Why Did Reddit Trigger a GameStop Stock Surge?

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Discussion Overview

The discussion revolves around the recent surge in GameStop's stock price, driven by activity on Reddit, and the implications of this event for market dynamics, trading practices, and the behavior of hedge funds. Participants explore various perspectives on the motivations behind the stock movement, the role of retail investors, and the regulatory environment surrounding trading practices.

Discussion Character

  • Debate/contested
  • Exploratory
  • Technical explanation
  • Conceptual clarification

Main Points Raised

  • Some participants note the dramatic increase in GameStop's stock price from $20 to $350, attributing it to Reddit users reacting against bearish sentiments from Wall Street.
  • Others express admiration for the Reddit community's ability to influence the market, while also highlighting concerns about the power of hedge funds and their influence over regulators.
  • Several participants discuss trading strategies, including short selling and the use of CFDs, with some noting the legality of such practices in different jurisdictions.
  • There are differing opinions on whether the actions of Reddit users constitute an "attack" on hedge funds, with some arguing it is a form of competition while others see it as a retaliatory measure.
  • Some participants raise the concept of "outsider trading" in contrast to "insider trading," questioning the ethics and legality of the actions taken by retail investors.
  • Concerns are expressed about the potential for a "pump and dump" scenario, particularly if the actions of retail investors lead to significant losses for others.
  • Participants discuss the implications of trading restrictions imposed by platforms like Robinhood, with some viewing it as indicative of a rigged system.
  • There is a recognition that the global nature of trading allows non-U.S. investors to participate despite restrictions on certain platforms.
  • Some participants express uncertainty about the long-term effects of this trading activity on GameStop and the broader market.

Areas of Agreement / Disagreement

Participants do not reach a consensus on the motivations behind the stock surge, the ethical implications of the trading strategies employed, or the legality of certain practices. Multiple competing views remain throughout the discussion.

Contextual Notes

There are unresolved questions regarding the legality of various trading practices, the definitions of insider versus outsider trading, and the potential consequences for companies involved in these market dynamics.

russ_watters
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Two weeks ago Gamestop was worth $20 a share. Today it's worth $350. As I just heard on CNBC: for the same money, you could by Gamestop or you could buy Delta. Why is this happening? Because a reddit sub saw that Wall Street was bearish on Gamestop and got annoyed. So in order to Stick it to the Man, they started buying. And buying. And buying. And it worked! Cost hedge funds billions, earned assumed to be real redditors millions (on paper). Meanwhile, Gamestop is still dying, though it feels better about it.

I predict that next week there will be a run on Kleenex.

https://www.cnn.com/2021/01/27/investing/gamestop-reddit-stock/index.html
 
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It's pretty cool that they pulled this off. It's too bad that Wall Street fat cats have the power to sway regulators to step in and protect them when their bets go wrong.
 
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Short it using CFD's if you are that way inclined. During my days of share trading I saw all sorts of similar stuff. That's why I gave away short term trading - first I was not that good at it and secondly long term trading based on buying when below a line of linear regression and selling when above worked well (ie relying on regression to the mean) and was much easier on the nerves. Or you can simply switch between classes depending on how far above or below you were - above go for high yield defensive bonds - below - high growth although I found a small cap index fund was a bit better - strange. Medium term trading was OK but it still required you to watch your positions like a hawk. You could do long term trading on the weekend. ETF's have really changed things from when I did it.

Thanks
Bill
 
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I wouldn't call it an attack. Hedge funds use the same tactics to game the system and no one bats an eyelash.
 
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bhobba said:
Short it using CFD's if you are that way inclined.

CFDs are illegal in the US.
 
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russ_watters said:
Two weeks ago Gamestop was worth $20 a share. Today it's worth $350. As I just heard on CNBC: for the same money, you could by Gamestop or you could buy Delta. Why is this happening? Because a reddit sub saw that Wall Stree
https://www.cnn.com/2021/01/27/investing/gamestop-reddit-stock/index.html
See this Twitter thread. It's possibly more complex than that:


 
Robinhood just stopped orders for GME and AMC. Such a rigged system. That platform is now dead.
 
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Watching the graph in real-time is wild. It opened at 290, now at 440.
 
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  • #10
Greg Bernhardt said:
Robinhood just stopped orders for GME and AMC. Such a rigged system. That platform is now dead.
i use robinhood for buying doge coin and ill admit its a little dead
 
  • #11
Maybe disregard my tweet pastes above...The wallstreetbets Reddit has many people saying they are buying all over the world. Even though Robinhood has paused trading on those targeted stocks, non-U.S. investors can buy (people are reporting in from Canada, Singapore, Australia, India, etc.).

