Somebody, somewhere, is going to get paid a lot of money when they figure out how to stabilize this inefficiency.
If there is a way to insure traditional shorts and the option-sellers against the losses they incur in this sort of situation, those actors are now going to be willing to pay at least a small amount to ensure smooth operation of the markets.
The transients right now (especially their emergent origins!) are interesting in the abstract, but generally antithetical to the efficient flow of capital.
Well let's say a company is trading at 1 dollar per share with a billion shares outstanding. And some short-sellers are shorting it believing it is worth almost nothing. Now a bunch of traders buy up shares, sending it to $20, at which point the company dilutes by 10% by selling 100 million shares. All of a sudden the company has 2 billion in cash, and even with a complete collapse, it will still be worth more than the price at which the short-sellers shorted.
Such an outcome is clearly possible. It is unclear whether or not it is efficient.
This situation has shorts identify a probably-failing company and set the stage for traders to (possibly) detonate a GameStop/Hertz cash-bomb. It yields a transfer of cash from "greater-fools" to a probably-failing company.
As a value-investor, it seems to me that occasionally raining cash upon failing companies seems like a strategy with a below-average probability of long-term success. Extracting that cash from unsophisticated investors seems to risk moral hazard -- the school of hard knocks is expensive and bruising.
Someone, somewhere, should be able to profit from blunting these explosions. Why aren't options prices increasing to make this effect unlikely? Surely there are options-traders who are incurring losses as they expand their hedges.
So one could argue that short interest is actually inefficient since it soaks up capital that would have gone into equity raises by a struggling company. I.e. that in a traditional market short sellers function as a sort of reverse pump and dump, preventing an otherwise viable business from raising short term capital and forcing it into bankruptcy and shuttering.
Arguably, by injecting large amounts of cash into a handful of such companies, WSBers are not only saving those companies, but helping save others by puttinf predatory shorters out of business.
Understood and agreed, at least in part. In the best case, short-sellers are the jackals/vultures that cull the weak and free up capital for new ventures. To the extent that shorts engage in reverse pump-and-dump, that is likely, too, to be inefficient.
It is my expectation that in the long term, both nefarious shorts and WSBers will lose to those working to create real value. It is simply unfortunate and perhaps unnecessary that the war between the chaos monkeys involves collateral damage. Such an environment adds reasons for successful companies to stay privately-traded, which is probably a net-negative for humanity.
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It's not inefficiency. Recklessness isn't the word, neither. It was greed and arrogance.
(1) They borrowed more shares than in circulation
(2) They double downed on their losing position and lost a $3 billion bailout within a day.
Their bet was, really, that financial institutions can stay solvent longer than retail can be "irrational". It was a game of chicken, but The emperor has no clothes.
It is hard to fathom how much money ppl are making with options on this. I have never seen anything like this. It is like everyone is becoming multi millionaires on walsltreetbets. Like the fakebook IPO or What's App acquisition, when a bunch of people suddenly became millionaires. It is probably keep going up. This is the stuff dreams are made of, the stuff of legends. People think it cannot happen but then it does.
There is no rational reason to ever short this. The funds that are shorting this deserve to be liquidated for being so foolish. At best you can only double your money with thirsting , unless you keep adding to your short. Losses however are unlimited. Too many people think that they can make a fortune shorting, like in 2008. But the reason why a movie was made about those guys is because success at shorting is so rare and difficult that when someone does it successfully , it is big deal. No one makes movies about people who buy and hold stocks.
"There is no rational reason to drive a car. The most I could gain would be to get where I'm going faster, but the downside is unlimited (I could die in a car crash)."
Just because a bet has unlimited downside and limited upside, that doesn't mean it doesn't have positive expected value, and would not be made by rational actor.
Robinhood frequently goes down during busy trade windows. It's bad enough that I warn people against using them if they intend to do any kind of active trading.
can't even access my vanguard account. Hearing reports from friends/family across the board that they can't access their financial accounts. Fidelity, Schwab, more.
Plenty of "nerds and soccer moms" are going to lose their shirts in this too. Whoever is buying this stock today is likely to have a bad time (unless they can keep the pyramid going for a little longer and hand the bag to someone else).
It’s a fascinating little story. Cant help but think that there is someone in the industry making the real money here and all the “soccer moms and nerds” are just cover/dopes.
Because that's usually how it goes. It appears that every bit of skepticism has been thrown out the window. I think a lot of people are about to get burned who expected riches. And all because of empty promises by anonymous message board users. It's disconcerting.
