Why Did Reddit Trigger a GameStop Stock Surge?

[Bandersnatch]

I dunno, all that banging and pounding? Relieves a lot of tension. And that's not even considering that there's fire involved.

I stand corrected. Everybody get an ingot and work on your temper(ing).

 

[Vanadium 50]

Chi del gitano <bang!> I giorni abbella? <bang!> La zingarella! <bang!>

 

[kyphysics]

This was my last straw.

It's insanity!

 

[Vanadium 50]

I think it is also likely that V50 is right that in part they have been manipulated into playing it.

That's a little strong. Maybe "enticed".

You have a bunch of (millions, it seems) unsophisticated investors talking to each other. This conversation is being held at an emotional level, where members dare each other to take on risky positions. Rational thinking is not just ignored, but actively discouraged.

In the classic pump and dump, someone takes an illiquid stock, typically an OTC penny stock, buys it, touts it without disclosing their position (the pump) and then sells it (the dump) after the price rises but before it falls again. Typically, this is "punped" to thousands.

In this case, someone has taken an illiquid stock (GME) and touted it, with a little "stick it to the Man" thrown in. It remains to be seen whether they had a stake in this before, and when they sold it. A pump-and-dump redistributes wealth, but not from the rich to the poor, but from those who got in late to those who got in early.

As I said, it remains to be seen whether this was intentional or a "lucky accident". But if I were going to try a pump and dump, this is exactly the pool of targets I would choose.

 

[russ_watters]

That's a little strong. Maybe "enticed"...

It remains to be seen whether they had a stake in this before, and when they sold it. A pump-and-dump redistributes wealth, but not from the rich to the poor, but from those who got in late to those who got in early.

As I said, it remains to be seen whether this was intentional or a "lucky accident". But if I were going to try a pump and dump, this is exactly the pool of targets I would choose.

I was reading your post at face value, but I guess you aren't sure.

 

[gleem]

What if the holders of put options decide to cover their liability by selling other equities that they owned resulting in driving down the prices of the shares of viable companies. Such a thing happened in 1901 when two investors competed for control of the Northern Pacific Railroad trying to outbid one another drove up the shares from $150 to $1000 in three days that forced put holder to sell holdings in other stocks/bonds they owned causing a panic on Wall Street. A truce was called and it was finally agreed to settle on a strike price of $150.

For the detailed account see https://www.americanheritage.com/jacob-schiff-and-northern-pacific-corner#2

There are two factors always present in the investing world, greed and fear which can interact synergistically to hurt everyone.

 

[Vanadium 50]

but I guess you aren't sure.

It's certainly possible that the order of events was "tout first, buy second". Certainly we will know more when the feds get through with them.

 

[kyphysics]

i wonder how much money was lost in total, and how much money the redditors gained in total?

https://www.cnbc.com/2021/01/31/mel...rcent-after-betting-against-gamestop-wsj.html
Melvin lost 53% in January.
Citadel lost 3% in January.
https://markets.businessinsider.com...sses-on-gamestop-data-shows-2021-1-1030020684
Overall, short-sellers of GME have lost about $19 billion in January.

Unclear how much the WSB crowd won. Smart people have made the case that probably a good chunk of the short squeeze winnings were from big players themselves (not just the Reddit crowd), b/c the rallies in the stock were too huge for just retail to have created (they argue).

 

[russ_watters]

Ended the day down 100, or 31%.

 

[russ_watters]

Unclear how much the WSB crowd won. Smart people have made the case that probably a good chunk of the short squeeze winnings were from big players themselves (not just the Reddit crowd), b/c the rallies in the stock were too huge for just retail to have created (they argue).

I suspect a few early and large participants made a lot, but the vast majority will probably lose, even if the net is positive.

[edit] Assuming those who gained aren't arrested/sued and forced to give it back.

 

[Vanadium 50]

i wonder how much money was lost in total

Not picking on you, but lots of people seem not to understand something very basic. There are two sides to every trade. One guy makes $100 and another guy loses $100. How much was "lost in total'? $100? $0? Some other number? The question doesn't make sense.

