Was GameStop's Rise Actually Orchestrated By Hedge Funds? (washingtonmonthly.com) 121
Robert J. Shapiro advised senior members of the Obama administration on economic policy, and served as an Under Secretary of Commerce under Bill Clinton.
Now a senior fellow at the McDonough School of Business at Georgetown, he's suspicious of the surge in GameStop's stock price: Allegedly, this is the tale of scrappy, small online day traders buying shares of a beleaguered company to thwart a hedge fund scheme to take it down... Yet, certain facts are publicly available, including GameStop's daily trading volume, its daily prices, the number of short sales of its stock, and how many shares are held by big institutional players. Those facts suggest that the Reddit online traders have been on the sidelines of a trading war among a handful of big institutional investors. The SEC should subpoena the records because the hard data also suggest that some big players may be using trading strategies used in the past to manipulate stock prices...
Unless most of the Reddit bunch have assets in the top one-tenth of one percent of Americans, they were mere bystanders to last week's trading of 682 million shares at an average price of $218.20 — purchases totaling nearly $150 billion in a wildly volatile market. Only institutional investors have such resources to trade stocks, not self-styled populists with Robinhood on their iPhones. Since most big players are regulated public corporations with fiduciary responsibilities to avoid the enormous risks involved in this high-stakes game of chicken, the GameStop players almost certainly are all lightly regulated hedge funds. The trading volume and price gyrations also suggest that those hedge funds may be manipulating the market...
[S]ome 20 million or more of the GameStop shorts were never borrowed and never delivered to their buyers. They were what the SEC calls "naked shorts." The SEC has banned naked shorting as abusive market manipulation because large-scale naked shorting artificially drives down a stock's price. Given the volume of short sales and overall trading in GameStop, large-scale naked short-selling was clearly involved when GameStop's share price fell $153 last Wednesday (from $347 to $194) and again this Monday when the price plummeted from $325 to $225... The data also suggest a bigger story of possible manipulation involving the huge increases in GameStop's share price. The wild swings in those share prices reflect hundreds of millions of shares being traded each day, mostly in big blocks and presumably from one hedge fund to another. When the price rose, one fund got out and took huge profits while another bought in, expecting the price to rise further, and yet another sold short, expecting the price to fall...
In effect, hedge funds may have manipulated GameStop in opposite directions, wringing out profits daily or even two or three times a day. If this is correct, the GameStop saga is not some populist uprising but a rolling version of "pump and dump," a classic form of manipulation and naked shorting.
Now a senior fellow at the McDonough School of Business at Georgetown, he's suspicious of the surge in GameStop's stock price: Allegedly, this is the tale of scrappy, small online day traders buying shares of a beleaguered company to thwart a hedge fund scheme to take it down... Yet, certain facts are publicly available, including GameStop's daily trading volume, its daily prices, the number of short sales of its stock, and how many shares are held by big institutional players. Those facts suggest that the Reddit online traders have been on the sidelines of a trading war among a handful of big institutional investors. The SEC should subpoena the records because the hard data also suggest that some big players may be using trading strategies used in the past to manipulate stock prices...
Unless most of the Reddit bunch have assets in the top one-tenth of one percent of Americans, they were mere bystanders to last week's trading of 682 million shares at an average price of $218.20 — purchases totaling nearly $150 billion in a wildly volatile market. Only institutional investors have such resources to trade stocks, not self-styled populists with Robinhood on their iPhones. Since most big players are regulated public corporations with fiduciary responsibilities to avoid the enormous risks involved in this high-stakes game of chicken, the GameStop players almost certainly are all lightly regulated hedge funds. The trading volume and price gyrations also suggest that those hedge funds may be manipulating the market...
[S]ome 20 million or more of the GameStop shorts were never borrowed and never delivered to their buyers. They were what the SEC calls "naked shorts." The SEC has banned naked shorting as abusive market manipulation because large-scale naked shorting artificially drives down a stock's price. Given the volume of short sales and overall trading in GameStop, large-scale naked short-selling was clearly involved when GameStop's share price fell $153 last Wednesday (from $347 to $194) and again this Monday when the price plummeted from $325 to $225... The data also suggest a bigger story of possible manipulation involving the huge increases in GameStop's share price. The wild swings in those share prices reflect hundreds of millions of shares being traded each day, mostly in big blocks and presumably from one hedge fund to another. When the price rose, one fund got out and took huge profits while another bought in, expecting the price to rise further, and yet another sold short, expecting the price to fall...