I'm a little more ambivalent, myself. But I think I just don't like seeing it at all.
If the entirety of the human were, functionally, a complex organism then the result of this sudden and energy-expensive outgrowth will likely be a sudden and intense immune response that will have effects beyond those directly involved.
Unfortunately, I disagree. I think there will be stories written for the next bit about the handful that make bank, very few stories written about the people who lose their shirts and end up with their financial life in ruins.
When nonsense like this happens again, no one will remember the downside.
There was a story yesterday (I'm not sure of its validity) that Citadel has paid for advance knowledge for Robin Hood stock transactions, so they are almost certainly making money on this.
And unsurprisingly they've fronted money to at least 1 of the hedge funds on the wrong side of these trades. They're probably making bank. A couple of particular hedge funds will lose money.
But what happens to the people who are carrying GME when this frenzy ends and no one is willing to buy GME at a $24Bn market cap valuation.
They end up being the ones who paid for everyone else to "lose their shirts".
> There was a story yesterday (I'm not sure of its validity) that Citadel has paid for advance knowledge for Robin Hood stock transactions
That's a complete distortion of what's actually happening. If this were actually happening and people knew about it there would be absolute outrage.
The truth is that Citadel is one of a few firms that pay Robinhood for the option to take the other side of trades. It's pretty innocuous but people get upset about it and turn it into "Citadel get advance knowledge of Robinhood trades".
Citadel is in the business of making markets. Instead of taking a position on a stock, they just happily take the other side of most trades. They make their money by offering slightly below the "true" market price and in exchange they provide liquidity to the market so that you can sell your stock pretty much whenever you want. The idea is that most trades are pretty random and for each trade on one side you have a trade on the other side that balances it out and Citadel keeps the difference between the "true" price and what they pay/sell at.
The problem is that sometimes lots of stock will be sold for a good reason (imagine someone finds out that there's an accounting fraud at some company). In this case, Citadel loses money because the trades don't balance out and the stock just goes down.
From Citadel's perspective, traders on Robinhood are much more likely to be random people with no extra info (retail investors) and so they're willing to pay Robinhood to route the orders to them because it reduces the risk of adverse selection. In exchange, Citadel has to give a price that's at least equal to the best price in the market or else they're not allowed to fulfill the order.
"Federal officials said that between 2015 and 2018 the company only partially explained on its online FAQ page how it makes money, omitting details about its largest revenue source — trades. Robinhood takes a user's stock order and sells it to a larger trading firm that executes the trade, a process known as "payment for order flow," the SEC order states."
Robin hood is free because their flow goes to third parties like citadel instead of smart order routers at sell side firms. But that is an edge of a less than a second. It is generally good to be able to ascribe an identity to order flow, but retail tends to behave in a predictable way at medium time scales
(Some?) Of the people carrying gme are saying that because >100% of the float on gme is shorted with ~6 days to cover; gme only needs to stay high until the shorters are forced to cover their short by buying at whatever prices they can.
As an ex hedge fund / HFT options guy, I would be intrigued to know who is lending their stock out to be shorted. You'd think they have some incentive to stop lending them out, especially if the options are pushing the gamma so short that the sellers need to cover. If the options guys are needing to buy but nobody can sell, that would seem to be quite good for someone who is holding the stock.
I'm not so sure about the soccer moms thing. The FT has a chart of how many small players there are, and although it's shot up it doesn't look huge to me. Seems to me the WSB crowd IS making money, but there's probably more institutions jumping on for a piece of meat too.
"Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding." (As he explained in a footnote, this does not necessarily imply massive naked shorting.)
I don't know how things have changed since then. Maybe this morning would have been a good time for GameStop to issue more shares?
Why wouldn't they double down? Fundamentally, Gamestop isn't a thirty billion dollar company. The odds that retail investors stay greedy long enough to force the current shorts to cover are not very high, IMO. Some of these redditors are going to want to cash in their gains, and when that happens I guess it's going to collapse very quickly.
I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k. Take my wife out for a nice dinner or something.
The stock is going up because of shorts. If the cycle of old shorts covering and new shorts taking positions continues, combined with the positive feedback loop of retail FOMO, the stock will continue to go up.
> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.
Sure, if you call the top, otherwise you'll turn $1k into -$20k pretty quickly
This doesn't have to do with GameStop as a company -- they are merely the rope in a tug of war between retail investors and wall st. Buying shares seems like the easy way to turn 1k into 10k given how many success stories have happened over the last few days.
