WSB vs Wall Street / Gamestop Stock and others blown up by Subreddit

Kasper

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Time for a own thread instead of having everything in the Stock Thread in the general?

Short summary (stolen from @Revan) what happened last week, starting as a meme:
Revan said:
Is anyone going full crazy in GameStop? I went from 'this is insane' to 'this is either lunacy or genius'.

Long short story: hedge funds shorted the company like hell (around 130% of shares are shorted). A part of shares are held by Vanguard, Fidelity et al, and now some guy who is the next big thing bought 12% of it, meaning that 40% or so of shares cannot be sold. Then someone saw this and put in Reddit wallstreetbets which seems to be full of gamblers who put serious money in stuff they don't know what it is. But, they fecking bought a lot of shares, and now shorts who wanted the company bankrupt to get hundreds of millions when closing their positions are fecked cause there aren't enough shares to buy. And obviously, this is making the prices skyrocket. The meme community is putting shares to sell at ridiculous prices like 500 or so, and asking their brokers to not allow borrowing them (apparently you can do so). This in turn means that for shorts to be able to close their positions, they need to buy shares at higher prices, in turn making the price go even higher.

So essentially a clusterfeck, but it also seems a way of making some serious money in short-term.
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No what was a funny story for the stock market niche has this week completely gone out of control. Their stock has exploded and classic Wall Street is panicking. What seemed like a small story is now all over the news, my twitter is full of political commentators and others referencing GME.

Hedge fund managers and other Wall Street gurus are suddenly crying about the SEC to get involved and more regulations ... now that they are losing money :lol:.



Anything ideas how this might end?
 
My best guess would be that Melvin goes bankrupt, and their shorts are covered by JPMorgan and their investors (would be so fun to lose further money after the hedge fund you invested lost all your money). It could also seriously threaten the other hedge funds who had shorted it (Citadel for example). I guess there will be stronger rules for Wall Street (probably a limit on how much can you short and definitely not more than 100%). I do not see how banning WallStreetBets is gonna achieve much, considering that they will simply migrate to some other website (like theDonald from reddit), but DFV and co might get some calls from investigations. If the government can sacrifice them in public to teach others a lesson, they will do it.

Interesting days ahead though, for sure. I just hope this irrational behavior doesn't really threaten to crash the market, though I strongly believe that we are at the end of the current bull cycle and already in borrowed time. Irrational reckless behavior was always the last sign before the fall.
 
I'd guess at three things.

1. A fund goes under, whether it's Melvin or whoever is left holding all those shorts.
2. Some posters from WSB get arrested/charged with market manipulation but won't end up in jail.
3. Option trading will be limited to qualified professionals.
 
11101 said:
I'd guess at three things.

1. A fund goes under, whether it's Melvin or whoever is left holding all those shorts.
2. Some posters from WSB get arrested/charged with market manipulation but won't end up in jail.
3. Option trading will be limited to qualified professionals.
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(3) is dead cert, (2) I hope not.
 
11101 said:
I'd guess at three things.

1. A fund goes under, whether it's Melvin or whoever is left holding all those shorts.
2. Some posters from WSB get arrested/charged with market manipulation but won't end up in jail.
3. Option trading will be limited to qualified professionals.
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Wouldn`t (3) be huge and bring a shitload of grey area debate? What *qualifies* a professional? Etc.

Edit: @adexkola was quicker.
 
Whenever they reached r/all on Reddit before the last few days it was all shitty memes. Pretty funny that a bunch of internet shit-posters can spread this much panic on Wall Street.
 
3. Would absolutely shock me. An option is a simple contract, it would be extreme to regulate.
 
adexkola said:
What would qualify you to trade in options?
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Kasper said:
Wouldn`t (3) be huge and bring a shitload of grey area debate? What *qualifies* a professional? Etc.

Edit: @adexkola was quicker.
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You'll need a licence. It's already the case for some types of options.

My reasoning is that there are already big restrictions around leverage for retail investors, and leverage just enables you to buy more and more with little outlay. Options are kind of similar, allowing people to amass huge positions with little initial outlay. On WSB, DFV has control of 80,000 shares worth $11 million (well over double that by now) and paid $25k for it.
 
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adexkola said:
What would qualify you to trade in options?
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how-to-wear-suspenders-featured-image1.jpg


And a coke addiction
 
Random gym thought: I don't think this WSB saga is a big deal on it's own, extremely funny though. But... it feels like every long standing American institution is being made a mockery of by internet crowds. Banks, the media, Congress, the presidency...

All the respect/trust these institutions used to have is pretty much gone now. That's quite dangerous in my opinion.
 