In effect, hedge funds may have manipulated GameStop in opposite directions, wringing out profits daily or even two or three times a day. If this is correct, the GameStop saga is not some populist uprising but a rolling version of "pump and dump," a classic form of manipulation and naked shorting.
If you're in a card game... (Score:5, Insightful)
...and you don't know who the mark is. You're the mark.
It should've been clear from the start & was made clearer by people who understand the game & spoke out publicly about it that the Robinhood traders on their smartphones were more like the kid sitting in the back seat of the car with a toy steering wheel.
Re:If you're in a card game... (Score:5, Interesting)
...and you don't know who the mark is. You're the mark.
It should've been clear from the start & was made clearer by people who understand the game & spoke out publicly about it that the Robinhood traders on their smartphones were more like the kid sitting in the back seat of the car with a toy steering wheel.
"...20 million or more of the GameStop shorts were never borrowed and never delivered to their buyers. They were what the SEC calls "naked shorts." The SEC has banned naked shorting as abusive market manipulation because large-scale naked shorting artificially drives down a stock's price.
The mark here, is the SEC. Clearly they don't know what the fuck they're doing, because this policy sure as hell didn't stop a damn thing.
Either that, or the corruption goes far deeper, and the SEC has been bought off. If the SEC refuses to punish those who perpetuated millions of naked shorts, you have the confirmation.
Re:If you're in a card game... (Score:5, Insightful)
They know exactly what they're doing - nothing and deliberately so. The SEC are not investigating their rich pals, nudge nudge wink wink, because they want to be paid huge sums themselves when they walk through the revolving doors.
They might OTOH investigate some redditors and throw a couple in prison as a message not to mess with wall street fat cats.
Cynical, maybe, true, probably.
Re: If you're in a card game... (Score:2, Interesting)
It's rare the big rich guys are doing these kinds of things. Because it's a winner takes it from a mark scenario and the mark is almost always a big rich guy. They are the only ones with enough to take.
There are plenty of legal ways for players at that level to keep gaining wealth. You only need to see the custom deals that Mr Buffett signs to get an idea.
It's usually a new, desperate, or failing player with little to lose that tries these things. And that guy is at best medium rich. These guys increase d
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The illegal shorties were the big losers.
The SEC failed to stop them, but they screwed themselves, so I don't see a big problem.
There should be a thorough investigation and criminal penalties, but the shorties have already paid a $30 billion "fine".
Re:If you're in a card game... (Score:4, Informative)
That was in the first run up.
We’re talking about the run down, which was 100% illegal and collusion.
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You didn't read the article, but in this case, golly. Don't comment if you didn't read it, people, it is full of numbers and you don't want to look as stupid as ShanghaiBill!
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Re: If you're in a card game... (Score:5, Interesting)
Re: If you're in a card game... (Score:4, Informative)
There are systems at the SEC and your competitors to corroborate your story. You guys have your private book but the public ledger has to match up to what you say.
Then there is the fact of just how much of a influencer you are on the general market. Finally, even if you influence the market, if you are doing it at the benefit of the general holders, it's considered a good thing*.
It's all a risk assessment. You don't spend as much time on smaller funds, smaller stocks, entities with good history, normal success, or highly spread out exposure. This is true for all forms of QC and audits; from your toothbrush, CPU, to parts on satellites.
Granted there were plenty of places where the SEC messed up. Worldcom, Enron, L3, etc.
* = good thing has to do more with information transport and transparency than moving a security in a specific direction. Shorting, like all legal trades, are considered good as it provides a valid opinion on the valuation of a security.
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Note that complying with the spirit of the law may leave you in serious trouble if and when things go south. The courts (and the lawyers) observe the LETTER OF THE LAW. The spirit is meaningless to a lawyer or judge....
