How r/WallStreetBets gamed the stock of GameStop

https://www.theverge.com/22251427/reddit-gamestop-stock-short-wallstreetbets-robinhood-wall-street

by edward • 5 years ago

111 116 5 years ago

theverge.com

ryandward3• 5 years ago

This emergent behavior seems a lot like DDOS, but in the stock market.

drawkbox2• 5 years ago

... with a dash of flash mob and viral marketing.

nixass• 5 years ago

While giving financial institutions their own medicine.

washedup6• 5 years ago

They aren't trying to kill GME though, they are boosting it, essentially saving it and shareholders from short seller pressure. I see it as a bizarre, but ultimately positive behavior. Wallstreet no longer holds all the keys.

josefresco• 5 years ago

How are they saving it?

hehehaha3• 5 years ago

What makes you think WS wasn’t profiting on the long side? These are professionals who live to exploit anomalies day in day out. Sure, retails made money but most of the pot went to...Wall Street.

SpicyLemonZest8• 5 years ago

As of when I'm writing this comment, GME is up about 1,800% since the beginning of the year. I am extraordinarily skeptical that this is a good thing, for Gamestop or the investors or really anyone at all.

trident50003• 5 years ago

A few thoughts here.

First, the short sellers getting taken to the wood shed absolutely deserve it for placing such an idiotic bet. The short positions outstanding are 150% of the available shares even today. Its a short squeeze even more than its WSB pumping it. And apparently the short sellers just keep coming back for more. They can play that game if they want and I dont feel bad that they lose all their money.

Second, theres no such thing as "short seller pressure". The act of shorting does not lower the price of a stock mechanically. You could argue they are forming a negative narrative but I would call that fair game. You're allowed to say a business is crappy.

Third, WSB pumping and dumping stocks is scammy and definitely not good for the markets. Thats just a mechanism where the early pumpers clean out all the idiots who follow their trade.

TheAlchemist3• 5 years ago

There is nothing positive in it.

90% of those redditors (maybe 99%) will loose a lot of money.

Sure some Wall Street hedge funds are loosing a ton of money, but most of this money is just going to other hedge funds, that were on the other side of the trade.

The stock will go back to around 10$ when this is all over (soon) - and only a few redditors will be able to actually realize their gains.

That being said, I like this situation. It's a gentle reminder that the stock market is a risky and (way too) complex thing.

robjan2• 5 years ago

That implies that they are the bad guys and not the people who were irresponsibly shorting the stock to such a great extent.

hehehaha3• 5 years ago

More like a political disinformation campaign for stocks. Same formula different goals.

koube• 5 years ago

Interesting to see this comparison being made on hacker news, it was also made on my economics RSS feed where Tyler Cowen[0] linked to a tweet[1] with this exact same comparison.

[0] https://marginalrevolution.com/marginalrevolution/2021/01/we...

[1] https://twitter.com/zerohedge/status/1354412717231251459?s=2...

lvs• 5 years ago

It's naive to imagine there aren't funds on both sides of this behavior.

mrRandomGuy• 5 years ago

Not sure why you're getting down voted, when the article makes clear to mention that Citadel does have the order flow information, and actually insinuates the same thing...

TYPE_FASTER2• 5 years ago

Yes. https://twitter.com/toxic/status/1353890766800621569

ipnon• 5 years ago

Hedge funds don't need to use NLP to gauge retail interest in certain stocks, Robinhood just sells their order books directly to the highest bidder.

satanic_pope• 5 years ago

Someone educate me but why are hedge funds not limiting the loss by covering the short and closing their short position. Wouldn't that stop pumping from WSB crowd?