One can ask about how an individual trader did, if you know his positions. One can talk about how the money flows, although I am not sure this is useful, as 90% of it flowed from one "Wall Street Fat Cat" to another. As far as the Reddit guys, the money is flowing from people who got in the game late to people who got in early.

 

[Vanadium 50]

Ended the day down 100, or 31%.

And down another 44 to $181 in extended hours trading. I'm looking at the analyst's target prices. They are as low as $1.60. The most bullish analyst sets a price target at $16 based on a belief of an EPS of "only" -0.29 or 1Q21.

 

[kyphysics]

I suspect a few early and large participants made a lot, but the vast majority will probably lose, even if the net is positive.
[edit] Assuming those who gained aren't arrested/sued and forced to give it back.

Saw the following comments on Yahoo! Finance's GME page:

Nice
29 minutes ago
$GME conversation
Guys set a stop loss. Dont trust wsb moderators who created the hype together with roaring kitty.
They bought in couple months ago all together. They erased all other stock posts and start to hype GME so people will jump in. After a huge gain they hyped more so people will buy for higher prices. Created a enemy called Melvin Capital hyped the stock more so people will buy a $4 stock for $300.
Nice
15 minutes ago
$GME conversation
I denied to be a moderator on wsb after they told me there plans in the past. I was in there discord group not with thousands but with a couple guys. Roaring Kitty wsb moderators bought all 6 months ago. Start removing other stock posts and slowly created the hype. After that it was easy. Create an enemy and start pushing people to buy more and more for higher and higher prices.

They also have other accounts where they show 200k 400k losses bought in for high prices. They do this to motivate the rest to not sell and buy for high prices. In there main account they made millions of gains.
ReplyReplies (2)
41
Nice
13 minutes agoReplied to a reaction
$GME conversation
I pumped a lot of alt coins with these moderators in the past. We made on some altcoins 2000% gains. But after a lot of money what i made i was feeling myself guilty because i saw what people lost. Someones huge gains is someones huge loss. 50% of my money i gave to charities to get off that guilty feeling.
Nice
44 minutes ago
$GME conversation
They motivate you with other accounts where they payed $400 for a share to motivate you to hold until the end. It's a game and a group of guys on discord together with roaring kitty start this hype.

All of these guys are holding at least 50,000 shares each and I'm sure when the price goes down to $150 they all will sell at the same day and it will crash hard.

Copied a few posts from this user, who claims he/she was one of the first WSB members and was in on pump and dump schemes previously with the moderators. Who knows if this is true or not, but there does sometimes "feel" (I obviously cannot prove it) like there is a "scammy" element to some WSB posts.

I think a lot of people are probably genuine, but then sometimes there's just an indescribable feel you have that someone is leading you on. The post/story seems a little too contrived. Hard to know, but I wouldn't be surprised if this whole thing did turn out to be a scam from the WSB crew.

The thing about it is, there was also a very smart element to it that combined company fundamentals + squeeze possibilities. Chamath Palihapitiya (billionaire venture capitalist) pointed to this WSB post that sort of started it all:
If you read the original "plan" on WSB, it's pretty technical and well-thought out. Many financial pundits have praised the WSB's analysis of this weakness in hedge funds shorting GME and the willingness to "attack it." Even Michael Burry (he deletes his tweets quickly after posting for some reason), had said last week that one of the elements of this GME situation was a legitimate or plausible turn-around story (with the hiring of Ryan Cohen and move to greater e-commerce). This is mentioned in that post hatching the gamma squeeze plan.

I could see a situation where there was a legitimately good idea investing idea (based on the GME turn-around story + squeeze potential) that then had "pump and dump" fuel added to it in the later stages. That would make most sense for how I am piecing everything together.

But, who knows?

