Ask HN: How is GME not a pump-and-dump?
I've deliberately stayed away from WSB so far, but curiosity got the best of me now, and I took a look.
The amount of pumping behind GME is unbelievable. On of the top comments as of right now justifies burning a year's worth of income, just to stick it to Wall Street.
The thing is, I don't think anyone at Wall Street is touching this stock right now. The stock price is far too high for a buy grounded in fundamentals, and shorting this particular stock right now can backfire catastrophically, as we have seen.
This has the veneer of a crowd sticking it to someone they felt exploited by, but in the end, they're just being exploited by someone else.
Right now, the only ones benefiting from someone sticking a year's worth of incoming into GME are those doing the pumping.
81 comments
[ 0.33 ms ] story [ 249 ms ] threadGME fundamentals haven't changed (much) - it's not worth much on paper, maybe $10, $20, $30?
Market behaves irrational rn, but at some point it will become rational again. And then GME stock will crash.
Which hedge funds? Melvin has already retreated.
Yes, it is artificial, but the capital you need when shorting (to cover your position) is very real, and with each price hike, it goes up.
https://www.nyse.com/market-data/reference/nyse-group-short-...
Someone is laughing all the way to the bank about stirring up an internet mob, and I hate it.
And, probably worse, lobby the government for more regulation such that retail traders have even fewer levers to pull.
Source: The WeBull CEO in the first 7 minutes of this video explains all this: https://m.youtube.com/watch?v=MAqxQe0l4g0&feature=youtu.be
Hmmm. Why wouldn't the hedge funds that are not short GME jump all over this? That is probably why it has gone so high. The quant programs detect the momentum and ride it up. The funds can trade so fast that they will exit before any of the RH traders.
Otherwise you're just using a term that fits your conclusion.
You are 100% right and that's what's going on.
However, the pump-and-dump kinda took a life of its own becuase GME is a perfect storm:
* it's a highly shorted stock, so the chance of a short squeeze is high
* there's a (misguided) wall street vs retail narrative going on
* GME is a name everyone knowns, especially the reddit crowd, so people are more willing to buy in
People are being duped into raging against the machine right until they lose their life savings, while u/deepfuckingvalue and friends are laughing all the way to the bank.
And when it will all collapse, everyone will point fingers at the rigged market, instead of realising they shouldn't have thought twice before jumping in this senseless buying.
Granted, the big fish are just playing the game, but that doesn't mean it's just 'whining' to take serious issue with how it's played.
https://twitter.com/IsicaLynn/status/1354894529208348673?s=2...
https://www.reddit.com/r/wallstreetbets/comments/l8b92a/cnbc...
Are you sure?
I am not an expert in this area, so don’t take this as the correct answer I think the way it works is your broker lends out your stock (at a profit) to short without any explicit consent from you. It’s your brokers responsibility to make sure that you have access to your stock when you need them.
No matter how much people buy, they can't buy >100% of the shares on the market unless GameStop issues new shares. The people buying are betting that when these hedge funds need to cover, they will be covering ~120% of the number of shares (the amount of shorted stock) on the market. That covers everyone that has shares right now.
So right now, its a tug of war (hence the volatility). Its a zero sum game where one side will definitely lose. You can argue that the company isn't worth anything and that buyers will get hurt, but only when <100% of the stock is shorted.
edit (below):
The loser will be the one holding 100% of the stock. At that point the stock would plummet because all the buyers have left. Meaning if the hedge fund loses, they are not just covering at a higher price (and thus continuing to drive it up even more), they will effectively be buying worthless stock.
I consider this a battle of trading strategies. The fundamental value of the company is beside the point. Hedge funds have done this to each other before, that's why there's an existing term for it - short squeeze. Its definitely covered in a textbook for first year business school students.
They usually profit from switching side quickly or making informed bets you can’t easily make - like shorting stocks.
Except, they dug too deep this time. We’re seeing another LTCM meltdown in process, albeit smaller and so far more contained.