The only exceptions I could think of is :

- There isn't enough volume to cover shorts due to incessant buying spree from retail side

- Lending freeze initiated by brokers on client request

SpicyLemonZest8• 5 years ago

The big pumping has only happened over the last few days. Hedge funds are starting to close their short positions (two of the most noted ones Melvin and Citron announced they had just this morning), and many commentators do expect that this will cause the stock to crash soon as people move on.

kemiller2002• 5 years ago

Am I correct in saying that if someone can forecast approximately when that will happen, they can short the stock and make money off of the mass selloff? Essentially putting the short sellers back where they started (in a sense)?

bpodgursky• 5 years ago

Not to tinfoil this too much, but it seems pretty likely from volume that that was a lie by Melvin and Citron, with the explicit goal of tanking the stock (so they can then cover at a lower price).

andrethegiant• 5 years ago

They announced they closed outside of trading hours, which makes me think they didn't actually close. Why wouldn't they announce at the close yesterday to prevent the run up to 300?

anthonypasq• 5 years ago

they arent closing their short position because they think the price is going to go back down and they wont get massacred as badly.

so WSB keeps buying to screw them for having so little faith :)

bo10243• 5 years ago

My understanding is not enough volume. So many shares are sold short that attempting to buy a significant portion back would drive up prices and initiate the short squeeze (vicious cycle of price going up and shorts forced to buy more shares to cover).

trident50003• 5 years ago

They're too stubborn to take a loss and theres not even enough shares for them to all cover. Its also not really the case that none of them have covered. People close out and then new short sellers come in at the same time taking their place, thinking this is their time and surely it will go down, which keeps the short to available shares high.

fock2• 5 years ago

But couldn't they just settle with the original lenders without buying back the stock from the actual holders? Or is that forbidden? To me this would seem a logical decision for any lender (the business was not dead, so selling was a little bit too risky, but now taking a 100% profit and being done with that instead of having a stupidly inflated stock and 10% profits in the, seems reasonable)

JustFinishedBSG• 5 years ago

They can't cover their position because their position is 140% of the available shares...

bo10243• 5 years ago

I think this wording may be a bit misleading. I think the challenge is more subtle, let me walk through a scenario.

100 shares exist, all owned by person A. They lend all the shares to a short-seller, who sells them to B. Then B lends 40 of those shares back to the short seller, who sells them to C.

Now 140% of existing shares are shorted. But 240 shares are "owned" in some sense. A "owns" 100 shares and B "owns" 100 shares and C "owns" 40 shares.

What's not clear to me is which of these shares are available to be bought by the short seller. I assume you can't sell your shares if they're loaned out. So the short seller can first buy 40 shares from C and deliver to B. Then he has to buy 100 from B, including the shares he just delivered, and give them all to A.

o-__-o6• 5 years ago

Wallstreetbets user activity is very similar to the_donald and weekendgunnit. Personally I think hordes of chat bots are instigating this. I fully suspect reddit to come in with a heavy hand and shutdown this game. Next you will see something spin up at either wallstreetbets.win or wsb.win. The party will continue but not nearly as hard as it has been over the past week.

haunter• 5 years ago

What makes you compare WSB users to far right facists?

mam23• 5 years ago

the trollishness. also another hard pill to swallow but most people who voted trump were not "fascist" :roll-eyes:

ttt0• 5 years ago

Because anyone who actually does damage to the system and the elites is a far right fascist.

o-__-o6• 5 years ago

The content is different but the intent of the comments are to incite the hive mind.

gradys• 5 years ago

Any evidence to back up the bot speculation? Normal social media memey exuberance seems sufficient to explain this to me.

o-__-o6• 5 years ago

Memey exuberance is not distinguishable from bots with poor grammar

Magodo• 5 years ago

Wallstreetbets user activity is very similar to the_donald and weekendgunnit.

What?! I mean sure the culture at both is very meme focused but the similarities pretty much end there

o-__-o6• 5 years ago

Look at the type of conversations, not the content. It’s not organic

BryanBeshore2• 5 years ago

Possibly. But the chat bots are not purchasing call options that actually have an impact on the stock price.

o-__-o6• 5 years ago

No and bots were not driving to the nations capitol on Jan 6, but they sure encouraged people who wouldn’t have picked up keys to start that drive. Same with GME, none of you would have bought it if it hadn’t turned into a meme stock

mam23• 5 years ago

Hard to swallow pill: wsb just merely launched a fashion. Other funds rallied to tank Melvin Capital.

Retail is still not that influent. The fact that hedge fund follow wsb is.

99_002• 5 years ago

wsb just merely launched a fashion

Seems like launching a fashion is a significant ability.

mrh00573• 5 years ago

This narrative needs to stop. This is institutional investor shorts vs intentional investors stockholders. Retail is just along for the ride but the institutional shorts did something crazy so other large funds came in like Michael Burry’s and bought large positions. This happens every once in awhile where other institutional investors see an opportunity to take out competitors who is over leverage.