 

[Astronuc]

I heard a discussion earlier this evening that some Redditors bought GameStop (GME) as a protest, but others (looters) got into take advantage of the protest to 'pump and dump', and then after the stock appreciated, others (opportunists) got into take advantage of the volatility.

Still there were those, like a young kid who got ten shares of Gamestop at $6/per share ($60) back on December 30, 2019. The gift was from his mother. The youngster "decided to sell the stock Wednesday evening at over 53 times the value his mother bought it at, cashing in his shares for a tidy $3,200." The mom mentioned that "$2,200 will be deposited in his savings account while the rest will go to future investments."
https://www.wivb.com/news/texas-fifth-grader-cashes-in-gamestop-stock-his-mom-gave-him-2-years-ago/
https://www.marketwatch.com/story/t...ve-him-for-kwanzaa-for-almost-3200-2021-01-28

There may be other stories like that.

 

[russ_watters]

Not picking on you, but lots of people seem not to understand something very basic. There are two sides to every trade. One guy makes $100 and another guy loses $100.

One could argue that each guy makes $0 in the trade...

 

[mfb]

Because to me it seems pretty clear that many if not most are motivated primarily by a desire to harm the hedge funds and are willing to lose their own money to do it. That's definitely not investing. That's spending money on activism.

That's not the impression I get.

Overlapping that group is another group who hopes to make money, but are very new to investing (some even never have before). Some may even think they are investing, but they aren't. Not any more than tossing a piece of crumpled-up paper into a trash can is playing basketball.

Many of these made money. They identified a stock that was shorted like crazy, expected that to break down, invested, and made money when the short squeeze came as expected. Some made millions with relatively modest investments. You dismissed all of that as "playing video games". We must have fundamentally different concepts of playing video games.

Remember, the name of the reddit forum is "wallstreetbets". Not "wallstreetinvesting".

Neither "wall" nor "street" are literal, but "bets" must be?

In this case, someone has taken an illiquid stock (GME) and touted it, with a little "stick it to the Man" thrown in. It remains to be seen whether they had a stake in this before, and when they sold it.

At least for one of them we don't need to wait. Keith Gill/Roaring Kitty made no mystery of their position in the stock they advertised when it was low. They gave frequent updates on it. $53,000 -> $48 million by Jan 27. At least $20 million of that is diversified now, as far as I understand.

 

[russ_watters]

That's not the impression I get.

What impression do you get and where did you get it? Have you browsed reddit in the past week?

Many of these made money.

"Many", yes. Is "many" more than half? Unlikely.

They identified a stock that was shorted like crazy, expected that to break down, invested, and made money when the short squeeze came as expected.

Do you really believe that? What do you think is a reasonable price for a share of Gamestop stock?

You dismissed all of that as "playing video games".

No, not all. I've listed multiple separate groups with separate motivations. The people playing video games is only one of the groups -- albeit I suspect the largest. And, of course, the most important group is the one doing the pumping.

We must have fundamentally different concepts of playing video games.

Dunno - I've been very descriptive in what I think the motivations are, but you haven't, so I have no idea what you think "playing video games" means. Unless the above is what you expect the only/predominant motivation of the "investors" is. Do you really believe it?

Nor have you defined/described what you think "investing" or "betting" is.

Neither "wall" nor "street" are literal, but "bets" must be?

No, it doesn't necessarily have to be, but it is. Again: have you been on reddit lately? Have you browsed the sub? I just scrolled through several hundred posts of a thread, 90% of which said exactly the same thing; "IF HE'S STILL IN, I'M STILL IN". Do you really think they are serious posts? "Investors"? It's not an "investing" forum, and in my view, the title accurately reflects the point of the sub.

Caveat: I disagree that "wall" and "street" aren't literal, but that isn't critical here.

At least for one of them we don't need to wait. Keith Gill/Roaring Kitty made no mystery of their position in the stock they advertised when it was low. They gave frequent updates on it. $53,000 -> $48 million by Jan 27. At least $20 million of that is diversified now, as far as I understand.