They don't even need to buy up 100%. They only need to buy up 20%. Then they're back in the situation of being under 100% shorted, and problem no longer applies.
With such a large short interest it means that a motivated or coordinated buyer can force them to cover it at highly inflated prices, and that's their fault. But doesn't seem to be impossible just because the interest is >100%, merely very expensive (perhaps bankruptcy expensive).
Am I missing something?
You're still in a kind of race to see whether it will stay that high for long, or if people will eventually want to take their profits. But it definitely puts pressure on you to reduce your exposure to that, even at the inflated price.
When a company issues shares, there is a finite amount. It determines the the percentage of the company someone owns. So if there is 100 shares, you own 20, it would mean you own 20%. When a company goes public, they typically give, say 10%, to the market. So those 10 shares exist only. You either stock split or issues more shares. But issuing more shares would mean you own less percentage (and who would do that to themselves without a payoff).
You can buy more than 100% if you buy a financial instrument that has its underlying value tied to the company stock price (i.e. vanilla equity derivative), but its price is determined by the stock and not the other way around.
> Then they're back in the situation of being under 100% shorted
Let's say now there are 5 hedge funds that hold GameStock. Each has 20% (because hedge funds bet big, not small). The first one to cover will lose the least. You never want to be the last one because you lose the most and liquidity would be scarce because no one is willing to sell you their shares since its going up, meaning you would be double screwed. With each player that leaves, it causes a cascading effect.
> With such a large short interest it means that a motivated or coordinated buyer can force them to cover it at highly inflated prices, and that's their fault.
Yup.
edit:
The only people that can issue more shares without dilution is the Federal Reserve. They have a count of how much money is in flow, and can print money when need. But that only works if people believe in it. It hasn't been backed by gold in a long time. Otherwise, you will be in the same situation as some European countries prior to WW2 - hyperinflation (i.e dilution).
Theres calls and covered calls. Some brokers will only let you sell the later due to the margin needed. With a covered call you have to own the stock and hold it in your portfolio. With a non covered call, if your option gets exercised you then buy the stock at market value and sell to the executor at the agreed upon price.
basically when people are saying they shorted over 100% of the stock they are saying that its a non covered PUT contract and there isn't enough stock to cover the volume of all the PUT options contracts.
BUT what we don't know is when this PUT options contracts expire, which could basically make all of this worth fairly worthless. If the shorts option contracts don't expire til next year then this really doesn't matter to them.
Generally the P&L dept will make them stagger the options contracts over dates spanning the next year or so though.
I would recommend reading up on call and put options for more information.
https://www.fool.com/investing/2021/01/28/yes-a-stock-can-ha...
A few things. I'm not an expert, but:
> They don't even need to buy up 100%. They only need to buy up 20%. Then they're back in the situation of being under 100% shorted, and problem no longer applies.
They're still in a very tough position. Buying 20% will raise the cost of the stock further, since they're buying it at market price which would drive up the price. And raising the price makes maintaining the rest of their shorts more expensive. That's ultimately the goal - make and maintain a higher share price, which would force shorts to buy instead of continue to pay to maintain their position, which in and of itself would make the stock price grow.
This is also why /r/wsb is interested in other large but not greater than 100% short interest stocks. They might not get squeezed as much as GME but the pressure would still result in a similar situation with lesser gains.
This becomes much less possible as the short interest shrinks or the lower impact you have on the share price.
Now, of course, some of those shares are locked up by funds tracking, say the Russell 2000 index, which cannot liquidate their holdings (and may even be required to buy more as GME climbs) in order to maintain it's percentage in the fund. Other shares are held by other funds or institutions, and so on. So the reality is it is difficult for the shorts to cover quickly.
This isn't a problem during "normal times" because the volatility of the stock is relatively low and thus the short margin interest that you have to pay to keep borrowing the stock is a small percentage. But as the price runs up, that interest and collateral requirements grow dramatically since the broker needs to be sure you can pay up if you have to buy the shares at the current market price.