Re: If you're in a card game... (Score:3)
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Not always.
There was a dope case in Florida in the 70s. Guy was growing cannabis indica but the law said that cannabis sativa was illegal. Nothing about indica.
The spirit of the law sent him to prison for a few years.
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Re: If you're in a card game... (Score:3)
You also lose any profits of those transactions. And losing that reputation really hurts because the system is based on everyone being honest within the rule set. People will not lend to you or raise interest rates or leave you out in partnerships.
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Re: If you're in a card game... (Score:2)
Disgorgement. Many times used in shorting cases.
The SCOTUS recently limited this power. Haven't read the full details (if anyone did, please educate me) but basically they said funds that don't go back to those hurt are equal to fines rather than equivalent to restitution.
Seems fine at first but that means it gives the wrong doers more wiggle room. They already negotiate the fees, sentencing limits, and restitutions anyway. Big firms with good lawyers are now more empower. Before, the SEC could take all pro
Re: If you're in a card game... (Score:2)
https://en.m.wikipedia.org/wik... [wikipedia.org]
Grr, /. ate my anchors.
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Re:If you're in a card game... (Score:5, Informative)
...and you don't know who the mark is. You're the mark.
It should've been clear from the start & was made clearer by people who understand the game & spoke out publicly about it that the Robinhood traders on their smartphones were more like the kid sitting in the back seat of the car with a toy steering wheel.
"...20 million or more of the GameStop shorts were never borrowed and never delivered to their buyers. They were what the SEC calls "naked shorts." The SEC has banned naked shorting as abusive market manipulation because large-scale naked shorting artificially drives down a stock's price.
The mark here, is the SEC. Clearly they don't know what the fuck they're doing, because this policy sure as hell didn't stop a damn thing.
Either that, or the corruption goes far deeper, and the SEC has been bought off. If the SEC refuses to punish those who perpetuated millions of naked shorts, you have the confirmation.
The author assumes "some 20 million or more of the GameStop shorts were never borrowed and never delivered to their buyers" because there were "15 million more shares allegedly borrowed than existed in the entire market".
He is not taking into consideration that the same shares can be borrowed and sold short multiple times. This article from nearly a year ago, about TSLA and GME shorting, covers it well: https://www.nasdaq.com/article... [nasdaq.com]
"A stock that's sold 100% short seems to defy logic, but it is technically possible due to how short-selling works.
Short-selling involves borrowing shares from someone who owns it, selling them, and waiting to buy those shares back at a lower price.
Here's the quirk: shares can be lent more than once. If a short-seller borrows shares from one brokerage and sells to another brokerage, the second brokerage could then lend those shares to another short-seller. This results in the same shares counted twice as "shares sold short."
Many of GameStop's shorted shares may have been borrowed, sold, and borrowed again, producing the 100.6% ratio of shorts to shares outstanding.
This rarely happens, but it has happened before."
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Those same people think fractional reserve banking (which is the same concept and math) is banks "printing money out of thin air"
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The author assumes "some 20 million or more of the GameStop shorts were never borrowed and never delivered to their buyers" because there were "15 million more shares allegedly borrowed than existed in the entire market".
He is not taking into consideration that the same shares can be borrowed and sold short multiple times.
Indeed. To actually get a sense for problems with shorts in a name, one needs to look at failures to deliver, conveniently tracked on the SEC website [sec.gov], though not published in realtime. Data for the recent action in meme stocks is not yet available.
If you see a name with a high proportion of its shorts failing to deliver, then there is something to talk about. To check, one has to combine this dataset with a short interest dataset.
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The wild swings in those share prices reflect hundreds of millions of shares being traded each day, mostly in big blocks and presumably from one hedge fund to another. When the price rose, one fund got out and took huge profits while another bought in, expecting the price to rise further, and yet another sold short, expecting the price to fall...
The SEC's job is to contain some of the market volatility from affecting the broader market and the little guy, but they give pretty free reign to wealthy people to take the risks they want. Who's getting hurt in this? Gamestop as a corporation can't like this, but they're not getting any funds nor is it taking out of their bank account (unless they're selling some shares at the high), so it's not going to change Gamestop's fundamental business situation. Small guys
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Nothing big happened, and the SEC let's the big boys play and take risks if they so choose, so what's the problem here?
