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Ask HN: What the heck is happening with GameStop?

71 points by ibraheemdev ↗ HN
I'm sure there are a ton of people asking themselves:

> What the heck is happening right now with GameStop?

So if someone could provide a straightforward explanation, I'm sure a lot of people would be grateful.

54 comments

[ 2.8 ms ] story [ 125 ms ] thread
[dead] chovybizzass
custards last stand...except billionaire hedge funds are the injuns.
King-Aaron
Its an imgur link I know, but this is the most succinct run-down I've seen so far: https://imgur.com/a/DCCpuZA
AtlasBarfed
That's fantastic.

While I do think shorting is a valid counter to the perpetual sunshine inflation of the stock market, and I do agree that Nikola got what it deserved in shorting, I just love that Elon Musk probably destroyed a couple billion dollars of craven shorting with a single word tweet.

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joubert
> So they shorted Gamestop (GME) from $20, to $10, to $4. Their greed kept compounding. They kept doing it again, and again, for months. Making billions of dollars, and almost bankrupting this company.

I haven’t followed the history. In what specific way did driving the share price itself down lead GameStop to near bankruptcy?

emteycz
For example Gamestop could've issued and sold new shares, instead they were forced to wait or sell them for unrealistic price.
mcv
I really hope they issued some shares now.
hibbelig
The part I don't understand is this: “Someone noted that these hedgefunds shorted 140% of all shares available.”

How can you borrow a share that doesn't exist?

emteycz
When you're in bed with regulators, everything is possible. Of course normal people can't do it (as it should be).
aahortwwy
Borrow a share. Sell it. Borrow the same share. Sell it again.
mapster
Isn’t that manipulating the market by selling shares so the share price drops even more?
miked85
Borrow a share, then let someone else borrow it from you.
loandigger
Normally, when you short a share, your broker has to go find somebody who already owns it and they "borrow" it from there and allow you to "sell" it short. But if you can believe this, the very, very largest Wall Street firms, (Citadel, Sigma2, etc.) those with trillion dollar balance sheets got a special exemption from the SEC : rather than having to "find" shares to borrow, they can "manufacture" shares, using their massive balance sheets as collateral. This is how 140% of GameStonk can be shorted. It is this unfair playing field that r/wallstreetbets is fighting against. Since the short exceeds the float, it is possible that there could be an "infinite" short squeeze, that even if they took the company private by buying every available share, there would still be another 40% outstanding they would have to cover. HOLD!
mcv
I didn't know about this special exemption. I thought it was just that B borrows a share from A, sells it to C, and then D borrows the same share from C to sell it to E. That way a single share has been shorted twice, and both B and D need to buy that share to pay back the loaned share.

So R quickly buys that share from E and refuses to sell it. Now B and D are screwed, because they both desperately need that share to pay back the loan that's about to run out tomorrow.

aynyc
A has 1 share of GME.

B borrowed it from A and sell to C.

C has 1 share of GME.

See, magically, A and C has 1 share of GME each.

AnimalMuppet
That's a lot like how banks create money.
perl4ever
When the loans are repaid, it unwinds.
mav3rick
The most elegant explanation of shorting stocks.
obrit
Nice explanation. Thanks for the link. How does someone recognize when stock (and 140% of it) is being shorted? i.e. how did they see this opportunity?
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kinow
Great explanation! Thanks for the link!
[dead] stevespang
Many articles online written about it explaining. It's basically a short squeeze against the old guard, big evil hedge funds/institutions holding short positions (sell) against Game Stop.

An entire "army" of retail investors inspired and collaborated (conspiracy ?) on wallstreetbets a subreddit to buy Game Stop stock, some say mostly call options, which overwhelmed the positions of the Big Boys. This may be a first in history where a band of smaller retail guys banded together to slay the big guys. There are over 3 million followers of wallstreetbets forum.

Fallout: Discord stopped serving them, and certain brokers halted their clients trading on Game Stop which likely angry traders having those accounts will close them and sign up with more reliable brokers who are not "providing cover for their enemies".

Some other stocks are also allegedly being bought by wallstreetbets, such as AMD theatres and KOSS, maker of headphones and speakers.

In the coming weeks Americans will see whether our democratic politicians "walk the talk" providing for more transparency in the markets or they capitulate to the huge institutions and hedge funds with new regulations that restrict the small retail investors further. For all of history these big institutions and hedge funds have been fleecing smaller retail traders.

Someone showed me a investigational report on the 3 major institutional players and their leaders and almost all of them have either paid huge fines to the SEC, or been indicted or under investigation at one time or another. Some are still actively under FBI and SEC investigation. Some escaped prison time.

perl4ever
I don't know, but this is not it:

https://www.cnn.com/2021/01/27/politics/gamestop-stock-surge...

theklub
So I guess this is the future. Anything cnn doesn’t like they’ll compare to trump somehow?
absolutelymild
Theyr're at least gonna use his name for clicks as long as it keeps working
imtringued
>As a result of the belief among the pro investor crowd that GameStop was, essentially, doomed, they began shorting the stock -- essentially betting on it to fail. This happens all the time to a variety of stocks with very little fanfare. It is the way of the modern stock market.