Congrats to him/er. We'll have to wait and see if s/he gets arrested for it.

 

[russ_watters]

No, it doesn't necessarily have to be, but it is. Again: have you been on reddit lately? Have you browsed the sub? I just scrolled through several hundred posts of a thread, 90% of which said exactly the same thing; "IF HE'S STILL IN, I'M STILL IN". Do you really think they are serious posts? "Investors"?

Sample of the logic underpinning Friday's valuation of GME:

I'm convinced. I plan to cash-out my 401k and put it all in GME tomorrow. Anyone disagree with my strategy? (How dare you!)

 

[Astronuc]

Sample of the logic underpinning Friday's valuation of GME:

<illogical material removed>

I'm convinced. I plan to cash-out my 401k and put it all in GME tomorrow. Anyone disagree with my strategy? (How dare you!)

GME closing Monday, $225.00 -$100.00 -30.77%

Well Russ, you could be contrarian.

I did read a headline from someone claiming GME should go higher. I'm not sure from what basis though or when then might be.

Maybe Gamestop should go into financial services for Gamers.

 

[russ_watters]

GME closing Monday, $225.00 -$100.00 -30.77%

Well Russ, you could be contrarian.

I did read a headline from someone claiming GME should go higher. I'm not sure from what basis though or when then might be.

Can't tell if sarcastic; contrarian to whom? Does anyone here think GME stock is worth >$100 / share? I'd really be shocked if everyone here didn't agree it isn't.

[edit]
People often say something like "it is worth whatever people are willing to pay"
That's actually a lazy non-answer by people who aren't party to the transaction. Stock values are expected to change over time. The person selling believes it is or will be worth less than the sale price and the person buying believes it is or will be worth more. Each of them have a reason for their belief, and only the seller could believe "it is worth whatever people are willing to pay" because the buyer is the guy he's talking about. The buyer must have an actual reason for being willing to pay it based on a future expected price.

 

[mfb]

What impression do you get and where did you get it? Have you browsed reddit in the past week?

I get the impression that it is far more mixed. Many people are in for irrational reasons, but that doesn't mean they are into harm the hedge funds. Irrational belief that they are likely to make more money is another option.
Yes I have browsed reddit last week.

Many of these made money.

"Many", yes. Is "many" more than half? Unlikely.

I don't think I have enough information to make or judge such a statement, so I won't.

Do you really believe that? What do you think is a reasonable price for a share of Gamestop stock?

Far lower than the current price, obviously. That's not the question. You don't need a stock to multiply its value by 100 to profit from it.

No, not all.

Well, at least you posted the statement without a qualifier. It certainly didn't read like a statement about a more limited group.

Nor have you defined/described what you think "investing" or "betting" is.

I'm not playing this silly game again.

Again: have you been on reddit lately? Have you browsed the sub? I just scrolled through several hundred posts of a thread, 90% of which said exactly the same thing; "IF HE'S STILL IN, I'M STILL IN". Do you really think they are serious posts? "Investors"? It's not an "investing" forum, and in my view, the title accurately reflects the point of the sub.

The posts on the sub are not representative of actual stock transactions.

Caveat: I disagree that "wall" and "street" aren't literal, but that isn't critical here.

Users in WSB are not anywhere close to a wall, and they don't trade on a literal street either. Sure, both of them have a historic origin, but if you say "Wall Street" today you neither refer to the fort that gave the street the name, nor the physical street that gave the stock exchange its common name.

 

[phinds]

Part of a Bloomberg article this evening:

Carson Block, the activist short-seller famous for targeting Chinese frauds, recognizes familiar behavior in the rally of shares such as GameStop Corp. To him, the parabolic moves look less like the product of Reddit-driven retail orders than a short squeeze by hedge funds targeting other hedge funds.

“I’ve wondered, is there coordination with these hedge funds?” Block said in an interview on Bloomberg Television. “What constitutes coordination? Did they cross the line? That could be interesting.”