Andrew~ said:
Random gym thought: I don't think this WSB saga is a big deal on it's own, extremely funny though. But... it feels like every long standing American institution is being made a mockery of by internet crowds. Banks, the media, Congress, the presidency...

All the respect/trust these institutions used to have is pretty much gone now. That's quite dangerous in my opinion.
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I think the market is a relatively minor part of society compared to the other things you mentioned. But I think if the whole thing devolves into just runs and debauchery, then it loses its utility. In a circular way, if this wave were infinite the market WSB themselves are using to make some money and play around with then disappears and the game is no longer possible.
 
MTF said:
I think the market is a relatively minor part of society compared to the other things you mentioned. But I think if the whole thing devolves into just runs and debauchery, then it loses its utility. In a circular way, if this wave were infinite the market WSB themselves are using to make some money and play around with then disappears and the game is no longer possible.
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The market would always evolve to take into consideration irrational behavior. Of course, that can come with a very big crash.

From what I've read, it isn't too much different from the peak of dot-com bubble (I mean, the way is different but insanity is not higher). I don't think this is a problem long-term.
 
MTF said:
I think the market is a relatively minor part of society compared to the other things you mentioned. But I think if the whole thing devolves into just runs and debauchery, then it loses its utility. In a circular way, if this wave were infinite the market WSB themselves are using to make some money and play around with then disappears and the game is no longer possible.
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Minor?

Do you remember what happened in 2008?
 
Grinner said:
Minor?

Do you remember what happened in 2008?
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Stock market =/= banks, despite banks being an obvious participant. Volume of lending is greater than the volume of publicly listed equities by multiples. It wasn't the stock market that caused the crash in 2008. I think a better model to think through this right now would be the LTCM crisis in 1998, because the exposure of banks is again whatever they stand to lose because of credit potentially extended to hedge funds.
 
MTF said:
Stock market =/= banks, despite banks being an obvious participant. Volume of lending is greater than the volume of publicly listed equities by multiples. It wasn't the stock market that caused the crash in 2008. I think a better model to think through this right now would be the LTCM crisis in 1998, because the exposure of banks is again whatever they stand to lose because of credit potentially extended to hedge funds.
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Yes but the majority of workers in the US are in the market through 401ks. A lot of people can really suffer if it tanks again.
 
I don't get it. Mind you, my entire understanding of this situation and stocks in general comes from one youtube video and a couple of articles.

Questions if anyone wants to be so kind as to help a dummy understand:

1. When shares are borrowed and sold with the aim of shorting, is the lender of the shares taking the opposite stance, that they'll actally go up in value or at least hold value?

What I've seen only talks about things from the perspective or those doing the shorting, that they're speculating the price will go down, hoping to buy back the shares for less than they sold them for before returning them.

2. Is it true that the act of shorting itself can cause the price to drop, sort of making it a self-fulfilling prophecy? If so, why would anyone agree to lend shares so they can be shorted?

The explanation I saw was talking about things on a supply/demand level and was saying it can and does. Borrowing shares and putting them up for sale is adding to the supply, causing share price to drop. Other people react to that and sell theirs too etc. causing it to drop further. That makes sense to me, but then if that happens why would anyone agree to lend their stock for that to happen to it?

3. How come this Gamestop thing hasn't happened before?

Seems kind of obvious as presented. Is it just because of the amount of stock involved or don't people usually know when a hedge fund is on the hook like this?
 
Andrew~ said:
Random gym thought: I don't think this WSB saga is a big deal on it's own, extremely funny though. But... it feels like every long standing American institution is being made a mockery of by internet crowds. Banks, the media, Congress, the presidency...

All the respect/trust these institutions used to have is pretty much gone now. That's quite dangerous in my opinion.
Click to expand...

:lol:
 
I say good on the redditors. As was stated earlier, the professionals are just upset that they arent the ones getting to manipulate the market and make money. I refuse to believe that these redditors are doing anything drastically different to what the Wall Street folk do on a daily basis.
 
Kasper said:
Time for a own thread instead of having everything in the Stock Thread in the general?

...

Anything ideas how this might end?
Click to expand...
I've no idea what the hell most of the sentences in the thread mean. Might explain why I'll die poor.
 
Taking a minute to appreciate the autists making markets in 500% implied vol options 0.5-1% wide in premium on a stock that dbls or halves on a daily basis.
 
Chipper said:
I don't get it. Mind you, my entire understanding of this situation and stocks in general comes from one youtube video and a couple of articles.

