Why Did Reddit Trigger a GameStop Stock Surge?

[Vanadium 50]

I keep wondering what the devil is letting it continue to defy economic gravity.

What's ultimately going to do this is good old-fashioned greed enlightened self-interest.

Suppose I am one of this major investors. I'd love to sell it at $315, but there aren't enough billions in liquid cash who will buy it. But what if I sold it at $40? I probably bought it at less than $20, so I'd still make a ton of money. And at $40, people who shorted it will buy - I imagine they will think "well, $40 is bad, but it's a lot better than $315." At $315, maybe I can sell a percent of it, but at $40, I could get out.

OK, if $40 works, what about $50? Or $100? You can bet that every major investor is thinking this through now, while they slowly unwind their long positions. But eventually you will see someone offering a large number of shares at a price between today's price and a "reasonable" price trying to grab profits before their neighbor can. And that will start the fall.

In interesting question is whether the Roninhooders will panic when this happens.

 

[kyphysics]

If you look at post 104, at least 4 million shorts were bought back when the price was over $200 - that's at least something close to a billion that went to people/companies who sold when the price was high. Not 16 billions, of course, but it's still a lot of money that changes owners here.

There are 58 million short interest shares right now (per that chart I posted).

Assuming all shorts covered at $300, that'd equate to (58M x $300): $17,400,000,000 ($17.4B) per my calculator.

Unless GME explodes in price from here (possible), it'll be hard for those 9 investors with $16B to cash out that high. Not enough buyers and/or current price is not adequate.

Anecdotally, from obsessively reading online chat forums, there seem like a ton of people who want to still buy (but are limited by brokerage restrictions) either to join this "social cause" or maybe b/c they think they can cash out higher.

Buying call options can also be a cheap way to "bet" on things. Just a fraction of the share price. ...If you get enough call options and a price increase in GME at the same time, you can trigger a gamma squeeze in brokers/market makers that forces them to buy the underlying shares too (bumping the price up). ...This will be an interesting month ahead. Kind of exciting for me as a completely uninvolved observer (no shares of GME and certainly no assets in a hedge fund with exposure). It's like a movie.

 

[Vanadium 50]

to join this "social cause"

What social cause? Enriching one group of wealthy investors at the expense of another group of wealthy investors?

 

[vela]

What social cause?

Stickin' it to the Man!

 

[kyphysics]

Stickin' it to the Man!

That's the sense I get from reading Reddit. So many upset about 2008-9 as well and see this as a form of payback even if they don't make money off it. They just want to short squeeze these big hedge funds and make them lose some $$$.

 

[Vanadium 50]

Stickin' it to the Man!

Does anyone here actually believe it? Raise your hands. In fact, is there anyone here who believes this isn't just another example of a pump and dump?

 

[kyphysics]

There are probably elements of both in the GME situation.

 

[etotheipi]

Papa Musk is going to take us all to Mars woooooo

 

[phinds]

Does anyone here actually believe it? Raise your hands. In fact, is there anyone here who believes this isn't just another example of a pump and dump?

I think that some of the Reddit crowd do believe, unwisely, that it is otherwise, and I think a lot of them are going to get hurt when gravity sets in.

 

[Office_Shredder]

Buying call options can also be a cheap way to "bet" on things. Just a fraction of the share price. ...If you get enough call options and a price increase in GME at the same time, you can trigger a gamma squeeze in brokers/market makers that forces them to buy the underlying shares too (bumping the price up). ...This will be an interesting month ahead. Kind of exciting for me as a completely uninvolved observer (no shares of GME and certainly no assets in a hedge fund with exposure). It's like a movie.

Options markets are efficient. The price of a call option in gamestop is crazy right now, implying something like a 25-50% move in the stock every day (which is... Maybe too low?). Buying call options in GameStop two weeks ago is genius, but it's too late to get a ton of cheap exposure now.

For some reason some of the brokers let you get a lot more exposure in call options than in stock right now. So if you're annoyed at the 1-5 share limits in place, call options are a pretty good place to get more.

 

[Vanadium 50]

Both call and put options are crazy now. It's as if the market feels the stock prices are very volatile. As if.

 

[kyphysics]

Options markets are efficient. The price of a call option in gamestop is crazy right now, implying something like a 25-50% move in the stock every day (which is... Maybe too low?). Buying call options in GameStop two weeks ago is genius, but it's too late to get a ton of cheap exposure now.

For some reason some of the brokers let you get a lot more exposure in call options than in stock right now. So if you're annoyed at the 1-5 share limits in place, call options are a pretty good place to get more.

Thanks, OS. I didn't know the pricing as of now. I just knew that's what the WSBers were doing (buying tons of calls) earlier to run up GME (causing a gamma squeeze).

I think some on the forum said you can buy unlimited shares of GME on some brokerages still, though. Maybe Fidelity or Vanguard?

 

[nduka-san]

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

 

[Vanadium 50]

There are two sides to every trade.

 

[phinds]

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

it ain't over 'til the fat lady sings. And gravity sets in.

 

[kyphysics]

it ain't over 'til the fat lady sings. And gravity sets in.