For the moment, it’s an unproven theory. But if Block is right, what seemed like a history-making retail uprising last week was just as much a convenient smokescreen for internecine hedge-fund warfare.

 

[russ_watters]

I get the impression that it is far more mixed.

Given that you presented my opinion as an all-or-nothing when it isn't, we may disagree less than you have indicated.

Many people are in for irrational reasons, but that doesn't mean they are into harm the hedge funds.

That's a twisted and inverted phrasing so I can't tell if you agree or disagree. Untwisting: do you agree that many people are in it to harm the hedge funds?

Irrational belief that they are likely to make more money is another option.

Agreed. I mentioned that.

Yes I have browsed reddit last week.

Good to know...

I don't think I have enough information to make or judge such a statement, so I won't.

Ok...so, your statement that I quoted was a throw-away, then? Completely lacking in meaning or value?

Far lower than the current price, obviously. That's not the question. You don't need a stock to multiply its value by 100 to profit from it.

That's exactly the question. Again, I think you're disagreeing to agree. But here's what you said:

"They identified a stock that was shorted like crazy, expected that to break down, invested, and made money when the short squeeze came as expected."

And here's what I just quoted from reddit:

"IF HE'S STILL IN, I'M STILL IN"

Do you honestly believe someone who makes a post like that set a mental value for GME stock? I don't think you do. I don't think someone who says that even knows what "shorted like crazy" means, and I suspect you don't think they do either.

Well, at least you posted the statement without a qualifier. It certainly didn't read like a statement about a more limited group.

Well;
1. I've made other posts in this thread that provide context/explanation to my position.
2. Market movers don't make up the entirety of people buying/selling stocks.

I'm not playing this silly game again.

Frankly, I consider your last few responses to me silly games. You're in attack mode for a reason I think I know, attacking to defend a position you won't state. I think it would be a lot easier for both of us if you would explicitly state your opinion in response to my explicitly stated opinion and then we could peacefully/respectfully agree to disagree.

The posts on the sub are not representative of actual stock transactions.

If you have information to support that, I'd like to see it. Perhaps more to the point, some post actual screenshots from their portfolio trackers...or so we're led to believe. If you have information that those are falsified, I'd really love to see it.

Note: I'll not assume your statement was meant to be absolute. Hint.

[edit]
Well, at face value that's false -- this entire incident is openly reported/acknowledged to be based on reddit hype. Unless you are claiming that the reddit hype is a follower of a movement that started elsewhere, but I don't think you are.

Users in WSB are not anywhere close to a wall, and they don't trade on a literal street either. Sure, both of them have a historic origin, but if you say "Wall Street" today you neither refer to the fort that gave the street the name, nor the physical street that gave the stock exchange its common name.

So you acknowledge it is an actual street, named for an actual wall, and presumably you are aware that the New York Stock Exchange is located on that street (and GME is traded on the NYSE). And many of the investment firms who trade there are located there. So you chose to pick this argument because people can access the market remotely? Seriously? Why are you doing this? I don't want to be in such an argument.

 

[Astronuc]

Can't tell if sarcastic; contrarian to whom?

I thought from my 'Haha' response to one's post, one could tell I was being sarcastic. Contrarian to those who believe the stock price will fall.

Based on normal stats, the stock price should probably be around $10 or less per share. Earnings per share -$4.22, Ex-Dividend Date March 14, 2019, so it's situation is precarious. To survive, they would have to change their business model.

Before hours this morning, the stock prices is $140 or less.

 

[Vanadium 50]

To survive, they would have to change their business model.

One might want to buy even if they thought it wouldn't survive. The Merrill Lynch analyst set a target at$1.60, which would value the company at $110M. Is the brand name and 5500 store leases worth that? No idea - but I wouldn't dismiss it as impossible. I could easily imagine a company looking to expand its physical footprint might find this appealing.

 

[Vanadium 50]

I think it would be a lot easier for both of us if you would explicitly state your opinion in response to my explicitly stated opinion

I agree.