If you short gme you're about to be in very heavy debt to your broker. At least buy a put or something instead.
I don't think anyone is actually long on gamestop at $350 per share, but trying to short is not about company expectations at this point, it's about timing this hysteria wave, and if you mistime it you get destroyed by infinite risk and your broker liquidate your position and you leave with not 10k, but -100k.
The max gains on shorting stock is 100% and that’s ignoring fees you have to pay which are extremely high for GME right now.
Unless you plan to use 10x leverage or trade options, which I doubt if you don’t trade individual stocks, you can’t 10x by shorting. On the flip side, if you shorted at $20, you would have lost your entire portfolio if you shorted with 5% of your capital.
Shorting here is trying to catch a falling knife, don’t do it.
I definitely won't. Thank you for the correction r.e. short selling upside. If I had realized it was max 100% upside, it wouldn't have been tempting. There's not an amount I'm willing to risk on this trade that would make a mere doubling of my money worth the effort.
Because short sellers accept potentially unlimited liability in the event of a price increase. Remember the old maxim: the markets can remain irrational longer than you can remain solvent.
The operating theory of the WallStreetBet hivemind is that the short sellers (collectively) are in so deep that further price increases will force them to close out their positions by buying back stock at a loss. Short sales are ultimately made on margin (because they're a debt of a share), and margin accounts will be called in at some ratio.
That "short squeeze" would cause the price to spiral ever further, and that price increase would then force any remaining short sellers out of the market.
The issue with the operating theory is that it's fuzzy; there's no way to know what price point will trigger such a short squeeze.
> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.
Only if you are highly leveraged yourself, exposing you to those dramatic losses if you mis-time the market even slightly. If you do want to take the down-side of Gamestop, it'd be safer to buy a put option to limit your potential loss. However, the high implied volatility also makes the trade a bit expensive right now.
(Edit to add: I have no financial interest in Gamestop, up or down.)
Fundamentals don't matter right now. If you don't time it just right, and it keeps going up, you'll get margin called and be forced to cover for a huge loss.
Yeah I'm not actually going to do it. Also, as someone pointed out, max gain is 100% (I was confused), so there's really not enough upside to bother with, at least for the amount of money I'm willing to plonk down on it.
As I see, many of them are aware of this and doing mainly for fun/revenge/etc and ready to lose the 'investment'. Basically a special kind of bubble scheme to deliberately pushing an actor to the top of it to maximalize it's loss. Not sure if there was anything like this in the past. Interesting story.
Shorts have been getting slaughtered in covering rallies since the first short was allowed.
I can't believe these "professional" funds would keep short positions open on an equity with crazy-high short interest...that's like Trading-For-Dummies grade fail.
What's more amazing is many of their clients will be destroyed in the largest bubble in history, where money was given out to every idiot with a TD Ameritrade account.
Exactly! /r/wallstreetbets are also trading against each other, without mercy! Not sure why people think that sub is some sort of group trading account...
But, chances are, a lot of them will make incredible gains by betting on the misery of hedge funds who themselves bet on misery. No tears shed for the hedge funds or the account holders who are now basically zero'd out. Imagine having your life savings in one of these funds...in the biggest bubble in history, your account went to ZERO!
And the thing is that for the last four years the mainstream media kept saying the market was going to crash on Trump, and it actually does it the first week into Biden's term.
The interesting thing to me is that -- in so much as this is being done for profit making and not more abstract reasons -- if 90% of the jumpers-on lose their money, it won't necessarily dissuade that many people from the community in the future. There will be a lot of people making a lot or a little money, and sharing their stories, and the ones who lose this round will be able to tell themselves that next time, if they are faster and get out at the right time, they too can be one of the winners...
The 'losers' are the one's who are buying high and selling low. Ironically in this case, it's the short sellers who can't cover their positions who are being forced to buy at the top, having already sold low.
Alot of people aren't trying to make money, they just want to kill a few hedgefunds regardless how much money they lose, they know they'll never retire and they're already broke, many of these people have nothing to lose
I know this is a popular sentiment (ie. the little guys prevailing over the big guys in wall st), but this is likely not the case.
>In general, a crafty short seller (a.k.a. most long/short funds) will do the following to ensure the internet doesn’t outsmart them:
> 1. Capping loss with put options — With a put option, you roughly get all the benefit of shorting a stock (minus the premium paid and strike) with a finite amount to lose.