Or 11:30 AM as someone said. . .seems like the "real" stock moves happen after that...West Coast waking up, lol?

 

[russ_watters]

Down about 95 so far this morning. Maybe the kids found a new video game to play over the weekend?

 

[nduka-san]

Down about 95 so far this morning. Maybe the kids found a new video game to play over the weekend?

maybe they're going to do it to another stock few months away

 

[kyphysics]

a.) I've read it's illegal to short over 100% of outstanding shares.
b.) Hedge funds manage a portion of many state pensioners' assets.

Could pensioners sue these hedge funds with ridiculous short positions that got blown up?

Normally, they give up even the right to know what the heck hedge funds are doing with their money:
https://www.forbes.com/sites/edward...s-like-gamestop-all-the-time/?sh=14ceb6d9752d

That’s because state pensions routinely agree to be kept in the dark about alternative investment portfolio holdings and strategies. For reasons that have always been incomprehensible at least to me, state pensions demand transparency regarding their most liquid (publicly-traded) investments but readily consent to a complete lack of transparency regarding their riskiest, blithely accepting assurances by Wall Street that secrecy is required to achieve market-beating returns. This complicity between state pensions and Wall Street eviscerates state access to public records laws since the pensions conveniently have no information regarding their riskiest investments to disclose in response to pesky public records requests.

With state pensions already severely underfunded, allocating 26 percent to as much as 50 percent of their assets to alternative investment strategies including long-short equity poses enormous risk. Bear in mind, the ability to engage in short selling is not limited to hedge funds. Most other alternative investment managers are largely unconstrained in their investment strategies—they can invest in almost anything at any time. As a result, on any given day a private equity fund may be 100 percent invested in gold, the next 100 percent in silver, the next, 100 percent shorting GameStop.

What what if the hedge funds illegally shorted more shares than even available for GME? Possible to recover losses?

 

[kyphysics]

Or 11:30 AM as someone said. . .seems like the "real" stock moves happen after that...West Coast waking up, lol?

Right on schedule everyday!

 

[mfb]

Down about 95 so far this morning. Maybe the kids found a new video game to play over the weekend?

If hedge funds do it then it's investing, if reddit users to the same it's kids playing a video game?

 

[russ_watters]

If hedge funds do it then it's investing, if reddit users to the same it's kids playing a video game?

Yes.

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

 

[kyphysics]

Hmmmm.

Shorts are covering. Wallstreetbets community has lots of posts about why they should hold and not sell, b/c hedge funds are using short ladder attacks and trying to make it look like the game is over.

...Has WSB gotten to a point of delusion and paranoia where they could lose it all by holding when the data turns and they're not aware or believing it? https://www.bloomberg.com/news/arti...erest-plummets-in-a-sign-traders-are-covering

 

[mfb]

Yes.

At least you are open about your inconsistent labels.

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

I don't see where V50 would have claimed that.

...Has WSB gotten to a point of delusion and paranoia where they could lose it all by holding when the data turns and they're not aware or believing it?

Some have cashed out, at least partially, and made a lot of money. Some will sell soon, some will sell later. Many different people, many different strategies.

 

[russ_watters]

There has been a suggestion that somehow short sales are, while legal, immoral. I'd like people who think this to expound on this.

Are other transactions between willing partners immoral? Why or why not?
If so, which ones? Put and call options?
Is one side of the transaction OK but the other not?
Is it OK for institutions to trade with each other but not individuals?

In short, I am very interested in why people think short sales are wrong, and how this might (or might not) be generalized.

Nobody responded to this. I think I know why, and while I'm not your target audience, I'll respond.

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.

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. What can make those immoral (or illegal) is malicious intent to cause harm to another party.

Clearly, the reddit group is motivated in part by a desire to cause harm (and succeeded), but their actions have been judged by many as a righteous counter-attack: morally acceptable harm.

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. I'm not sure if a single hedge fund is big enough to cause harm by throwing its own weight around, but maybe multiple hedge funds together would. So the question is; are the coordinating the attack or are they all independently making the same judgement and taking the same action, which together causes harm? I think coordination would be illegal, and if they aren't I don't see how their actions can be judged immoral.

Other possibilities:
Rich = evil.
Predicting bankruptcy = mean.

 

[russ_watters]

At least you are open about your inconsistent labels.

I also label rain and snow differently. Maybe you can comment on that too, or make your point. I'll be more pointed: You are claiming a sameness, so describe the actions that you see that are similar/the same. 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.

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.

[edit] Note, I'm not even calling that "betting", but there is another group that is betting, and I draw a distinction between betting and investing. Remember, the name of the reddit forum is "wallstreetbets". Not "wallstreetinvesting".

Some have cashed out, at least partially, and made a lot of money. Some will sell soon, some will sell later. Many different people, many different strategies.

Yes.

 

[nduka-san]

how about everyone calms down do some yoga or somthing

 

[Bandersnatch]

I don't see how smithing is a good way to chill out.

 

[nduka-san]

I don't see how smithing is a good way to chill out.

something

 

[Vanadium 50]

I don't see how smithing is a good way to chill out.

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