Of course there's many ETF's that aren't market-cap weighted, but the majority of funds/value is.
Can someone please explain how the original 100 shares turned into 220? Does this mean that after borrowing a share and shorting it, the original owner and the one who shorted can both sell it?
Imagine three participants: Alice, Bob, and Charlie. Alice owns a share of Foo Corp, the only such share that exists. Bob decides to short Foo Corp, and borrows a share from Alice's broker (Alice's broker gets paid for this).
At that moment, there are two shares that exist. If Alice logs into her brokerage account, she sees a share of Foo Corp, but it's really an IOU for a share of Foo Corp. If Bob logs into his account, he also sees a share of Foo Corp (that he borrowed from Alice). At that point, there are two "shares" of Foo Corp that exist.
To make money on the short, Bob has to sell the share and buy it later, so he puts it in the market and sells it to Charlie. At this point, there are two shares: a share owned by Charlie and an IOU to Alice from Bob.
Bob could be very confident about shorting Foo Corp, so he could also borrow a share from Charlie's broker, at which point there would be three shares in existence: an IOU to Alice, an IOU to Charlie, and the sole share that exists. Each of these participants, if they log into their brokerage account, do see a share.
These phantom shares can't exist forever though: Bob is paying both Alice's and Charlie's brokers. Keep in mind that either Alice and Charlie can decide to sell their share, which Bob could then buy, at which point he could cover the remaining IOU, and everything would settle.
But then, what if both Alice and Charlie just bought the share and weren't planning to sell it? Bob would be in a position where he owes two shares but there are zero to buy on the market. Normally, that doesn't happen because shares are traded often enough, but in certain scenarios (short squeeze, collusion between participants) there might be issues. At that point, Bob can decide to keep on borrowing the shares until one sells, or maybe he runs out of cash to borrow shares and closes his account.
That's when things get a bit dicey. At this point, there are two "shares", one actual share and one IOU for a share. What happens is that Bob's broker is in a fail to deliver position. They're supposed to deliver a share of Foo Corp to close the IOU but there's no such share to deliver.
This is the thing I have been thinking about the last day. In theory if all the shares are bought, these buyers would technically be price setters and list an arbitrary high price. Could they?
If the shareholders decide to corner the market, the company could issue more shares or the SEC might step in and say "no you can't do that" to either the broker, the shareholders, or both.
I don't think the SEC looks very highly on people cornering the market, be it hedge funds colluding or individual investors colluding. The SEC is supposed to look for all investors, not just the ones that decided to corner the market in one security.
[0] https://www.sec.gov/data/foiadocsfailsdatahtm
Disclaimer: I am not one.
There's some very well written analysis between emojis. I guess some professionals are involved, that enjoy the attention and influence they get there.
Lots of inside jokes and repeated text blocks (that smell like broadcast propaganda). VERY positive energy overall.
For the past week, a majority of “stick it to Wall St” comments have been saying (a) don’t buy it if you don’t like the stock, (b) only buy with money you don’t care if you get back, and (c) if you really really just want to stick it, then buy in order to take the share off the market not to make money, only buy a share or two then put them under your mattress.
Can’t speak for the top comment, but a majority of the advice has been in the “only spend a few dollars for entertainment and political value, and only spend if you never expect to get back”.
Some are being explicit, saying, think of your buy as a political contribution to Occupy Wall Street.
Nobody gives a fuck about the fact that, if RH continued to sell shares and options to customers, they would be liable for billions in damages, and a whole host of related entities (clearing house, market markers they work with, etc) would be in the shit. It would effectively "break the system". Of course, that's what some people want. However, don't blame them for not wanting to sell customers illegal services, just because the customers feel entitled to it.
