Gamestop

stocker08

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Yeah I needed help with all this too. Still doesn’t make a lot of sense to me.

So these hedge funds were massively shorting GME (Gamestop). Also a few others like AMC Theaters. Basically means that they sold shares of a stock that they themselves didn't actually own. The idea behind it is that they believe that the stock will drop in price. So if they "sold" a share for $10...they are hoping the price per share will drop and by the time that they need to reimburse ("cover") the share...it will be cheaper than what they sold it for.

WSB (Wallstreetbets) decided that they wanted to stick it to the hedge funds that do this....because in many cases....these hedge funds have enough power in the market to manipulate stocks and drive the price down if they want. So they coordinated an attack in which they were doing nothing but buying, driving the price WAY up. Now...hedge funds like Melvin Capital have to pay an ENORMOUS amount in order to cover the shares that they shorted.
 

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Interesting


Robinhood derives a large amount of value from its relationship with Citadel Securities. In return for access to order data, Robinhood has sold about $69 million of information in 2018 to give firms like Citadel Securities more information than is available to retail investors — specifically, first access to trade patterns a few milliseconds before they get filled. This was said to be about more than 40% of Robinhood’s total revenue in 2018 by three anonymous sources in Bloomberg, something that looks to have invited a SEC probe.


This allows for automated trades to have an edge with faster data than the rest of the market. The old adage holds true here — if you’re not paying for the product (after all, Robinhood built its userbase on the premise of commission-free trades) then you probably are the product.







 

MplsGopher

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So they coordinated an attack in which they were doing nothing but buying, driving the price WAY up.
How is the price of a stock determined?

Let's say I own 1000 shares of Gamestop, and my good buddy LesBolstad and I want to scheme together to drive the price up. So I offer to sell the stocks to Les for the great deal of 1000% higher than the price shown on the market ticker, and he accepts!

Guessing that won't work. So how does it work?


Maybe it seems like it should be obvious ... but actually, why is it the case that just because a bunch of people on Reddit decide they want to buy a stock ... that the price of the stock should go up? What is the mechanism? Who is really in control?

If I get a bunch of friends together and go to all the grocery stores in the TC area and buy up all the Doritos .... I guarantee the price of Doritos isn't going to move one inch. They'll just be "out" until the next truck arrives.
 

Taji34

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Yeah I needed help with all this too. Still doesn’t make a lot of sense to me.

Shorting a stock is basically betting it will go down in price, borrowing a stock to sell, re-buying it at a lower price, returning the "borrowed" stock and pocketing the difference. Imagine it like this:

You have a banana, I borrow it from you on the condition that I eventually give you back 1 banana. At the time, bananas are worth $10 and I sell that immediately. A few days later bananas cost $7, so I buy a banana and return the "borrowed" banana. The 3 dollar profit I made stays with me.

The flip side is I *need* to eventually give back the banana. So if I am wrong, and instead the price of bananas goes up, let's say to $15, I have to buy at the higher price and take a $5 loss when returning the "borrowed" banana.

Now imagine that but scaled up massively. And on top of that, somehow you can borrow more than 100% of the bananas available.
 

GophersInIowa

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So these hedge funds were massively shorting GME (Gamestop). Also a few others like AMC Theaters. Basically means that they sold shares of a stock that they themselves didn't actually own. The idea behind it is that they believe that the stock will drop in price. So if they "sold" a share for $10...they are hoping the price per share will drop and by the time that they need to reimburse ("cover") the share...it will be cheaper than what they sold it for.

WSB (Wallstreetbets) decided that they wanted to stick it to the hedge funds that do this....because in many cases....these hedge funds have enough power in the market to manipulate stocks and drive the price down if they want. So they coordinated an attack in which they were doing nothing but buying, driving the price WAY up. Now...hedge funds like Melvin Capital have to pay an ENORMOUS amount in order to cover the shares that they shorted.
Thank you!
 

GophersInIowa

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Shorting a stock is basically betting it will go down in price, borrowing a stock to sell, re-buying it at a lower price, returning the "borrowed" stock and pocketing the difference. Imagine it like this:

You have a banana, I borrow it from you on the condition that I eventually give you back 1 banana. At the time, bananas are worth $10 and I sell that immediately. A few days later bananas cost $7, so I buy a banana and return the "borrowed" banana. The 3 dollar profit I made stays with me.

The flip side is I *need* to eventually give back the banana. So if I am wrong, and instead the price of bananas goes up, let's say to $15, I have to buy at the higher price and take a $5 loss when returning the "borrowed" banana.

Now imagine that but scaled up massively. And on top of that, somehow you can borrow more than 100% of the bananas available.
Thanks. So is there a specific timeframe the borrowed stock has to be returned?
 

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How is the price of a stock determined?

Let's say I own 1000 shares of Gamestop, and my good buddy LesBolstad and I want to scheme together to drive the price up. So I offer to sell the stocks to Les for the great deal of 1000% higher than the price shown on the market ticker, and he accepts!

Guessing that won't work. So how does it work?


Maybe it seems like it should be obvious ... but actually, why is it the case that just because a bunch of people on Reddit decide they want to buy a stock ... that the price of the stock should go up? What is the mechanism? Who is really in control?

If I get a bunch of friends together and go to all the grocery stores in the TC area and buy up all the Doritos .... I guarantee the price of Doritos isn't going to move one inch. They'll just be "out" until the next truck arrives.
Supply and demand. Say a stock gets stuck at moving past 10 dollars. It attempts it a couple of times, but can't get through. For some reason there are more sellers than buyers at that price. Perhaps they've had the stock for 3 months or whatever and find this is their chance to dump it. Finally on the third attempt it breaks through 10 because now there are more buyers (demand) than sellers (supply) Price is rising.
 

howeda7

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I was watching it today to see what happened. It got halted a few times, which is across all platforms. No buying or selling. Has nothing to do with the brokerage. Happens for a number of reasons....but the reason that I've typically seen it happen is because of volume. Coming in way too quickly that "they" have to stall it to catch up.
Yeah, the price on AMC froze several times. I guess intel can keep making faster chips.
 

