Business & Finance The GameStop Short Stock Sensation
- Thread starter Abhishekm
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- not financial advice
ShadowLord
Well-known member
It's not about the Money, it's about sending a Message.
JasonSanjo
Your Overlord and Jester
Even Tim Pool's getting in on the news action:
Abhishekm
Well-known member
Wall Street hedge funds forced a brick and mortar companies stock from the 20s to 3 dollars trading options betting that it would go down. They did this selling options totaling more than 100% of all company stock.
Wallstreetbets found out. Posted about it saying they liked the stock and people joined the and wagon.
When it came time for the options to close and they legally had to buy stock to cover their short well they were up a couple times what they were worth before.
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JasonSanjo
Your Overlord and Jester
Some people on Reddit decided to give a big ol' "fuck you" to rich-ass hedge funders by artificially inflating the value of the Gamestop stock by continually buying at incrementally higher prices, thus driving up the overall stock value and potentially costing the hedge funders insane amounts of money.
There's a lot more detail to it than that, but that's the gist. A bunch of regular people deciding to kick rich people in the nuts, essentially.
There's a lot more detail to it than that, but that's the gist. A bunch of regular people deciding to kick rich people in the nuts, essentially.
Abhishekm
Well-known member
To be fair it was artificially depressed before this. Not by a couple hundred dollars of course but from a natural 20 to 30 to freaking 3. So when hedge funds and firms were obligated to buy over a 100% of all stock people bought the actual stock instead of options and said they weren't trading.
Cue shortage of stock to cover their dues and offering higher prices to get someone to sell. Repeat as they had more options open coming due than the company had stock in the first place and now its at 300.
Basically they depressed it to a tenth of its value for a few months and now its inflated to 10 times its actual value while markets self correct.
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JasonSanjo
Your Overlord and Jester
Oh, yeah, the rich people started it, no question about that. I'm just happy to see them getting smacked for it, honestly.
A bunch of larger firms were short selling gameshop stock, betting that it would lose value going forward. For a certain value of the term "betting". In this case it's like betting that the sun will rise in the morning and set in the evening, because this is gamestop we're talking about.
Then, to continue that analogy bunch of redditors decided to step in and play Joshua, sabotaging the short by buying up gameshop stock massively, and the firms that shorted the stock are one the hook for the difference between it's previous dirt cheap price, and it's several hundred dollar a share price.
Abhishekm
Well-known member
Eh, rich companies started this. This gets bad enough they'll bribe a couple politicians with new last minute regulations and retroactive enforcement if they have to.
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Bear in mind, the shorting done was excessive from what I can gather. They had short sold more shares of Gamestop than there WERE shares of Gamestop. This is a TERRIBLE position to be in because, well, they basically backed themselves into a corner, if the stock price went anywhere BUT down, it would have caused them problems. It should also be noted that due to this high level of purchasing, they'd also effectively artificially depreciated the stock price beyond what it should have been. This wasn't an issue so long as other investors weren't paying special attention to the stock to notice that it had been artificially lowered...
But then the Redditors came and noticed that "more short shares had been sold than actually existed" problem. What this meant was that the Hedge Fund absolutely HAD to buy back into Gamestop in the near future. So they began purchasing up shares of Gamestop. Due to the good ol' law of Supply and Demand, this meant that the price of Gamestop began to rise and as the Hedge Fund's calls started coming due (meaning THEY HAD TO buy up Gamestop Stocks too) that FURTHER increased the price.
Basically, short selling works like a bet against the future price of a stock. The short seller gets the value of a stock when they buy their call but then actually pay for the stock at some future point for the value of the stock THEN. So if the stock is valued at $10 when they buy it and it goes down to $5 when they have to pay for it, they in effect make $5 on the transaction. This means that the MORE a stock depreciates between the Buy point and the Pay point, the more money the Short Seller makes. On the flip side, if the stock GOES UP in value they have to buy at that higher price, so rather than MAKING money on the short, they end up LOSING money on the short.
This is also why shorters like forcing a company to depreciate it's share price. After all, their profit comes from the difference in value between their buy point and the pay point, so the lower it goes in that intervening period, the more money they make. Hense why it appears that Gamestop was artificially low, as the big Hedge Funds were attempting to maximize their profit on shorting the stock, not merely taking short options on a slowly dying company.
And all this is where the critical difference in short selling comes from compared to normal stock purchasing. Stocks have an absolute floor on their value, they cannot go below 0 after all. So if an investor buys a stock at $50 and it drops to $0 they're out, well, just the $50. The reverse isn't true for Shorting. After all, if you short buy at $10 and the stock suddenly skyrocks to $310 when you have to pay (which is in effect what has happened here), you're out $310! That doesn't sound to bad, sure, but these Hedge Funds aren't dealing with 1 or 2 or even a dozen shares... they're dealing with HUNDREDS if not THOUSANDS of shares. So if you bought 1000 short shares at $10, which gives you an up front payment of $10,000 and the price skyrockets to $310 per share, well... now you're on the hook for $310,000.
And that's what screwed over the Hedge fund here, and frankly, they probably deserved it due to not leaving themselves any room to maneuver as well as having artificially pushed down the price.
JasonSanjo
Your Overlord and Jester
Now TheQuartering is covering it as well. News is spreading fast, it seems.
Abhishekm
Well-known member
Well I suppose it wouldnt be current year if there wasn't atleast one.
www.cnn.com
.
Also, what do you guys think? Last minute rule change incoming?
www.marketwatch.com
Analysis: How Trumpism explains the GameStop stock surge
At the core of Donald Trump's angry populist appeal was -- and is -- this sentiment: The elites think they know better than you. They think they can tell you how to live and what to believe. But guess what? We the people are smarter than the elites!
www.cnn.com
Also, what do you guys think? Last minute rule change incoming?
Biden administration 'monitoring the situation' with GameStop's stock, White House says
White House press secretary Jen Psaki on Wednesday said Treasury Secretary Janet Yellen and others in the Biden administration are keeping an eye on the huge...
www.marketwatch.com
Ah, right, I'd forgotten that before Trump, Wall Street was incredibly popular and respected by the average person, and it's only been in the last 4 years that they've been more poorly regarded.
Abhishekm
Well-known member
Its going global? Well Melvin shorted CD Project too aparently.
Wall streets rep was destroyed in the great recession and hasn't recovered at all.
gral
Well-known member
What I have heard is they sold 260% of the total shares(well, future options on 260% of total shares, to be more precise) of Gamestop.