Also, there's this huge misconception that the markets are "free", and that means anyone can participate. Soooo not true. First of all, you don't get to rock up to any market and just ask to buy or sell stuff; only trusted members of that exchange actually have the right to do that. Even hedge funds with direct market access are usually sponsored by a broker, so while they get to submit their own orders, the broker oversees the flow and can pull the plug, because the fund is trading on their good word. Some funds (like one I used to work for) go as far as actually buying a seat on the board of major exchanges, like the CME, and that seat itself is worth millions or tens of millions of dollars. that's the premium you pay for market access.
Maybe now people understand why RH would rather play it safe and anger their customers rather than piss off literally the entire market and get kicked out, along with the clearing house and market makers going bust in the process. It's bad for everybody - even the retail traders, because their assets become worthless when there's nobody left to fulfill the trade.
You just hit the nail on the head. Lots of people believe that in a free and fair market, everyone should have equal access. Yesterday just made it abundantly clear to literally everyone that this isn't reality, as you point out. Which is why everyone is pissed.
Yeah, it's almost like there's a company out there marketing itself as a service for everyday people to participate in the markets and offering you free stock just for signing up. Good thing that's not happening. But yeah, I do not know where someone would get such a crazy idea.
I'm wondering, at what level, this can become a self-fulfilling prophecy?
A lot of the talk has been that the stock price doesn't reflect the company's 'true value' (it's volatile and mostly inflated). But there are a few outcomes that truly increase the company's value. Obviously the brand/marketing aspect -- lots of free marketing. New key board placements show that they are potentially restructuring/refocusing and that potential strength is highlighted by the public messaging within WSB. (The messaging is obviously disproportionate and a reaction to negative valuations by the those that shorted it...but still influential.). It seems to be growing at about 1m+ per day. You have a lot of influencable eyes on content there.
What if GameStop gets essentially treated like a defacto co-op of sorts? What if WSB helps coordinated buys? What if it becomes the "preferred retailer" for purchasing/selling consoles? (Even going so far as recommending against purchasing from other retailers). What if it gets championed as some sort of anti-corporation corporation. What if WSB helps guide whatever transition is necessary at the retailer (e-sports? some sort of wework-gaming hybrid? Sustainable? who knows). The brick-and-mortar retail space is going to be very unpredictable in a post-pandemic world.... There could be a certain pride and self-interest in helping drive gamestop's business. A lot of the wit and intelligence gets overshadowed by outside reading of the memes. The mods over there are very smart and there's potential for something well-organized to come out of this.
We might look at how WSB affects Robinhood as a business as some kind of indicator of the massive power of such an organized group.
The company has the potential to become as valuable as the "inflated" valuation.
You need to define your terms. You don't get charged and go to prison for "pump and dump", you get charged and go to prison for "securities fraud".
Right now, people are saying it's worth burning a lot of money just to stick it to Wall Street. As in, if you do this, you're probably gonna lose a lot of money, but you should do it anyway, because it's the right thing to do. (note: I'm not arguing the merits of this argument, I'm just stating what I interpret the argument to be.)
The thing that's illegal that will put you in prison for securities fraud is to claim that if you buy GME and hold it, you will make a lot of money. This isn't illegal because it's fucking over Wall Street, this is illegal because you're lying. The crime isn't "pump and dump", the crime is "securities fraud".
Also note that traditionally, in a pump and dump scheme, you buy first and pump later. People right now are buying and pumping at the same time. They're not (just) pumping by telling other people to buy the stock, they're pumping by buying the stock. This is a significant difference.
That being said, since Everything Everywhere Is Securities Fraud, I guess this is securities fraud too. (/s)
https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...
I too doubt this will end well for the people pouring money in at high prices but no one seems to have trouble with the legality of gambling so I don’t see how this is any different.
If Gamestop issues shares at these elevated prices and successfully uses this money to pay down debt and pivot it could end up a good long term investment.
I think the bigger question is “Is allowing market participants the ability to drive down the price of a share using leverage or no capital at all a good thing for the stock market and economy as a whole?”