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Who makes the chips for autos?
Indie is one. Another is Achronix. Sure there is more. Both of those are merging with SPAC's. Indie with THBR and the Achronix with ACEV.
(Please though, I was joking on the hot tip stuff. Hate to see anyone lose money on my account.)
 

stocker08

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How is the price of a stock determined?

Let's say I own 1000 shares of Gamestop, and my good buddy LesBolstad and I want to scheme together to drive the price up. So I offer to sell the stocks to Les for the great deal of 1000% higher than the price shown on the market ticker, and he accepts!

Guessing that won't work. So how does it work?


Maybe it seems like it should be obvious ... but actually, why is it the case that just because a bunch of people on Reddit decide they want to buy a stock ... that the price of the stock should go up? What is the mechanism? Who is really in control?

If I get a bunch of friends together and go to all the grocery stores in the TC area and buy up all the Doritos .... I guarantee the price of Doritos isn't going to move one inch. They'll just be "out" until the next truck arrives.
Supply and demand. The price of GME was around $20 prior. Tons of buyers hopped in and bought up what was being offered at $20....leaving what was there at $21. And so on.
 

jamiche

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Let's ask our melvin, the board's economist, how this all works. Let's see if he can answer in less than two sentences. It's so hard to figure out.
 

jamiche

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The next month or so will be interesting. The banks and hedge funds have been used to being in control. Meanwhile, if redditt-rogues get drunk, they will fail. If they stay focused, they might temporarily tame the institutional beast.
 

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I guess those reddit guys are messing with a bitcoin now called dogecoin. Those guys are nuts.
(Which I put 35 dollars in to see what happens)
 
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howeda7

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Let's ask our melvin, the board's economist, how this all works. Let's see if he can answer in less than two sentences. It's so hard to figure out.
This is all due to over-regulation by leftist progs!
 

howeda7

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Indie is one. Another is Achronix. Sure there is more. Both of those are merging with SPAC's. Indie with THBR and the Achronix with ACEV.
(Please though, I was joking on the hot tip stuff. Hate to see anyone lose money on my account.)
THBR is a shell company with no earnings info. ACEV similarly murky. You buy and let us know how it goes...
 

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THBR is a shell company with no earnings info. ACEV similarly murky. You buy and let us know how it goes...
I will. Already in both. Special Purpose Acquisition Companies don't have earnings. Same thing as when Draftkings merged with DEAC or when Tattooed Chef merged with FMCI, etc. Lots and lots of SPAC's
 
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Spoofin

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I like the hedge funds. They are making tons of money by being smarter than others. Good for them. That is what America is about. All I see here is a bunch of jealous wanna be’s rooting against those that have more because they have more. Funny thing is I’m sure they all saw what was happening and hedged long as it went up.
 

MplsGopher

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Supply and demand. Say a stock gets stuck at moving past 10 dollars. It attempts it a couple of times, but can't get through. For some reason there are more sellers than buyers at that price. Perhaps they've had the stock for 3 months or whatever and find this is their chance to dump it. Finally on the third attempt it breaks through 10 because now there are more buyers (demand) than sellers (supply) Price is rising.
Supply and demand. The price of GME was around $20 prior. Tons of buyers hopped in and bought up what was being offered at $20....leaving what was there at $21. And so on.
My extremely limited experience with selling any type of share, via retirement accounts, is you go to Vangard (or whatever) and say "I want to sell 100 shares of this fund and put it into these two funds over here". They say "Ok, give me some time". Then later you get a message that it's done. If you want to see the details, you can see what price the shares sold for and then what prices the others bought for.

But what you're describing makes it seem like a share owner of any listed stock can put it up for sale at any price they want? Like Facebook marketplace. Like, you can log onto Robinhood and put a share of Tesla on sale for $5k? And just "just keep it up for sale, let me know if someone buys it, thanks!"
 

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Thanks. So is there a specific timeframe the borrowed stock has to be returned?
There is not a timeframe for a typical short sale (the excellent banana analogy by Taji34 in #127 above). However, brokerages can force the investor to liquidate positions when leveraged losses in an account get too high (margin call as described below). There is a specific time frame in the options market, but that's a different subject.

To steal from Taji34's excellent analogy, let's say you borrowed the banana at $10. Instead of going down in price, bananas increased to $400. You now owe $400 on a $10 investment. That's the danger with shorting stocks and the relative situation now with GameStop (that stock was under $10 weeks ago and surpassed $400 recently).

When the losses get large enough in a single investment that it puts your account at risk, the brokerage forces you to infuse new money or liquidate the short position and buy back the borrowed stock no matter what the price is (a margin call). The higher the price gets, the more short sellers are forced to buy back their stock at any price. This pushes the price even higher and is called a short squeeze.

To make matters worse, let's say that you were totally convinced the price of bananas was going to drop from $10 to $1. Your were so convinced that you borrowed $100 to short sell a total of 10 bananas. However, the price goes up to $400 per banana and you now owe $4,000 on a $10 investment. This is how leveraged hedge funds and investors get wiped out overnight.
 
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MplsGopher

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This is how leveraged hedge funds and investors get wiped out overnight.
So if let's say the Chicago firefighters pension had a couple million investment with that hedge fund ... are the firefighters just F'ed then?
 
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