Questions if anyone wants to be so kind as to help a dummy understand:

1. When shares are borrowed and sold with the aim of shorting, is the lender of the shares taking the opposite stance, that they'll actally go up in value or at least hold value?

What I've seen only talks about things from the perspective or those doing the shorting, that they're speculating the price will go down, hoping to buy back the shares for less than they sold them for before returning them.

2. Is it true that the act of shorting itself can cause the price to drop, sort of making it a self-fulfilling prophecy? If so, why would anyone agree to lend shares so they can be shorted?

The explanation I saw was talking about things on a supply/demand level and was saying it can and does. Borrowing shares and putting them up for sale is adding to the supply, causing share price to drop. Other people react to that and sell theirs too etc. causing it to drop further. That makes sense to me, but then if that happens why would anyone agree to lend their stock for that to happen to it?

3. How come this Gamestop thing hasn't happened before?

Seems kind of obvious as presented. Is it just because of the amount of stock involved or don't people usually know when a hedge fund is on the hook like this?
Click to expand...
1) You get paid a fee when you loan a share
2) Refer to 1
3) It has happened before. Just that it was wall street who did all the manipulation.

Walrus said:
I say good on the redditors. As was stated earlier, the professionals are just upset that they arent the ones getting to manipulate the market and make money. I refuse to believe that these redditors are doing anything drastically different to what the Wall Street folk do on a daily basis.
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I gotta agree with you on this. Those cnuts gamble the whole world into ruins and never have to pay the consequences for it. It's nice to see some of them get screwed over. But the fight is not over yet. The total short is still the same, so some other asshole has taken over the short positions at a higher starting price. So the battle begins anew. I have my doubts the hundreds, if not thousands, of retail players on WSB have the discipline to hold out.
 
Zarlak said:
WSB is flooded with bots right now on brand new accounts trying desperately to tempt retailers to sell and diversify by trying to get them into NOK and BB. They're shitting themselves.
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Absolutely. Melvin has been made to look like absolute mugs in all this. Long it may continue.
 
Solius said:
Someone needs to ELI5 this to me.
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Some very greedy wall street people put themselves in a ridiculously stupid position that they've been exploiting for years and nobody caught. Somebody caught it, a tonne of people jumped on it and now these companies are fecked and desperately trying every tactic they can to reduce their downside.

Imagine I have a Ronaldo Panini sticker I want to sell and it's worth like $30, but you're a bit of a cnut who wants to gamble on me failing because you're a shitty mate so you tell me you reckon it's gonna be worth $10 soon so you're willing to bet that in a week it's gonna be worth less. I say haha no way put your money where your mouth is so we make a bet. Next week if the sticker is worth $10 after all and you're right, you keep the $20 difference. If the sticker is actually worth $50, then you gotta buy it from me at $50.

That in a nutshell is the kind of plays that these hedge funds are making. Now imagine, that a group of randoms were like 'man feck this guy being a knob to that seller, let's all get together and raise the price of that Panini sticker to $100 and then he's gonna have to buy it for $100 next week'. That's what's going on right now from the Reddit side only we're talking billions.

The issue is, that the guys on Wall Street have done this so much that 140% of the companies stock is allocated to this kind of bet, more than is even available. It was spotted by a community with millions of users and they've then bought a feck tonne of stocks forcing the price to skyrocket knowing that after a certain time passes and these little bets that the guys on Wall Street made expire, they're mandated to buy those shares at whatever the price is which means $$$ for the ones selling the stock and potential bankruptcies for the fat cats who got themselves into this position. They betted the price would be down, and they're currently very very wrong to the point where one hedge fund already had to be bailed out by 2 others and there is seemingly no hypothetical limit to the downside they could endure if people hold their stocks past the date their options expire which seems to be Friday.

This is different to normal investing where it's tied to the companies performance, this instance has absolutely shit to do with the companies performance. It's just a lot of people mobilising against greedy hedge funds for putting themselves in a position where they can be fecked over. It's called a short squeeze, where pressure is put on those who have shorted (bet against the company succeeding) by raising the stock price. The bigger the margin gets between the short sellers bet and the actual stock price, the more likely the broker is to 'call the margin' and force the short seller to stump up some capital to keep their position. To avoid this, the short seller ends up buying stock themselves to cover their position but in doing so they contribute to the squeeze on them by driving up the price even more and putting themselves in a worse position. To top that off, several billionaires have posted about this on Twitter and it's gaining traction at a ridiculous rate.
 
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tombombadil said:
1) You get paid a fee when you loan a share
2) Refer to 1
3) It has happened before. Just that it was wall street who did all the manipulation.
Click to expand...