FWIW, here is my position: if a Redditor were to identity a stock positioned to move up based on other's shorting, announces that on Reddit, then buys the stock, then decides to sell it (um...diversify), , announces that on Reddit, then sells the stock, they have nothing to worry about.

The farther one's actions diverge from that, the more trouble they are in. This is at least as true on the selling side as the buying - if they are saying "diamond hands everyone!" as they are liquidating their position, that is a problem.

What actually happened? I don't know. I sure don't want to accuse people of committing a crime if I don't even know for sure if a crime has been committed. We will know more when the feds get through with them.

 

[Vanadium 50]

Before hours this morning, the stock prices is $140 or less.

$130 now and still falling. AMC too.

 

[mfb]

do you agree that many people are in it to harm the hedge funds?

Relative to the number of people who bought GME? Would surprise me, but I don't have numbers.

Ok...so, your statement that I quoted was a throw-away, then? Completely lacking in meaning or value?

No, it just didn't claim what you interpreted into it.

I think it would be a lot easier for both of us if you would explicitly state your opinion in response to my explicitly stated opinion and then we could peacefully/respectfully agree to disagree.

I'm not sure what you call your explicitly stated opinion. On what in particular?

If you have information to support that, I'd like to see it. Perhaps more to the point, some post actual screenshots from their portfolio trackers...or so we're led to believe. If you have information that those are falsified, I'd really love to see it.

Do you think they are representative? If 72% of the comments on WSB say "if he is in then I am in" then 72% of the money invested in GME is done for that reason? I don't think you believe that. Stock transactions don't have a "reason" field (and if they would have, we would have no guarantee of honesty) so there is no hard data, but equaling number of comments to invested money would be absurd.

Note the recurring pattern here: You extrapolate from ... something to arrive at a conclusion. I question that conclusion, say that we don't have enough data. And then you ask me to post my own conclusion, and criticize me if I don't have one.

So you acknowledge it is an actual street, named for an actual wall

Yes of course! The names have an historic origin, but they shouldn't be taken literally when referring to the stock market. NYSE is not a wall, it's not a street either, it just got that name for historic reasons. WSB is named after bets, but that doesn't mean everything discussed there is a bet, and pointing to the subreddit name isn't going to tell us anything. If you want some more obscure names, check out /r/trees and /r/marijuanaenthusiasts.

 

[Vanadium 50]

I think it is pretty obvious that a small, mutually agreed upon transaction where neither side is behaving fraudulently or attempting to manipulate the other side can't be unethical/immoral.

I don't think that's necessarily true. There are counter-examples: loan sharking, prostitution, minimum wage.

Large individual transactions or groups of transactions carry a risk of manipulation, and that's what people are concerned about: the power of large transactions/groups of transactions.

But those are highly regulated. Furthermore, one cannot simply snap one's fingers and buy or sell a substantial fraction of a company. If I want to buy 100 shares of Coca-Cola, Etrade will execute that trade in a few seconds. if I want to buy 100 million, that is going to take some time.

Indeed, the Robinhoodlums (I know it's Reddit, but I couldn't resist) noticed that because of others' positions, GME was relatively illiquid, and a smaller-than-average purchase would produce larger-than-average swing.

The hedge funds are being judged to be intending to cause harm to Gamestop and its other investors. My understanding (admittedly thin) is that massive shorts themselves can push a stock down

A short moves the price down just as a sale does. It's a creatively financed sale. Why is one good and the other evil? It is it just "Rich people do it, and i don't understand it, but I know I don't like rich people, so..."

 

[Vanadium 50]

Before hours this morning, the stock prices is $140 or less.

$113 now. Lost half the value overnight.

 

[russ_watters]

Another wild one; down $135 or 60% so far; at about $90.

 

[kyphysics]

Mark Cuban is doing a live Ask Me Anything on WSB!

