Merged Wall Street Bets subreddit / Too late to buy Gamestop stock?

[TurkeysGhost]

For those how haven't noticed, something unusual is happening on the stock market these last few days.

The price of Gamestop shares have been rocketing through the roof. And a massive buying campaign spearheaded by the WallStreetBets subreddit is the reason why.

From Slate:

Around this time, institutional investors, apparently including at least one well-known hedge fund, took out massive short positions against the stock, which trades as GME. These investors figured that amateur investors saw Cohen’s big name and ignored the difficult fundamentals facing the business, overvaluing the stock as they bought it up in droves. So the professional investors tried to make money off GME’s decline by borrowing the stock, selling it high, buying it back low, and pocketing the difference, minus the fees to borrow the stock.

Lots of investors tried to short-sell the stock. (How many investors have “long” and “short” positions is not difficult to figure out.) As of Monday, 71.2 million shares of GameStop stock involved a short position, per Bloomberg, more than the total amount of publicly tradable shares, something that’s only possible because not all shares of GME are available for purchase.

https://slate.com/technology/2021/01/gamestop-reddit-wallstreetbets-gme.html

To overly simplify, traditional hedge funds took out short positions on Gamestop, a video game retail outlet in decline. Members of the wall street bets subreddit noticed this and decided to launch a leaderless, crowd-sourced stock manipulation campaign to boost the price of the shares. Retail investors are buying up GME shares and causing the price to spike sharply upwards.

The goal is to cause massive financial harm to the hedge funds that have taken out large short positions against the stock. If the price can stay high enough, long enough, these firms will be forced to pay out big losses. This is also comingled with the rush of people jumping on to the stock seeing it as a license to print money.

There is no actual business reason for gamestop shares to be priced this way, and eventually the buying spree will have to end and the price will collapse back to a normal value. But the goal of the buyers is to keep the price inflated long enough to bankrupt these funds that made risky short sales.

We're seeing the birth of a new type of stock market manipulation, one that will be difficult to contend with as it is largely crowdsourced and leaderless.

I have no idea what to make of this, but it is objectively hilarious that hedge fund ghouls are looking to lose their shirts to a bunch of keyboard warriors.

You can watch the price manipulation in real time. Stock sign GME. look at the 5 day or 1 month to see the massive buying spree.

https://finance.yahoo.com/quote/GME

 

[TragicMonkey]

I've been following. It's delightful! I've always considered shorting to be a nasty combination of gambling and vulturism.

 

[TurkeysGhost]

I've been following. It's delightful! I've always considered shorting to be a nasty combination of gambling and vulturism.

That's where the whole "robinhood" angle kinda loses me.

Sure, the people that have short positions coming due during the buying spree are going to get cleaned out. They are rich hedge fund types, I won't shed a tear.

But others are still getting rich. People are still taking short positions on the stock, and they will absolutely make a killing whenever the buying frenzy stops and the mass sell off happens. one set of short selling hedge fund managers lose their shirts, another set of short selling hedge fun managers make a killing.

It seems pretty clear to me that anyone buying GME now is risking to lose pretty much the entire value once the bubble pops. Normally people would just consider this the risk of trying to time a bubble, but the goal of many seems almost like a suicide pact. They are encouraging eachother to hold the stock indefinitely, which, assuming they have any understanding of what they are doing, means they are planning to lose their investments purely to stick it to the short sellers.

Obviously this solidarity will break if a sufficiently large sell-off starts, and then it will be a run on the market as these people try to sell off their inflated stock before the value crashes back down to a normal price.

 

[TragicMonkey]

That's where the whole "robinhood" angle kinda loses me.

Sure, the people that have short positions coming due during the buying spree are going to get cleaned out. They are rich hedge fund types, I won't shed a tear.

But others are still getting rich. People are still taking short positions on the stock, and they will absolutely make a killing whenever the buying frenzy stops and the mass sell off happens. one set of short selling hedge fund managers lose their shirts, another set of short selling hedge fun managers make a killing.

It seems pretty clear to me that anyone buying GME now is risking to lose pretty much the entire value once the bubble pops. Normally people would just consider this the risk of trying to time a bubble, but the goal of many seems almost like a suicide pact. They are encouraging eachother to hold the stock indefinitely, which, assuming they have any understanding of what they are doing, means they are planning to lose their investments purely to stick it to the short sellers.