> 2. Capping loss with OTM call options — This is my favorite, and one of the more common strategies. When you assemble a short position, you aren’t stupid hopefully — you understand stocks only go up, and infinity is a much farther number from current price than 0 (using a discrete numeraire, of course).
Read the news - what you are describing didn't happen.
Look at Melvin - they are trying to convince the market they are still solvent.
Citron closed their shorts at a huge loss.
This really is a case of "seasoned professionals" getting slaughtered on awful trades, and they didn't appear to have a safety net set up.
edit: people seem to think I am cheerleading WSB...far from it, someone there will also get slaughtered by being the last fool to walk in on a risky trade. Trading is merciless, caveat emptor!
edit2: the article above does NOT refute my claims. Melvin took a $2 billion emergency infusion from Citadel. You don't do that if you safely closed your trades without hazard. Sorry I'm going to trust Bloomberg over "nope-its-lily"
Basically, because they're not wrong on the facts, and they're far from the first to realize that.
There's a decent not-meme-based story around GameStop's turnaround, and a number of actual investment firms saw it weeks before they did. Investment firms are betting against each other, as per usual.
Also, now that GameStop has all this extra value, they can actually improve, so the not-meme-based story becomes even more compelling.
>Look at Melvin - they are trying to convince the market they are still solvent.
From the article in my previous comment:
>Even assuming the worst case scenario here (let’s assuming somehow the put value was $10 and they held until now and the put is worthless, the max loss is $54 million for a hedge fund with $20 billion AUM, for a max risk of about 0.27%), Melvin Capital is sleeping fine. Because they bought puts, and didn’t short shares directly, their max loss is capped (the premium they paid).
You don't know if they shorted shares. Shorts are not disclosed on 13f's. Often times funds buy puts and short at the same time.
It sounds like they did short shares of gamestop. When the first article came out it said their puts had already expired. Gabe Plotkin called into CNBC this morning and said their "short had been covered" meaning that they did short shares.
I seen that show, and I enjoyed it--though, not because it offered insight into hedge funds or wall street. I enjoyed it because they dramatized wall street. one hopes a good drama will say something 'right' about suffering, triumph, betrayal, love, in the process all while putting likable and interesting actors in key roles. I agree; good show.
"Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund’s manager told CNBC’s Andrew Ross Sorkin."
Totally random outage I'm sure. From what I am interpreting, the people who have most to lose on this are the banks and brokerages who needed to buy the GameStop stock to cover their positions after selling the options to all these retail traders.
There are regulatory "circuit breaker" conditions but I wonder if this was a more informal one. The internet hive mind wasn't in their risk models and I would wonder if there was risk of this event causing a cascading blow-up effect.
The outages are caused by the execution brokers not being able to execute orders fast enough resulting in the order queue getting longer and longer. Also other capacity issues caused by everyone logging in simultaneously.
That surprises me, as horizontal scaling to demand is a solved problem. One provider, sure, but cascading failures through many, that's a systemic critical infrastructure vulnerability that is going to bring down the regulatory hammer.
I don't know the specific answer to your question but I do have a data point to add. When I was just starting out in my career in the early 2000s, I worked for a hedge fund. One curious thing I noticed is that all the traders had time stamping machines on their desks that are inspected and sealed regularly. I was told that during an outage, these timestamp machines allow trades to continue to happen because the trader can write down the order and stamp it and their counter party would presumably do the same. Later the orders can then be reconciled when things are back up and running. This leads me to think that it is at the very least possible for transactions to be recorded in a distributed manner.
The matching of orders for a single asset happens on one machine, call it matching engine. Matching is done based on price-time priority. Price is set by the trader, the time is set to the time the order was received by one of the order gateways sitting in front of the matching engine.
The order gateways' clocks are in sync, up to precision epsilon. So if you send two orders serially from same data center (to ignore effects of public Internet latencies and routing), and if they happen to be processed by different gateways, you still will see same ordering of your orders in matching engine, bar some cosmic ray events.
It is all commodity hardware running some flavor of Linux.
However this was couple years ago, they may be using ASICs and FPGAs now. The matching of orders for a single asset must still be done in single process otherwise you cannot guarantee price-time priority.
Following up, there was a random theory on WSB that since hedge funds were short over %130 of Gamestop's stock, there is a real risk that this will cause a liquidity crunch where there is literally no available stock to cover their positions.
