise and shorting to the extent that it pushes stock prices down on it's own couldn't occur (beyond normal mkt level).
3. As for SEC and market manipulation. Go read the sub. There are a few very vocal individuals who pushed people into buying as the px went up and have beat the drum to keep holding. The way securities regulations are written, there is enough ambiguity in how some things are written, that some people will likely get pulled into the dragnet and made examples of. A lot of people on the sub are posting with screenshots from BBG, Thompson, or other professional data tools. That means they are likely industry and licensed. They are easy targets if they are beating the drum.
1 - so it really is basically just a shell game of money and shares and valuation
2, 3 - so, theoretically speaking, what's stopping this (I shall refer to it as gamestonking) occurring at a scale that the SEC could no longer effectively enforce the regulations? Would the SEC ban shorting altogether to prevent gamestonking? Or would gamestonking push the risk of shorting high enough that wall St would stop doing it (or at least as egregiously)? If left unchecked could it occur at a scale and rate that it could drive enough wall St investment firms to bankruptcy that the economy would collapse?
1. Depends on how you look at it re: shell game. If I see a company and it's priced 4x what it's actually worth, I might say "hey, I think this is overvalued, I bet I can make some money off this..." There are two ways to do it: use options (sell calls or buy puts) or find someone willing to take the other side of a trade with you that it will stay as-is or go up. In a normal, healthy, (perfect on paper) market, short selling will bring overvalued companies back into reality before they can bubble and pop.
2,3. What's happening that allows this shit to occur is that there is no regulation on the lending of shares. Nobody is tracking *which* share are being lended out, so they are being re-lended, effectively creating shares that don't exist. That allows for pushing the stock price down more than should have been possible, because there are now more shares that can be sold than bot.
Ex. Investor 1 holds shares 1-100 of ABC. They make those shares available to loan (whether they know it or not, but you do choose that in your brokerage). Those shares are at Broker 1. Seller 1 wants to sell short 100 shares. He contacts Broker 1, who loans him shares 1-100 to sell. Investor 2 buys the shares and has them held at Broker 2. Seller 2 wants to sell 100 shares, so he borrows 100 shares from Broker 2.
The problem is, shares 1-100 have now been loaned out and sold 2x. The shares available to short are 200% of outstanding shares.
What needs to happen, is shares need to be tagged with their number electronically, and it needs to move in real-time with the trade vs. reconciling at eod. If it moved real-time, then Broker 2 would know that those shares are already lent out and can't be lent again. Unfortunately, there's no structure built for that. And the rate at which things trade, because most is AI at this point, there's no way to make that occur in real-time. And what good does eod reconciliation do when too many shares have been sold already?
The problem is, short selling has a place in keeping the market healthy and from allowing for eternal bubbles to build. But, it's also susceptible to this shit, where shares are getting lent out multiple times. You also have the money managers that use excessive short selling to manipulate a stock's px.
Believe me, I'm all in agreement with the retards at WSB crushing the shit out of these funds. I really hope this is enough to shine a light that will get some more regulation in place around short selling. But the SEC will make an example out of someone here. WSB just pushed down the px of the overall market because of it's trading on ~10 stocks (which ironically we're going up). Major media (Wifey says People Online) have picked up on it. Someone will be made an example of.
Keeping the market healthy is an oxymoron. The stock market is pathological to its core.
If you can only trade the price up, then you create bubbles. Being able to sell short helps mitigate that. But not when you can sell more than exists.
Just block retail traders from buying squeezed stocks, that will solve the problem and totally isn't market manipulation.
1 - so there's no real, actual connection to anything tangible. maybe shell game isn't the best term, but there is fuckery afoot.
2,3, everything else:
Maybe the bankers need to read and confirm a warning that when they short they are making a bet with an infinite down side.
Robinhood isn't allowing buy orders on GME or other WSB targeted stocks or according options. RH is owned by Citadel, who bailed out Melvin. They are willing to burn RH to save Melvin. They must have a monstrous exposure to GME.
This is the definition on market manipulation. This is what the SEC needs to be lasered in on. Fuck what's going on in WSB.
This is the definition on market manipulation. This is what the SEC needs to be lasered in on. Fuck what's going on in WSB.
i can't find a value of the losses, but apparently citadel and point72 have put $3billion into melvins.
Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position
Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund's manager told CNBC.
Which means they are valuing RH <$3b.i can't find a value of the losses, but apparently citadel and point72 have put $3billion into melvins.
Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position
Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund's manager told CNBC.www.cnbc.com
by whom?
A bunch of individual investors who took them at their word.