Obviously this solidarity will break if a sufficiently large sell-off starts, and then it will be a run on the market as these people try to sell off their inflated stock before the value crashes back down to a normal price.

Well, of course. The lesson here isn't that one side or the other must necessarily win anything, the lesson is that times have changed. Now that more of the public has access to the investment world, the scope of what might happen has broadened. That door can't be shut now, so the institutions and individuals who pay attention and adapt will thrive, those who cling to the past will die out. The cute aspect of this particular event is that the victims will be those on either side of this who let their greed outweigh sense.

 

[JoeMorgue]

Wall Street is next only to politics in sooner or later information democracy is going to have to do something (I have near literally next to no idea what mind you, but nothing) to it as people realize how much of one big self feeding wizard duel it all is.

 

[TurkeysGhost]

Wall Street is next only to politics in sooner or later information democracy is going to have to do something (I have near literally next to no idea what mind you, but nothing) to it as people realize how much of one big self feeding wizard duel it all is.

My hope is that this adventure of reddit weirdos manipulating the stock market knocks of a bit of the mysticism off the image of the stock market.

While there is real, fundamental value that undergirds much of the stock market, so much of what takes place there is little more than compulsive gambling and hair-brained schemes. This arbitrary passing of large sums of money has largely escaped scrutiny because it has long been only meaningfully accessible to the most elite and wealthy circles, but the democratizing power of the internet is knocking this down a peg.

Are these wall street bets weirdos posting emojis of rockets and moons really all that different than the elite freaks that cook up schemes on their Bloomberg terminals on Wall Street? Not really.

I hope this helps show that much of day trading is just get-rich-quick schemes operating off the backbone of the real economy, and much of it adds no real value and incurs tremendous risk for innocent bystanders.

 

[nelsondogg]

I don't get how this reddit group is able to inflate the price so much. Browsing through the subreddit they sound like Qanon nut jobs. Elon musk tweeted a link to them yesterday and that itself caused the stock to jump. Interesting to see if this is a one off occurrence or if this will become commonplace.

 

[Cavemonster]

Wall Street is next only to politics in sooner or later information democracy is going to have to do something (I have near literally next to no idea what mind you, but nothing) to it as people realize how much of one big self feeding wizard duel it all is.

It's interesting that you made this comparison. I've been following this WSB effort on reddit, and the first thing it reminded me of was the 4chan troll army's roll in the 2016 election. Not that I'm saying they're morally equivalent, but the manifesting of rando internet armies in substantial real world outcomes.

Not too long ago, getting enough people together to game a boat naming survey (Boaty McBoatface) was seen as a large triumph of social media power. And social media as an organizing tool for more traditional efforts is nothing new, but this feels like a different kind of force. Of course the stock market and politics have been BS in a million other ways for all time, but this emerging ability for new groups to game things really substantial for the luls is something else.

 

[TurkeysGhost]

It's interesting that you made this comparison. I've been following this WSB effort on reddit, and the first thing it reminded me of was the 4chan troll army's roll in the 2016 election. Not that I'm saying they're morally equivalent, but the manifesting of rando internet armies in substantial real world outcomes.

Not too long ago, getting enough people together to game a boat naming survey (Boaty McBoatface) was seen as a large triumph of social media power. And social media as an organizing tool for more traditional efforts is nothing new, but this feels like a different kind of force. Of course the stock market and politics have been BS in a million other ways for all time, but this emerging ability for new groups to game things really substantial for the luls is something else.

"Like 4chan got a bloomberg terminal" is the phrase on their banner at the site.

Yes, their stunts definitely smack of 4chan style antics of years gone by. Someone clever identifies a vulnerability and then there's mass action by the denizens of the site to try to make money and/or cause chaos.

 

[Modified]

That's where the whole "robinhood" angle kinda loses me.

Sure, the people that have short positions coming due during the buying spree are going to get cleaned out. They are rich hedge fund types, I won't shed a tear.

But others are still getting rich. People are still taking short positions on the stock, and they will absolutely make a killing whenever the buying frenzy stops and the mass sell off happens. one set of short selling hedge fund managers lose their shirts, another set of short selling hedge fun managers make a killing.