The problem is that we no longer have the Glass-Stegall Act to protect banks from games that "the big boys" play. That was one of the root causes of the 2008 crash. And it has contributed to these sorts of games which depend heavily on margin buying and other types of leveraged contracts. Which are all disguises put on bank lending.
Sure. Let the big boys play. But my bank is allowed to hold such contracts on their books as collateral and count them towards their capital margins. And if this paper's value s
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Who's getting hurt in this?
The little guy.
The story is good because the little guy did trigger this
Yeah, the little guy triggered this. innocent eyes
Many "little guys" leveraged themselves to the maximum for this. How do you think they will extricate themselves without losing everything? Or do you maintain that Gamestop and AMC are good value long term investments at the prices those stocks were purchased?
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The SEC does not engage in trading or investing. they are an oversight body. they create and enforce policy. how your comment got a score of 5 i do not know. I thought everybody knew this. oh my god. so, to be clear, since you are a total idiot, the sec is NOT the mark here. never make people stupider regarding finance again. you are literally hurting people, geekmux.
You're right. The SEC isn't the mark.
You are, for actually believing those that should be providing "oversight", are not blind and stupid. They clearly are, and they're the ones hurting people by allowing this kind of manipulation to warp the entire stability of the market. Those that are playing the game and the do-nothing SEC, certainly know this.
Or perhaps they're just that corrupt. Gut feeling the main reason I was upvoted, was the latter statement I made. Prove me wrong.
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Have any Reddit users lost out on this? Some definitely make a small fortune off it but I'm not seeing complains that any really lost out. Maybe a few who were late to the party.
The big losers are the hedge funds, so I guess they were the marks.
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Last week's major and steady drop in GME on low volume at the same time as a major falloff in short interest in the stock tells me that hedge funds were closing their short positions off exchange. It's perfectly legal to trade stock off exchanges, just a lot less convenient. A hedge fund beats the bushes for troves of a given issue held by grandmothers who clingt the belief that game stores are going to make a comeback someday. Such people are only too happy to find someone wiling to buy them out at a price
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LOL because people brag when they win, and slink off when they lose.
How long will you be visiting this planet for? Are you parents traveling with you?
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Unable to find any evidence of this, seems kind of insane that someone with $700k would buy at the top of an obvious spike.
Anyway if he had $700k+ to lose he clearly was not some random Reddit user.
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It was Dave Portnoy [seekingalpha.com], founder of Barstool Sports. Lots of articles about him, that was just the first I saw by googling "trader lost 700k gamestop".
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There's no detail on how he lost out... For 700k there must be a story here.
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There's no detail on how he lost out... For 700k there must be a story here.
Its probably very boring and something like, he bought $1m in shares at ~$500 and sold at ~$150 which would be a $700k loss. That's all it takes with something as volatile as GME was the last week or two. It was more volatile than BTC over the same period by a considerable amount.
You don't have to be the best (Score:2)
On the other hand, at a poker table you don't have to be the best player. In a cash game, being good enough (and knowing who is better than you) can lead to some pretty good returns. So the people who knew it was unsustainable who got in early enough made some very nice bank for themselves.
I didn't participate (I figured by the time I heard about it it was too late, which in hindsight kept me from making about 25%), but some RH traders on their phones made great gains.
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Time to stop this gambling (Score:2)
It is doing far, far too much damage to the economy and the people doing it produce nothing that would offset things.
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It is doing far, far too much damage to the economy
What damage has it done?
Some idiots lost their own money. How does that hurt anyone else?
Re: Time to stop this gambling (Score:2)
Like the GP, I don't think the original poster was taking about Naked Shorts, but the general market. And it is still contested if NS do actual harm to the system. Especially in stalled trading scenarios, it is one of the few vehicles to kick start trading on a security. There is a 2 day window before an uncovered short is realized as naked and many firms use this window in combination of options and other pending trades.
But since they found almost 20 mil already, I bet some have really over leveraged tha
Mollyâ(TM)s game (Score:2)
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The economy is completely unchanged as a result of what just happened.