That seems to debunk the "evidence" listed above.

Very crazy stuff! The whole world is watching and getting involved.
 
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  • #12
its fun to watch the little guy win
 
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  • #14
Can we call this outsider trading in contrast to the usual insider trading of the established trading places?
 
  • #15
fresh_42 said:
Can we call this outsider trading in contrast to the usual insider trading of the established trading places?
i think it is outsider trading, don't take my word for it though.
 
  • #16
throwback stocks like GameStop, AMC, Nokia, and even Tootsie Roll, soared thanks to cyberbulls.
 
  • #17
Greg Bernhardt said:
I wouldn't call it an attack.
My understanding is part of the motivation of the redditors is to harm the hedge funds(which they did). I think it's fair to call that an attack. I'm not sure what else to call it. Competition? Maybe, but in managing my portfolio, what good/harm I'm doing to other investors never enters my head.
Hedge funds use the same tactics to game the system and no one bats an eyelash.
These reddit users batted an eyelash. I think it's fair to say that if hedge fund managers knowingly take actions that will depress a stock (while they profit from it), that's an attack too. So, the way I see this; the hedge fund managers attacked Gamestop. Reddit saw that and didn't like it, so they counter-attacked on Gamestop's behalf (successfully).

What I'm not sure the redditors have thought through is their own endgame and risk.
 
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  • #18
fresh_42 said:
Can we call this outsider trading in contrast to the usual insider trading of the established trading places?
I'd call it a pump and dump if an investment firm did it. It would be illegal. Not illegal for outsiders as far as I know, but still wrong if some make a ton of money while others lose a ton.
 
  • #19
russ_watters said:
I'd call it a pump and dump if an investment firm did it. It would be illegal. Not illegal for outsiders as far as I know, but still wrong if some make a ton of money while others lose a ton.
I find it hilarious that one of the stocks was tootsie rolls going up by 14 dollars in 5 days
 
  • #20
russ_watters said:
It would be illegal.
Yes, as is speeding. Me, too, once signed these forms where I had to promise not to do it, before they let me have a look on how it is done. And it is done. It's only a matter how it is disguised as.
 
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  • #21
fresh_42 said:
Yes, as is speeding. Me, too, once signed these forms where I had to promise not to do it, before they let me have a look on how it is done. And it is done. It's only a matter how it is disguised as.
What? You're defending investment companies that defraud their investors? Am I misunderstanding you?
 
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  • #22
russ_watters said:
Not illegal for outsiders as far as I know

It certainly is. 15 USC 77. Penalty up to 5 years in prison.
 
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  • #23
Vanadium 50 said:
It certainly is. 15 USC 77. Penalty up to 5 years in prison.
wow that's harsh
 
  • #24
Vanadium 50 said:
It certainly is. 15 USC 77. Penalty up to 5 years in prison.
Doesn't the first exception say it doesn't apply to individual investors? It's kind of a double-negative, so I'm unclear.
 
  • #25
russ_watters said:
What? You're defending investment companies that defraud their investors? Am I misunderstanding you?
I am not defending it. I only claim that it is happening. Analysts regularly visit companies ahead of balance reports, and at other times. Their job is to gather information. Maybe it will also be available in the NYT, WJ or FT, but personal contacts work different from press conferences, so I won't bet on it.

11a.m. Broker xxx has a long phone call with fund manger yyy about buying 100,000 stocks of zzz at the price of ppp. An hour later he is somewhere outside to have lunch. And guess who else has lunch at the same time in the financial districts of the world. And this is only one opportunity to talk about the weather.

The only question is where to draw the line. If you call a market that rocks up because of simultaneous, global orders already an attack, then you have to forbid automatic stop-loss orders and computer trading.

Edit: quod licet iovi non licet bovi
 
  • #26
fresh_42 said:
I am not defending it. I only claim that it is happening. Analysts regularly visit companies ahead of balance reports...
You're talking about insider trading. I'm talking about a pump-and-dump. Totally different things. I agree that the line for insider trading is blurry. The line for a pump-and-dump may be blurry too.
 
  • #27
russ_watters said:
Doesn't the first exception say it doesn't apply to individual investors?

Which section and which line?
 
  • #29
I don't get it. 77a says, it its entirety 'This subchapter may be cited as the “Securities Act of 1933”. '
 
  • #30
i wonder how this will affect the companys ?
 

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