So just sit back and watch for the margin calls to go out and GameStop will skyrocket to something ridiculous while the shorts try to unwind their position. Still don’t get how this mess is going to get cleaned up since it’s impossible for the shorts to cover.

99_002• 5 years ago

Institutional investor and hedge funds aren't the same thing. It's my understanding that the shorts were put on by hedge funds.

As far as I know institutional investors can't short stocks.

mrh00573• 5 years ago

Institutional investors are pretty much anyone who manages money on behalf of someone else. I don’t know how the restrictions work but likely has something to do with what the institution’s purpose is.

MrStonedOne2• 5 years ago

Institutional investor has become the term to refer to the opposite of retail investors.

I don't see that changing.

BryanBeshore2• 5 years ago

Shorting a stock 140%+ is absurd. If anything, time and technology (in this case) caught up with the old game on Wall St.

jjeaff2• 5 years ago

It's not any one group shorting that much. It's just that the aggregate has shorted that much.

And I'm not sure that it really matters that the shorts exceed the total stock available. Because it's not like everyone will have to cover their shorts at the exact same moment. An entity can buy stock to cover their shorts, then the entity that received the stock to cover the "uncovered" position would then be free to turn around and sell that stock again.

The real risk would be having a super large short position for a stock that has very low volume since it would be very difficult to cover lots of shorts if there aren't many people selling stock.

voisin• 5 years ago

This is institutional investor shorts vs intentional investors stockholders.

Source? Have you seen an update on breadth of long positions vs short positions?

jdjfktkrnj• 5 years ago

Still don’t get how this mess is going to get cleaned up since it’s impossible for the shorts to cover.

A deep pocketed long term large fund can buy the short position at a discount, a bit like distressed debt, and then just wait it out. It's a guaranteed win if you have deep pockets.

Note that when they buy the position, they don't also inherit the current mark to market loss, only a part of it (the price they pay).

What is a fair price for this position? I would love to know if someone has any insight on this.

notyourday• 5 years ago

A deep pocketed long term large fund can buy the short position at a discount, a bit like distressed debt, and then just wait it out.

They can't. Contrary to the memes peddled on reddit Illuminati aren't running the world.

SpicyLemonZest8• 5 years ago

But this isn't a narrative any of those institutional investors seem to believe. Michael Burry himself says that the current rally is "unnatural, insane, and dangerous", reports that he's closed his position, and is calling for legal and regulatory fixes to prevent this kind of situation from happening in the future. (https://www.bloomberg.com/news/articles/2021-01-27/michael-b...)

mrh00573• 5 years ago

It is unnatural and insane. You shouldn’t be able to short a stock that much to the point to can destabilize the whole financial system. The ripple effects can be really severe because the shorts are going to lose an unbelievable amount of money and will likely be bailed out somehow due to the ripple effects.

cpach• 5 years ago

Interesting! What is Burry’s involvement in this kerfuffle?

Rebelgecko• 5 years ago

At one point he owned around 2% of Gamestop shares so he potentially made a few hundred million dollars

mam23• 5 years ago

He bet on it 8 month or a year ago. saying, as always, that the financials were good.

it's not like wsb picked a stock randomly anyway

plus there was the microsoft dea.

Threeve303• 5 years ago

Since short sellers often provide liquidity to the market, if this happens at a large enough scale, it could push hedge fund shorts out of the market and then we could have a return of liquidity problems like during 2008.

Though some of these short operations do target companies with the intention of taking them over at a bargain, it's fair to say that due to the pandemic and the lockdowns that a short on mall related companies is a reasonable move. I guess WSB is ultimately taking advantage of the lack of updating the short position with the emergence of a vaccine.

xtiansimon• 5 years ago

This has to be a terribly naive question, but where does the information about a fund "short selling" a stock come from?

Is this information just in the wind, because the fund is talking about their trades in an effort to further drive stock down and improve their buy back cost?

Or, are there some kind of disclosures which must be made while they hold this position?

What information was WSB community going on?

How r/WallStreetBets gamed the stock of GameStop

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