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Not quite. AMC was about to go bankrupt but could now transform its debt into shares. It may survive and even thrive because of this.
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Its share price is nearly back to where it was before the hype. Even at its peak everybody knew what was happening and only an idiot would exchange AMC debt for shares at the peak price.
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Yet, that is what Silver Lake Partners did with $600 million of debt. I expect they managed to sell off at least some of it. Has they not done this they would have probably lost almost everything in the bankruptcy.
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convertible debt tends to be convertible at a predetermined number of shares for unit of debt, rather than a dollar price of stock.
So if you hold $400b of debt convertible to shares currently worth $300b, you don't convert it. If the stock shoots through the roof, going up by a factor of ten, you can trade your $400b of debt for $3T in cash, and immediately sell it.
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GME's stock price is currently ~4x the value before the hype, which is clearly quite different. Whether it will continue to fall back down or not...
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In the short and possibly medium term, that's true. But long term, AMC hasn't found a fix for the underlying issues that caused that mountain of debt in the first place. There is a high likelihood that 5 to 10 years down the right AMD is in the same place.
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AMC lost approximately 1 billion in just one quarter due to the pandemic. I believe the big issue is they have high overhead (mostly rent or property taxes) and modest margins. So, they didn't have a large cash reserve to see them through a year of no movies.
Although I've also heard that movie attendance was already dying off, so I have no idea.
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AMC had already gotten it's creditors to agree to a debt-to-shares conversion. This just changed the ratio, hurting the lenders and helping the other AMC owners.
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China increased their ownership back over 50%, and they controlled over 65% of voting stock already. It isn't possible for them to survive, because a 5-year-plan does not work in a non-managed economy.
Their purpose is not to survive as a company, but to control what ideas are expressed in US theaters. They can't be managed for economic success; they're only managed to die slowly to stretch out the effects.
No shit (Score:4, Informative)
Once you read news about price action on a security, you're too late. News is designed to attract the bait, so the players can sell into the mania. The one's that got played, are the last ones out. Institutions guaranteed designed the mania, and have been net sellers. They just don't list orders of any quantity retail buyers or sellers can see.
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I believed (and believe) that once you read about it it's too late. However, I've missed out on a couple of huge opportunities by following that rule. BitCoin, Tesla and GME were all in my newsfeeds in time for me to get a lifechanging, amazing and good return respectively.
The only one that really hurts is BitCoin. The only solace is knowing I would have hopped off at 100x returns.
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Naked shorts (Score:2)
Are plainly illegal trades. But the real question is how, in this day and age, when NSCC clears, verifies and transfers securities in real time and is regulated by the SEC, could our system even permit a naked short.
There is absolutely no reason that the system shouldn't also clear the loan to the borrowers that are looking to sell short.
Something tells me this has been an open secret for quite a long time. I mean, as long as you buy to cover something that you didn't even borrow to sell to the market, who
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Something tells me this has been an open secret for quite a long time. I mean, as long as you buy to cover something that you didn't even borrow to sell to the market, who would know.
It will be known as proven by the fact that it is know here. Securities trades are settled three days after the trade. Unless the short and repurchase happen the same day, you will be expected to deliver at T+3 (3 days after the trade) but won't receive the shares you need to actually deliver until 3 days after whenever you repurchased.
The SEC publishes fail to deliver data. https://www.sec.gov/data/foiad... [sec.gov]
TFA doesn't tell us what the *expected* FTD rate is (it's always non-zero) so I can't tell if
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''Securities trades are settled three days after the trade.''
Wow.. thanks. I always assumed the clearinghouse verified and assured the execution. And I do realize that some brokers would require more time for settlement. Your post makes it very clear that brokers are actually allowing customers use of the liquidity as soon as it's show cleared by the exchange. So in effect they will always have a major float awaiting final settlement.