This article somehow missed the abnormal part where there were more short positions than shares in circulation. It's like doing fractional reserve banking with stocks except without any regulations. A short squeeze is just a bank run with this analogy. This does not happen all the time. It's entirely dependent on those who kept shorting the stock without making sure that they can cover their shorts.

perl4ever
No, come on, "no regulations"?

--

Matt Levine: "Every day people email me to say “I don’t understand how more than 100% of a company’s shares can be shorted, isn’t that illegal?” No, it is fine. I wrote about it on Monday"

My previous comment quoting his previous footnote on the same thing: https://news.ycombinator.com/item?id=25935959

[dead] TheAnswerMan
Hedge fund managers were shorting GameStop. Made sense as GameStop is a brick and mortar game cartridge seller living in a digital download world. But they went too far. After shorting GameStop to death, they didn't stop. They kept piling on desecrating the GameStop's dead body with even more shorts for the lol's and last few drops of profit.

Then a thin line of lone autistic redditors came to the defense of their beloved GameStop. And starting buying shares. Autists everywhere joined the line, phalanx formation. They are holding the line against billionaires and media smears. Whatever the outcome they will be immortalized in history.

ThatGeoGuy
The best breakdown is not succinct, but comes through the mailing list / column Money Stuff by Matt Levine. He's done three days of coverage of the various aspects of this as it's progressed.

It's not a short read, but is very easy to follow. I highly suggest subscribing!

[1] First day: https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...

[2] Second day: https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...

[3] Today: https://www.bloomberg.com/opinion/articles/2021-01-27/reddit...

bredren
It started out as a fun joke, then people started making money, then from my view it got sort of co-opted into an occupy type thing.
dhruvkar
When you buy before you sell, it's called a 'long' trade. You expect the stock to rise in value. Normal trade.

When you sell before you buy, it's called 'short' trade. You expect the stock to fall in value.

Example:

I shorted GME at $25 (sold), expecting it would fall to $12, where I could buy it back.

Reality:

/r/Wallstreebets and others decided to keep buying to make the 'shorts' buy (i.e. cover) also, creating a buying frenzy and an insane rally.

sjg007
You can buy call options too.. unless that fell apart not sure.

If anyone has watched the Showtime show Billions, this is the plot of Season 6. Basically Taylor vs Axe.

arcticbull
Nah u/DeepFuckingValue turned $50K of call options into $50 million dollars in the squeeze.
ZeroSync
Essentially there was a hedge fund who was heavily short in GameStop stock to the tunes of many millions. Once the subreddit community of WallStreetBets started applying buy pressure it made the shorts either add more/cover; or have to sell and when they do it adds buy pressure to the book. Led to a big gamma squeeze and this fund got caught off guard with poor risk management and the stock surged so much letting the small joe win for once in a game of smoke screen tactics by larger funds
throwaway568
Hedge funds shorted more than 100% of listed stock, made themselves vulnerable to a short squeeze.
ChrisRR
Here's the best explanation I've found https://www.youtube.com/watch?v=4EUbJcGoYQ4

From what I understand, investors shorted 150% of stocks, so when people start buying the shares and the share prices, the investors are forced to sell their shorts, thus increasing the price and the whole things snowballs

mrkramer
Pump and dump that's what's happening.
nojokes
As I understand, it is short squeeze.
Buttons840
And who's doing the pumping and dumping?
mrkramer
The same people who were pumping and dumping cryptocurrencies and crypto tokens. Those who trade for lolz and profit.
sriram_malhar
i am fairly clueless about the stock market, and would love an explanation for the following: there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here?

And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a David Goliath situation. Some billionaires lost their shirt, and other billionaires made a shit load of money. This is like David standing up to Goliath, until Davids dad comes in and gives Goliath a proper ass whooping. Is this what happened?

imtringued
> there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here?

The official punchline is "buy high, sell never". A short seller's deepest nightmare is a trader that is behaving extremely irrationally by holding a failing asset and never selling it. You cannot screw such a retail trader by being faster because being slow is the entire point.

>And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a David Goliath situation. Some billionaires lost their shirt, and other billionaires made a shit load of money. This is like David standing up to Goliath, until Davids dad comes in and gives Goliath a proper ass whooping. Is this what happened?

Everyone knows that those who will make the biggest gains are those who bought GME when it was in the single digits. Nobody else expects to get rich off of the short squeeze.

The irony is that short sellers think that this will be a temporary squeeze and thus all they have to do is short even more and sell the inflated stock to cover their interest and just wait out until all their shorts are in the money again. The problem with this strategy is that you are betting against irrational traders who have zero intention of selling, ever.

It's pure entertainment value.

AnimalMuppet
The short sellers were shorting with no regard to the company's fundamentals, either. It's all about power and market manipulation on all sides.
mcv
Exactly. WSB just gave the hedge funds a taste of their own medicine. Good or bad, there's definitely a degree of poetic justice here.