Thanks, I didn't think it would be for free, but does that still not apply that I'm taking a position against those shorting if I agree to lend?

If I lend you 1 share for a fee of £0.50 and you sell it for £10 then a month later you buy it back for £9 and give it to me then I'm still down. Why would I rather have a share worth £9 and £0.50 in cash in a month when I could have sold it myself for £10 today? It only seems to make sense for me to lend it to you rather than sell if I think it will go up, stay the same or only drop a smaller amount. If I could sell it for £9.75 a month later when I get it back then I've got that locked in plus my £0.50 fee meaning I created £0.25 of value by doing that instead of selling it myself a month ago, no? If I can sell it for £9.50 in a month, we're break-even, anything below that I miss out and you gain?*

*Ignoring all buying/selling fees or the difference between buy and sell prices in the above.

Unless people only lend shares they had no intention of selling anyway and were going to hold long-term no matter what? Mind you, the vid I watched said that people only really try to short shares that look like long-term failures anyway so why I'd want to hold onto such a stock I'm not sure.
 
Zarlak said:
Some very greedy wall street people put themselves in a ridiculously stupid position that they've been exploiting for years and nobody caught. Somebody caught it, a tonne of people jumped on it and now these companies are fecked and desperately trying every tactic they can to reduce their downside.

Imagine I have a Ronaldo Panini sticker I want to sell and it's worth like $30, but you're a bit of a cnut who wants to gamble on me failing because you're a shitty mate so you tell me you reckon it's gonna be worth $10 soon so you're willing to bet that in a week it's gonna be worth less. I say haha no way put your money where your mouth is so we make a bet. Next week if the sticker is worth $10 after all and you're right, you keep the $20 difference. If the sticker is actually worth $50, then you gotta buy it from me at $50.

That in a nutshell is the kind of plays that these hedge funds are making. Now imagine, that a group of randoms were like 'man feck this guy being a knob to that seller, let's all get together and raise the price of that Panini sticker to $100 and then he's gonna have to buy it for $100 next week'. That's what's going on right now from the Reddit side only we're talking billions.

The issue is, that the guys on Wall Street have done this so much that 140% of the companies stock is allocated to this kind of bet, more than is even available. It was spotted by a community with millions of users and they've then bought a feck tonne of stocks forcing the price to skyrocket knowing that after a certain time passes and these little bets that the guys on Wall Street made expire, they're mandated to buy those shares at whatever the price is which means $$$ for the ones selling the stock and potential bankruptcies for the fat cats who got themselves into this position. They betted the price would be down, and they're currently very very wrong to the point where one hedge fund already had to be bailed out by 2 others and there is seemingly no hypothetical limit to the downside they could endure if people hold their stocks past the date their options expire which seems to be Friday.

This is a little different to normal investing where it's tied to the companies performance, this instance has absolutely shit to do with the companies performance. It's just a lot of people mobilising against greedy hedge funds for putting themselves in a position where they can be fecked over.
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So should shorting like this be illegal?

#wsbdidnothingwrong
 
Solius said:
I am still none the wiser.
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rcoobc said:
Can you explain it with more words, but simpler.
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GME was the most shorted stock at the beginning of the year. Shorting basically means that people/Hedge Funds are betting the stock price to go down and make money out of it.

GME recently onboarded 3 new board members - one of them from Chewy - which is apparently a good/financially healthy company. This brought about a surge in its stock price. Following this, people from reddit latched on to it (cheaper stock and all that). Then they got wind of the shorted positions and piled on. This made the hedge fund run for current and future positions because they were losing money on the short positions - One Hedge Fund has borrowed 2.7Bn from other funds few days ago. The short positions are still not closed (apparently over 100% of the stock is still shorted). In the meantime, the fund used scare tactics to drive retail investors but the redditors have kept pilling on. Two CEOs joined them too (Elon Musk and Chamath). All of this has resulted in a massive surge and apparently with more to come.
 
rcoobc said:
So should shorting like this be illegal?

#wsbdidnothingwrong
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The ability for hedge funds to short a company by 140% should absolutely be regulated. You'd expect to see a company with like 20% short interest not 140%. They will make a movie about this one day and I wouldn't be surprised to see regulations brought in that prevent a company from having more shorted stock than even exists.
 
rcoobc said:
So should shorting like this be illegal?

#wsbdidnothingwrong
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It's not illegal - it's very, very risky. Shorting 140% is unheard of, apparently. They were basically betting that more than 100% of the stock will fall. But it went the opposite way and the shorters have been losing money all this while.
 
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