First question he answers is why GME is tanking:

Why is the stock plummeting so much?
mcuban

42 minutes ago

Supply and Demand, but in this case it literally could be because the source of demand has been crippled . When RH shut it down, then cut it back, let's put aside why, they cut of the greatest source of demand. They created a RobinHood Dive. No RH buyers, means sellers lower their price to find buyers. And they keep on lowering it till they find buyers. Keep the most natural buyers out of the market and the price keeps on FALLING.
Then that drop accelerates because the more the stock falls the more owners who bought on margin get margin calls. When that margin call happens, its brutal. They just take your stock, send you a **** you note and sell your stock at the market price, no matter how low. They just want to get your cash to pay back the loan.
That then accelerates the selling.
Which then leads to what we are seeing in the market right now with GME in particular

So what to do ?
If you can afford to hold the stock, you hold. I don't own it, but that's what i would do.
Why ? because when RH and the other online brokers open it back up to buyers, then we will see what WSB is really made of. That is when you get to make it all work.
I have no doubt that there are funds and big players that have shorted this stock again thinking they are smarter than everyone on WSB.
I know you are going to hate to hear this, but the lower it goes, the more powerful WSB can be stepping up to buy the stock again. The only question is what broker do you use . Do you stay with RH , who is going to have the same liquidity problems over and over again, or do you as a group find a broker with a far, far, far better balance sheet that won't cut you off and then go ham on Wall Street.

Of course, he's not guaranteed to be correct, but always interesting to get someone of his stature's take.

 

[phinds]

All of the reddit high fliers are down this morning. Here's the damage at 11:08am with GME and KOSS down the most by far although in terms of % down, AMC is right up there.

 

[Vanadium 50]

GME had 39M trades today with fewer than 70M shares outstanding. Interesting...

 

[kyphysics]

https://www.bloomberg.com/news/arti...ama-just-cost-one-etf-almost-80-of-its-assets
There was an article last week that some have pointed to as describing a way hedge funds might be using a "backdoor" to cover their shorts.

The XRT ETF saw massive outflows of $700M (80%). Apparently, you can redeem shares of the underlying stocks:

Theories abound as to what motivated the outflows, given that they happened alongside a nearly 20% rally in XRT this week alone. One possibility is that because XRT redemptions are delivered in-kind -- meaning that its shares are exchanged for the underlying stocks in the fund --investors are ditching the ETF to get their hands on hard-to-borrow GameStop shares. Others posit that with such a heavy weighting to the highly volatile GameStop, some holders may be choosing to take profit.

Bloomberg Intelligence analysts support the first theory.

 

[phinds]

GME had 39M trades today with fewer than 70M shares outstanding. Interesting...

There were almost 200,000,000 trades on the 22nd and 77,000,000 today (and yes, that's with only 70,000,000 shares outstanding, so there is a LOT of churning going on).

 

[Vanadium 50]

From Dow Jones (emphasis mine):

Some investors just aren't giving up on GameStop. The most actively traded options contract tied to GameStop has been a bullish call tied to the shares jumping to $800,

 

[phinds]

From Dow Jones (emphasis mine):
Some investors just aren't giving up on GameStop. The most actively traded options contract tied to GameStop has been a bullish call tied to the shares jumping to $800,

I've got a bridge in Brooklyn that I'd sell cheap to those folks.

 

[Vanadium 50]

This option is at $1.07, expiring Friday.

To give you an idea of what is more reasonable, KO (Coca-Cola) closed at $48.96. A penny buys you an option to buy it on Friday for $51.00.

Stonks only go up!

 

[Vanadium 50]

The $800 option price has fallen to 40 cents. GME is up over $100. Volume at mid-day is 30M shares - almost halfd the company.

 

[Vanadium 50]

It appears that one of the people touting the stock has been identified, a Mr. Keith Gill.

It appears that Mr. Gill is not just some guy talking to other enthusiasts on the internet, but that he is a licensed financial professional. Disclosure rules are much tighter for financial professionals precisely to avoid a situation like this.