As in there does not exist the stock to cover those positions, which means institutions are going to be in a race to avoid bankruptcy and have to outbid each other to acquire the remaining stock held by all these retail investors who know what they have. This is why WSB posters are saying $5000 is a conceivable price.
This is what would cause regulatory intervention, and certainly sets up the means/motive/opportunity for interrupting trading. Like the Fed steps in and buys it out or something. This looks like an LTCM level event.
There are also screenshots from some apps (I don't use them, dont know which ones) with messages saying that only AMC and GME stocks are being limited to protect risk, as well as total outages. I've seen one screenshot saying that users can only sell and not buy.
There are around 800,000 people reading that subreddit right now. It seems like around 60 posts being submitted every second. Could you record these figures too?
I had never previously considered how website performance of individual subreddits might differ. I'm not a web dev, so it's probably not like an interesting engineering matter, but it is kinda interesting to witness this first-hand as a user. At least the rest of the site seems to be working ok.
It’s fun to actually delve deeper than the headlines on this one.
The main driver of this trade on WSB is a user “deepfuckingvalues”. As of September 2019 they were posting GME holdings of 1,000 Jan 21 calls at $8, a position they built up since June 2019. [1]
The user then posted monthly updates ever since.
By May 2020 they had 2,500 call option contracts and had a net loss of $10k. By August 2020 they had lost $60k on $145k. Then it all started turning around.
They were an activist investor that actively rallied the Board to do buybacks and pushed overall interest in a GME turnaround.
As usual, by the time the mass media picks up on something it looks to the outside world like something that just magically happened like a rocketship taking off in just the last week.
In reality this was over a year in the making by a devoted user of WSB who gained a following over many months of persistence in the face of mounting losses. It was in fact the perfect WSB story. Initially every comment is begging them to sell, and then mocking their losses, and then reveling in their pain... and still they held and posted YOLO month after month.
As of their last update on the 26th their account value is $23mm.
This is tricky to quantify, and more subtle than you imply. Some questions to consider: If you hold a stock, then sell it at a profit, then buy another with that money, have you made a profit? What if you place the money into a bank account instead? An index fund? Buy a house? A Roth IRA? Where's the 'profit' line?
In a case where you buy a stock, sell after a specific duration, and don't include any other info in your model, the simple description of profit-taking at close holds. When the model broadens, this becomes trickier to categorize.
As far as I can tell from the comments on Reddit, most people are holding because DFV is holding. So, I expect, that soon as he sells it is likely that the price will collapse.
That said, the volume that DFV holds is not very big (I read around .2%), so it will likely go unnoticed. As long as DFV doesn't post that he's out, the rocket keeps going up.
I don't doubt that DFV's investment is real, but he might already be out without anyone knowing.
This seems like a classic pump-and-dump scheme to me. The twist is that instead of claiming that the target company is going to start doing way better, they're claiming that the upside comes from hedge funds over-shorting the stock.
The people who are going to make a lot off this are the people who sell before the stock crashes. If those people were also suggesting others buy the stock on reddit, they may be criminally liable for securities fraud.
I think it's potentially more interesting than that.
It's hard to get figures to back up any speculation, of course... but it seems like this is at least somewhat a short squeeze. And it's potentially not just a bunch of gambling where people are gonna lose the farm...
The righteous narrative, for however much you might believe it, is that a significant portion of traders all basically agreed to each take on a small degree of risk in order to prove a point. People going big in, and not using the right instruments to ahem hedge their losses, are certainly gambling, but the proportion of these is not really clear.
125 comments
[ 503 ms ] story [ 4761 ms ] threadIf there is a way to insure traditional shorts and the option-sellers against the losses they incur in this sort of situation, those actors are now going to be willing to pay at least a small amount to ensure smooth operation of the markets.
The transients right now (especially their emergent origins!) are interesting in the abstract, but generally antithetical to the efficient flow of capital.
This situation has shorts identify a probably-failing company and set the stage for traders to (possibly) detonate a GameStop/Hertz cash-bomb. It yields a transfer of cash from "greater-fools" to a probably-failing company.
As a value-investor, it seems to me that occasionally raining cash upon failing companies seems like a strategy with a below-average probability of long-term success. Extracting that cash from unsophisticated investors seems to risk moral hazard -- the school of hard knocks is expensive and bruising.
Someone, somewhere, should be able to profit from blunting these explosions. Why aren't options prices increasing to make this effect unlikely? Surely there are options-traders who are incurring losses as they expand their hedges.