On short limit orders in a volatile market especially one that's not liste
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For stocks traded on an exchange, the settlement is at "T+3" partly for historic reasons (you had to mail paper shar
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''On the other issue, I don't think it was "market makers" who were entering limit orders with no intention to execute. ''
I think it was Nasdaq. Maybe my terminology is somewhat dated. There used to be a time when a listed security was considered one to be traded NYSE or AMEX where a specialist is the only one making market. If I remember correctly you could only see the bid/ask and size, but not the depth of the orders like L2 quotes show. The specialist could trade from his account but couldn't front run
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Neither is it my area of expertise, surely there are institutional trades that I don't think are necessarily reported on any quote system. The only metrics that were available when I traded was the quantity of institutional calls for a specific security.
I always pictured a trading pit as where options are traded, but surely the floor at NYSE was the same [before covid]. And I never considered traders on the floor making an exchange without involving the specialist, but what you say makes sense, and we do ha
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There is nothing in the system intended to prevent breaking SEC rules.
You imagine there is some giant Chinese-style firewall, but there isn't. It doesn't work that way. Little effort is made to prevent you from breaking the law.
Everything is recorded, though. Enforcement happens later, when you don't follow the rules.
There is no "open secret," you're just making up details, and then making up other details to explain why nobody knows about it. If there wasn't a complaint from somebody big, nothing got inves
Non sequitur headline (Score:4, Informative)
TFH postulates that hedge funds made the stock price shoots up.
TFS describes illegal tactics used by hedge funds to bring the price down after it shot up so they don't lose any more money.
TFR (The Fucking Reality) describes hedge funds making very very real losses in all of this.
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Gamestop peaked at around $400 and is now at around $60. You think the hedge funds lost money? As TFA states , they probably made a killing, probably using illegal need shorts.
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s/need/naked/
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You think the hedge funds lost money?
Nope. Not think. Hedgefunds lost a lot of money. That much has been demonstrated in all analysis and official numbers so far. The illegal shorts were used to limit the very real losses these companies suffered. Shorting stock is not like holding actual stock where your profit or loss is determined on the day you sell.
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Hedge funds aren't monolithic. They primarily are playing against each other for shares of a pot. It's not zero sum because investments in total usually go up. But the speculation aspect that is the reason people invest in hedge funds as opposed to index funds is zero sum.
Ockham's razor suggests otherwise (Score:2)
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What's funny is that that's wrong. The speculation brought them attention and led to some serious people joining their e-commerce team to try to turn them around.
Also, is it really outdated? Pre-pandemic I saw a lot of GameStop business.
Big funds didn't start it, but (Score:4, Insightful)
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Big funds didn't start the wave, but for sure they surfed on it.
Some got caught in the squeeze, others surfed on it. If there was any way I could have bet that "Gamestop is going to be significantly lower than 400 USD per stock in 6 months", I probably would. have done it. Because while knowing the price in the short term was hard, long term I see it as a failing business as the market evolves towards and no-one sane would say that the underlying long term value of the stock was within an order of magnitude of 400 USD.
Re: Big funds didn't start it, but (Score:2)
There was obviously a way. I am not much into stick trading but something like put orders
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Puts were reported as rising to a full half the current price of the stock . . .
So you *could* bet, but it was rather expensive.
hawk
Nah. (Score:2)
They just like the stock (and realized it was cheap and naked shorted to a hilarious level so they assfucked it because LMAO). Don't believe fake news when it comes to anything relating to stocks, people will vomit all sorts of lies to control the market.
So much of confusion in terminology (Score:5, Interesting)
SEC defines naked shorting as selling a share without borrowing it. It is illegal. People casually conflate this with selling call options without a hedge to limit the down side potential. That is hedging, not naked shorting.
The gamma instability seems to be systemic. People buy deep out of money calls far into the future. The market maker calculates the odds and prices the call based on the well known security pricing formula. Once sold, anytime the price of the stock increases, (delta), the seller (writer in their parlance) needs to buy a few more shares because the odds of the call getting assigned has increased. This act of the broker buying the share increases the price of the share, (gamma), triggering another round of buying by the people who wrote the calls. Usually each of the delta, gamma(delta), delta(gamma(delta)) recursion diminishes and vanishes eventually.