Those who took sort positions a week ago and were forced to liquidate them today will lose nine times their investment. Those who short today and cover at the normal price will make 90%. The put and call options are very expensive as you would expect. There isn't a good way to make huge money on the way down without huge risk or high cost.

 

[JoeMorgue]

It's interesting that you made this comparison. I've been following this WSB effort on reddit, and the first thing it reminded me of was the 4chan troll army's roll in the 2016 election. Not that I'm saying they're morally equivalent, but the manifesting of rando internet armies in substantial real world outcomes.

Isn't that sort of the point though? That if a bunch of "rando internet yahoos" applying largely the same information, in largely the same way, to achieve largely the same results just for a different motivation strikes us as absurd, that should tell us something about the system.

 

[TragicMonkey]

Those who took sort positions a week ago and were forced to liquidate them today will lose nine times their investment. Those who short today and cover at the normal price will make 90%. The put and call options are very expensive as you would expect. There isn't a good way to make huge money on the way down without huge risk or high cost.

I've always gone by the rule that if a stock is mentioned in the news it's too late to either buy or sell it.

 

[Modified]

I don't get how this reddit group is able to inflate the price so much. Browsing through the subreddit they sound like Qanon nut jobs. Elon musk tweeted a link to them yesterday and that itself caused the stock to jump. Interesting to see if this is a one off occurrence or if this will become commonplace.

Hedge funds and other shorters will learn from this before long. All their big short bets on small caps and mid caps will be protected with call options. This will take away a tiny bit of their profits in the long run, though they may find a way to profit even more by watching out for and capitalizing on these raids, which will become attempted raids.

 

[Modified]

I've always gone by the rule that if a stock is mentioned in the news it's too late to either buy or sell it.

Or that you should watch and wait a few days for the hype to wear off before trading with the news, and maybe one day for the hype to peak before trading against it.

 

[JoeMorgue]

It's the infinite monkey typewriter problem.

There's ~620,000 stock brokers in the United States.

Even if they all operated literally 100% at random a few of them would get rich.

 

[autumn1971]

Those who took sort positions a week ago and were forced to liquidate them today will lose nine times their investment. Those who short today and cover at the normal price will make 90%. The put and call options are very expensive as you would expect. There isn't a good way to make huge money on the way down without huge risk or high cost.

There isn’t a way to make a huge profit, but the short sellers have invested in call options.

None of the hedge funds will actually lose much on paper. Their deltas are covered

 

[Cavemonster]

Isn't that sort of the point though? That if a bunch of "rando internet yahoos" applying largely the same information, in largely the same way, to achieve largely the same results just for a different motivation strikes us as absurd, that should tell us something about the system.

I don't disagree at all. The system is insane.

 

[Cavemonster]

It's the infinite monkey typewriter problem.

There's ~620,000 stock brokers in the United States.

Even if they all operated literally 100% at random a few of them would get rich.

Malcolm Gladwell (love him or hate him) goes into this in one of his pieces on survivorship bias (can't remember which book this was in).

If you had 1000 trying to call a coin flip at random, after like nine flips, you'd statistically have one dude who got all of them right and thinks he's psychic. Cloud it with a moderate amount of actual knowledge (very moderate) and you've got our investment geniuses.

 

[Cavemonster]

I don't get how this reddit group is able to inflate the price so much. Browsing through the subreddit they sound like Qanon nut jobs. Elon musk tweeted a link to them yesterday and that itself caused the stock to jump. Interesting to see if this is a one off occurrence or if this will become commonplace.

There are like 3 million subscribers, and given how popular the sub has been lately, probably at least as many regular readers who participate but aren't subscribed.

Doing a little back of the napkin, I think they could have bought the company outright back at the beginning of the month if everyone was able to put in an average of $100. The shares were less than $20 when this started and a lot of their users could easily buy a few as a lark. And the weirdness of the whole endeavor made headlines and compounded the effect.

 

[TurkeysGhost]

Retail investment outlets are now preventing trades on these stocks in an effort to allow the big institutions to escape the squeeze.

The elites don't like all these unwashed amateur daytraders trashing up the place. Only the rich are allowed to game the system for unearned wealth.