Arguably, by injecting large amounts of cash into a handful of such companies, WSBers are not only saving those companies, but helping save others by puttinf predatory shorters out of business.
It is my expectation that in the long term, both nefarious shorts and WSBers will lose to those working to create real value. It is simply unfortunate and perhaps unnecessary that the war between the chaos monkeys involves collateral damage. Such an environment adds reasons for successful companies to stay privately-traded, which is probably a net-negative for humanity.
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(1) They borrowed more shares than in circulation
(2) They double downed on their losing position and lost a $3 billion bailout within a day.
Their bet was, really, that financial institutions can stay solvent longer than retail can be "irrational". It was a game of chicken, but The emperor has no clothes.
"There is no rational reason to drive a car. The most I could gain would be to get where I'm going faster, but the downside is unlimited (I could die in a car crash)."
Just because a bet has unlimited downside and limited upside, that doesn't mean it doesn't have positive expected value, and would not be made by rational actor.
Typically, Robinhood is always down at market open (even on low volume days).
On high volume days, IB has been down several times.
However, the thinkorswim platform on TD is great and I've yet to encounter downtime.
Regarding TD, https://twitter.com/TDAmeritrade/status/1354447688205443076
If the entirety of the human were, functionally, a complex organism then the result of this sudden and energy-expensive outgrowth will likely be a sudden and intense immune response that will have effects beyond those directly involved.
Probably not going to end well, but they'll learn something from it.
Unfortunately, I disagree. I think there will be stories written for the next bit about the handful that make bank, very few stories written about the people who lose their shirts and end up with their financial life in ruins.
When nonsense like this happens again, no one will remember the downside.
The smart people learn from other people's pain.
And unsurprisingly they've fronted money to at least 1 of the hedge funds on the wrong side of these trades. They're probably making bank. A couple of particular hedge funds will lose money.
But what happens to the people who are carrying GME when this frenzy ends and no one is willing to buy GME at a $24Bn market cap valuation.
They end up being the ones who paid for everyone else to "lose their shirts".
That's a complete distortion of what's actually happening. If this were actually happening and people knew about it there would be absolute outrage.
The truth is that Citadel is one of a few firms that pay Robinhood for the option to take the other side of trades. It's pretty innocuous but people get upset about it and turn it into "Citadel get advance knowledge of Robinhood trades".
Citadel is in the business of making markets. Instead of taking a position on a stock, they just happily take the other side of most trades. They make their money by offering slightly below the "true" market price and in exchange they provide liquidity to the market so that you can sell your stock pretty much whenever you want. The idea is that most trades are pretty random and for each trade on one side you have a trade on the other side that balances it out and Citadel keeps the difference between the "true" price and what they pay/sell at.
The problem is that sometimes lots of stock will be sold for a good reason (imagine someone finds out that there's an accounting fraud at some company). In this case, Citadel loses money because the trades don't balance out and the stock just goes down.
From Citadel's perspective, traders on Robinhood are much more likely to be random people with no extra info (retail investors) and so they're willing to pay Robinhood to route the orders to them because it reduces the risk of adverse selection. In exchange, Citadel has to give a price that's at least equal to the best price in the market or else they're not allowed to fulfill the order.
The SEC disagrees
https://www.cbsnews.com/news/robinhood-sec-fine-65-million/
"Federal officials said that between 2015 and 2018 the company only partially explained on its online FAQ page how it makes money, omitting details about its largest revenue source — trades. Robinhood takes a user's stock order and sells it to a larger trading firm that executes the trade, a process known as "payment for order flow," the SEC order states."
I'm not so sure about the soccer moms thing. The FT has a chart of how many small players there are, and although it's shot up it doesn't look huge to me. Seems to me the WSB crowd IS making money, but there's probably more institutions jumping on for a piece of meat too.
"Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding." (As he explained in a footnote, this does not necessarily imply massive naked shorting.)
I don't know how things have changed since then. Maybe this morning would have been a good time for GameStop to issue more shares?
This too will go down, violently.
I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k. Take my wife out for a nice dinner or something.
> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.
Sure, if you call the top, otherwise you'll turn $1k into -$20k pretty quickly
I don't think anyone is actually long on gamestop at $350 per share, but trying to short is not about company expectations at this point, it's about timing this hysteria wave, and if you mistime it you get destroyed by infinite risk and your broker liquidate your position and you leave with not 10k, but -100k.