Further, his employer is now in hot water. They are supposed to supervise all his financial activities. If they did not, that is bad for them. If they did not know because Mr. Gill failed to disclose (as he is required to), that's bad for Mr. Gill.

While the facts are still under investigation, I find it unfathomable that MassMutual would knowingly allow one of their brokers to tout a $5 micro-cap stock on social media using multiple anonymous identities. ("Why yes, that sounds like an excellent plan. Hop to it, my boy!")

 

[BWV]

From Dow Jones (emphasis mine):

Of course GME does not have to appreciate to anywhere near $800 for calls with that strike to be a profitable trade. Mar 19 calls are priced at around $5 relative to $92 underlying with about 3500 contracts open interest (so 350,000 shares). The vol in this price is a whopping 360%. The breakeven price is $172, but if GME actually was trading at $800 on 2/25 the appreciation on the position would be about 53X.

What the WSB folks figured out, is that there has to be a seller of this option and that seller needs a long position in the stock to hedge the risk - only thing worse than being short GME last month was being naked short GME calls. So the purchase of call options creates buying activity in the underlying (not to mention providing implied leverage far beyond the 2x margin limits)

 

[phinds]

Of course GME does not have to appreciate to anywhere near $800 for calls with that strike to be a profitable trade. Mar 19 calls are priced at around $5 relative to $92 underlying with about 3500 contracts open interest (so 350,000 shares). The vol in this price is a whopping 360%. The breakeven price is $172, but if GME actually was trading at $800 on 2/25 the appreciation on the position would be about 53X.

What does that mean? I haven't done options in decades and I don't follow what that might be.

 

[BWV]

What does that mean? I haven't done options in decades and I don't follow what that might be.

The implied annualized standard deviation using Black Scholes, all the other inputs are easily observable. By way of comparison, the S&P 500 implied vol is currently around 22%. The vol in the GME option is actually lower than recent realized vol, which is over 400%

FWIW since I wrote the previous post, GME is down about 30% and the option price is around $1.10

 

[phinds]

The implied annualized standard deviation using Black Scholes, all the other inputs are easily observable. By way of comparison, the S&P 500 implied vol is currently around 22%. The vol in the GME option is actually lower than recent realized vol, which is over 400%

FWIW since I wrote the previous post, GME is down about 30% and the option price is around $1.10

AH HA. I was interpreting "vol" as "volume", thus my confusion. Volatility makes sense. You can tell I haven't done this stuff in a long time.

 

[Vanadium 50]

It's possible that these $800 options are part of a complex but well-thought out ensemble of derivatives allowing these investors to take a long position on GME while carefully managing risk. Or it's possible that they are trying to massively leverage themselves because "stonks only go up!". Nobody knows for sure, but I have my suspicions.

I have a different view on "what the WSB guys figured out". They found a stock that had the name recognition of at least a mid-cap, but was so illiquid that it behaved more like an OTC stock. Further, the brand was viewed positively by a subgroup of unsophisticated investors, one that celebrates emotion over analysis. And while I am not saying it was a pump and dump, I am saying the conditions were ripe for a pump and dump, and the stock's price trajectory follows that of a pump and dump.

Oh, and it's at $55.50 now.

 

[Astronuc]

Oh, and it's at $55.50 now.

Looks like it closed at $53.36, down -$39.05, or -42.26%.

 

[Klystron]

Reminiscent of plays during the 'dot.com' bubble. Minor tech company fails to land deep pocket buyer/VC. Builds market share with catchy name, interesting plans; throw in the odd ringer, exploit tech workers who know little finance; then IPO with maximum fanfare, pump the stock up and the few cash out on top.

 

[mfb]

It appears that one of the people touting the stock has been identified, a Mr. Keith Gill.

As I said before, he never made a mystery about his position, long before it started going up. That's like saying you have "identified" a candidate for the US election - in October 2020.

 

[Vanadium 50]

It's up to $62. Because stonks only go up!