But, when the time duration is very large, and if the strike price is very very deeply out of money, there could be an instability, and the sequence, delta1; gamma1=gamma(delta1); delta2 = delta(gamma1), delta2 >= delta1 happens. Then all hell breaks loose. The positive reinforcement has no real limit, the price can increase exponentially, due to high frequency trading before there could be any intervention.
This seems to have happened to Tesla. And then to Gamestop.
Caveat: I am not a trader. This is my understanding of random reading from reddit and tweets from S3 partners https://twitter.com/ihors3 [twitter.com] and reflex research https://twitter.com/ReflexFund... [twitter.com] It is very likely I have misunderstood or missed some key factors in the narrative I have constructed to make sense of what I saw.
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I'm not a trader but I think much of this is accurate or at least options pricing is. I don't think that anybody who write deep out of the money calls is going to go and purchase shares as long as those calls are way out of the money. The writer might have some stop-limit mechanism to purchase shares in order to, well, limit their losses. But not necessarily. They may have a call-spread where they use the proceeds from the calls they wrote to purchase even-more out-of-the-money calls. This limits their losses and they are still guaranteed a profit as long as the stock doesn't end between the two prices. But even then they may be able to profit by closing out the position and having benefited from the time decay.
The sellers may well have hedged, but it's hard to measure. Let me explain...
The call writer is likely an options market maker (e.g. Peak6). They will have done much more options trading in GME than just writing a single set of calls. Whoever is responsible for maintaining the GME options book will aggregate the delta of those written calls along with all other positions resulting from GME option trades. Generally they will then trade shares sufficient to keep the total delta within some reasonable boun
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Feeling a little relieved.
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Thank you. If I understand you right, it is not a systemic risk, the call writers are aware of the possibility and have standard procedures to handle it. They probably mismanaged GME, or probably blindsided by the speed of movement.
Feeling a little relieved.
Yes, the term of art for this is "gap risk". There are even stochastic option-pricing models that explicitly include price jumps, and for option that are close to expiration they can be useful in distinguishing "hedgeable" delta from jumps in stock price that cannot be hedged in the way Black-Scholes likes to assume.
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... writing a far-out-of-the-money call doesn't contribute much delta. The delta tends to come from near-the-money positions? Is that correct? The OP indicates that the call writer has to buy shares based on price movement.
The highest-delta positions are in-the-money options. However, those have small "gamma", so the size of necessary hedge does not move with price very much. Far out-of-the-money options have both small delta and small gamma.
Not really, though you will find many are registered market makers for the underlying stocks, with the associated quoting obligations in the stock.
And if they were selling way more calls than puts, wouldn't then adjust their price on the calls?
Oh absolutely. This will have been built into the company's automated options quoting systems, generally by adjusting the implied vol curv
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One assumption (Score:2)
That is assuming that the Reddit group doesnâ(TM)t have large numbers of professional traders to begin with.
Not the same game (Score:2)
Rich and poor do not play the same game, even though they seem to be hanging in at the same arena.
When a poor guy loses, they go bankrupt. When a rich guy loses he is "bailed out".
Even when the poor guy was finally bailed out (2007 mortgage crisis), the big guy was taken along with the ride, and actually got largest bail outs.
What was the saying: private gains, socialist loses. Something like that.
At the end of the day (Score:2)
Here come the conspiracy theories (Score:3)
The rise and fall of GameStop was entirely predictable.
First, viral posts on Reddit induce clueless small-time "investors" to buy GameStop stock, puffing up its value. There was never any way the value could stay sky high, it wasn't justified by the fundamentals of the business.
Now why are we all shocked that the stock price has tanked?
The same people who bought into the crazy buying binge, are probably the kind of people who would believe conspiracy theories, or make them up to cover their own silly mistakes.
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I wanted nothing to do with that, getting involved in that bubble was a sure way to get hurt. For me, investing in a company is something I would do ONLY if I had an actual interest in owning part of that company, because I believed in what they are doing and in their future. I only put my money in mutual funds, a much safer bet.
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I doubt if anybody who started buying at that point would have made money. At $350 they were way overpriced and were probably due for a collapse anyway.
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and they're both Russian
Boris and Natasha. Where are moose and squirrel when we need them?