Unless you plan to use 10x leverage or trade options, which I doubt if you don’t trade individual stocks, you can’t 10x by shorting. On the flip side, if you shorted at $20, you would have lost your entire portfolio if you shorted with 5% of your capital.
Shorting here is trying to catch a falling knife, don’t do it.
Because short sellers accept potentially unlimited liability in the event of a price increase. Remember the old maxim: the markets can remain irrational longer than you can remain solvent.
The operating theory of the WallStreetBet hivemind is that the short sellers (collectively) are in so deep that further price increases will force them to close out their positions by buying back stock at a loss. Short sales are ultimately made on margin (because they're a debt of a share), and margin accounts will be called in at some ratio.
That "short squeeze" would cause the price to spiral ever further, and that price increase would then force any remaining short sellers out of the market.
See https://moxreports.com/vw-infinity-squeeze/ for a well-known, circa 2008 short squeeze that happened to Volkswagen.
The issue with the operating theory is that it's fuzzy; there's no way to know what price point will trigger such a short squeeze.
> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.
Only if you are highly leveraged yourself, exposing you to those dramatic losses if you mis-time the market even slightly. If you do want to take the down-side of Gamestop, it'd be safer to buy a put option to limit your potential loss. However, the high implied volatility also makes the trade a bit expensive right now.
(Edit to add: I have no financial interest in Gamestop, up or down.)
Who wants to tell him?
Because everyone with an internet connection and half a brain knows that the shorts are totally screwed if the WSB turds keep buying.
I can't believe these "professional" funds would keep short positions open on an equity with crazy-high short interest...that's like Trading-For-Dummies grade fail.
What's more amazing is many of their clients will be destroyed in the largest bubble in history, where money was given out to every idiot with a TD Ameritrade account.
But, chances are, a lot of them will make incredible gains by betting on the misery of hedge funds who themselves bet on misery. No tears shed for the hedge funds or the account holders who are now basically zero'd out. Imagine having your life savings in one of these funds...in the biggest bubble in history, your account went to ZERO!
At these boosted stock prices all it's going to take to sink anybody is an after hours announcement of additional shares being offered.
I couldn't made a lot more money but I try not to be greedy.
>In general, a crafty short seller (a.k.a. most long/short funds) will do the following to ensure the internet doesn’t outsmart them:
> 1. Capping loss with put options — With a put option, you roughly get all the benefit of shorting a stock (minus the premium paid and strike) with a finite amount to lose.
> 2. Capping loss with OTM call options — This is my favorite, and one of the more common strategies. When you assemble a short position, you aren’t stupid hopefully — you understand stocks only go up, and infinity is a much farther number from current price than 0 (using a discrete numeraire, of course).
https://nope-its-lily.medium.com/gamestop-power-to-the-marke...
Look at Melvin - they are trying to convince the market they are still solvent.
Citron closed their shorts at a huge loss.
This really is a case of "seasoned professionals" getting slaughtered on awful trades, and they didn't appear to have a safety net set up.
edit: people seem to think I am cheerleading WSB...far from it, someone there will also get slaughtered by being the last fool to walk in on a risky trade. Trading is merciless, caveat emptor!
edit2: the article above does NOT refute my claims. Melvin took a $2 billion emergency infusion from Citadel. You don't do that if you safely closed your trades without hazard. Sorry I'm going to trust Bloomberg over "nope-its-lily"
There is zero percent chance that this is actually playing out the way WSB is claiming it's playing out.
What makes you say that? Any idea of what is happening?
There's a decent not-meme-based story around GameStop's turnaround, and a number of actual investment firms saw it weeks before they did. Investment firms are betting against each other, as per usual.
Also, now that GameStop has all this extra value, they can actually improve, so the not-meme-based story becomes even more compelling.
From the article in my previous comment:
>Even assuming the worst case scenario here (let’s assuming somehow the put value was $10 and they held until now and the put is worthless, the max loss is $54 million for a hedge fund with $20 billion AUM, for a max risk of about 0.27%), Melvin Capital is sleeping fine. Because they bought puts, and didn’t short shares directly, their max loss is capped (the premium they paid).
It sounds like they did short shares of gamestop. When the first article came out it said their puts had already expired. Gabe Plotkin called into CNBC this morning and said their "short had been covered" meaning that they did short shares.
https://www.ft.com/content/8be64f49-7c90-4fae-8370-c5c5c96d8...
TLDR Melvin Capital is already down 3.75 Billion 3 weeks into 2021...
https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...
"Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund’s manager told CNBC’s Andrew Ross Sorkin."
There are regulatory "circuit breaker" conditions but I wonder if this was a more informal one. The internet hive mind wasn't in their risk models and I would wonder if there was risk of this event causing a cascading blow-up effect.
Can anybody chime in whether these systems, today, tend to be on distributed infra versus e.g. mainframes or other big vertical compute pieces?
Example of machine: http://www.carpenterstimesystems.com/Amano-TS3000i-OATS-Time...
This might all be historical now.
The order gateways' clocks are in sync, up to precision epsilon. So if you send two orders serially from same data center (to ignore effects of public Internet latencies and routing), and if they happen to be processed by different gateways, you still will see same ordering of your orders in matching engine, bar some cosmic ray events.
It is all commodity hardware running some flavor of Linux.
However this was couple years ago, they may be using ASICs and FPGAs now. The matching of orders for a single asset must still be done in single process otherwise you cannot guarantee price-time priority.
As in there does not exist the stock to cover those positions, which means institutions are going to be in a race to avoid bankruptcy and have to outbid each other to acquire the remaining stock held by all these retail investors who know what they have. This is why WSB posters are saying $5000 is a conceivable price.
This is what would cause regulatory intervention, and certainly sets up the means/motive/opportunity for interrupting trading. Like the Fed steps in and buys it out or something. This looks like an LTCM level event.
https://topstonks.com/stocks/gme
The chatter levels are through the roof today. Even more than when the market dropped in April due to the coronavirus.
newest link: https://wsb.gold/public/dashboard/e65fcfcb-70a4-4d86-b7fb-88...
old link: http://104.131.48.154:3000/public/dashboard/e65fcfcb-70a4-4d...
(not available right now .. no surprise)
The main driver of this trade on WSB is a user “deepfuckingvalues”. As of September 2019 they were posting GME holdings of 1,000 Jan 21 calls at $8, a position they built up since June 2019. [1]
The user then posted monthly updates ever since.
By May 2020 they had 2,500 call option contracts and had a net loss of $10k. By August 2020 they had lost $60k on $145k. Then it all started turning around.
They were an activist investor that actively rallied the Board to do buybacks and pushed overall interest in a GME turnaround.
As usual, by the time the mass media picks up on something it looks to the outside world like something that just magically happened like a rocketship taking off in just the last week.
In reality this was over a year in the making by a devoted user of WSB who gained a following over many months of persistence in the face of mounting losses. It was in fact the perfect WSB story. Initially every comment is begging them to sell, and then mocking their losses, and then reveling in their pain... and still they held and posted YOLO month after month.
As of their last update on the 26th their account value is $23mm.
[1] - https://www.reddit.com/u/DeepFuckingValue/
In a case where you buy a stock, sell after a specific duration, and don't include any other info in your model, the simple description of profit-taking at close holds. When the model broadens, this becomes trickier to categorize.
I think you might be getting DFV and Michael Burry confused here.
I thought I saw something in the comment history about him mailing the Board and being on the calls, but now I can’t find it.
As far as I can tell from the comments on Reddit, most people are holding because DFV is holding. So, I expect, that soon as he sells it is likely that the price will collapse.
That said, the volume that DFV holds is not very big (I read around .2%), so it will likely go unnoticed. As long as DFV doesn't post that he's out, the rocket keeps going up.
I don't doubt that DFV's investment is real, but he might already be out without anyone knowing.
edit: typo
[1] - https://www.youtube.com/c/RoaringKitty/videos
Monday: https://www.bloomberg.com/news/newsletters/2021-01-25/money-...
Yesterday: https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...
Update: here's today's issue: https://www.bloomberg.com/opinion/articles/2021-01-27/reddit...
The people who are going to make a lot off this are the people who sell before the stock crashes. If those people were also suggesting others buy the stock on reddit, they may be criminally liable for securities fraud.
There may be other sources available, I didn't know this either so this is what I've found so far.
It's hard to get figures to back up any speculation, of course... but it seems like this is at least somewhat a short squeeze. And it's potentially not just a bunch of gambling where people are gonna lose the farm...
The righteous narrative, for however much you might believe it, is that a significant portion of traders all basically agreed to each take on a small degree of risk in order to prove a point. People going big in, and not using the right instruments to ahem hedge their losses, are certainly gambling, but the proportion of these is not really clear.
Robinhood is the biggest broker in the USA, Trading 212 is the biggest broker in Europe and the UK.