[News] GameStop and the Stock Market

Discussion of GameStop, stock trading, and this week's market crash(?) / rise(?)

Seth wrote:

Citadel is a minority owner of Robinhood, which has an IPO coming up soon. They consciously made the decision to block stock buys on GME, BB, NOK, and a few others. They decided that the risk of Robin Hood failing as a platform due to the inevitable class action lawsuit this causes, plus whatever limp slap on the wrist the SEC gives them, is preferable to weathering the short squeeze tomorrow.

I have a feeling they’re betting wrong, and if you don’t have every dollar you can afford to lose plowed into GME as a giant f*ck YOU to hedge funds for what they did 2008-present, then your week is going differently than mine. :)

That IPO will be delayed...possibly indefinitely.

1/25, Bloomberg Opinion: The GameStop Game Never Stops

I don’t know what to tell you. Maybe I’ll tell you three stories.
Here is a fundamental story. There’s a company called GameStop Corp.

Here is a technical story. It has two parts. First, a lot of people are short a lot of GameStop stock. (Notoriously, they are short more than GameStop’s entire float; Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding. 3 ) They are short for the fundamental reasons we talked about above: dying mall retailer with huge valuation, etc. When you short a stock, you borrow shares and sell them, promising to return them later. You have to pay a fee to borrow shares, you have to post collateral based on the value of the borrowed shares, and you (generally) have to return the shares you borrowed if the lender asks for them back. When the stock goes up a lot, short sellers start feeling “squeezed”: Their borrow costs go up, they have to post more collateral, and lenders might ask for their stock back. Some short sellers might have to capitulate, and they will close their positions by buying back stock. There is a feedback loop: The stock goes up, short sellers give up, they buy stock to surrender, and their buying pushes the stock up more.

Second, a lot of people (on Reddit) who like GameStop don’t buy stock; they buy call options. If you are a retail trader looking to gamble on a stock, you can buy call options to get leveraged exposure to the stock. For instance, last Tuesday (Jan. 19), you could have bought a $50-strike call option on 100 shares of GameStop stock expiring this coming Friday (Jan. 29). Bloomberg tells me this option would have cost you about $3.35 per share, or about $335 for a 100-share option contract; the stock closed that day at $39.36. If you sold the options on Friday (Jan. 22), when the stock closed at $65.01, they were worth $18.16 per share. 4 You put in $335 and got back $1,816; you made a 442% return in four days. If you had just bought 100 shares of stock instead, you would have had to put in $3,936 to get back $6,501, a 65% return. Of course if the stock had stayed flat instead of going up to $65.01, you’d have lost 0% by buying shares and 100% by buying the options. So options are great if you have a relatively small amount of money and want to take a lot of risk with it. If, for instance, you are a retail trader on WallStreetBets.

Meanwhile the market maker who sold you the options would have hedged its option exposure by buying about 40 shares of GameStop stock, for about $1,575. (This—the fraction of the underlying shares that the market maker buys to hedge the option—is called “delta.” 5 ) Your $335 of option premium caused $1,575 of stock buying. More important, as the stock goes up, the market maker will adjust its hedge by buying more stock—by the end of the day on Friday, the market maker would have owned about 80 shares. (The change in delta as the stock price changes is called “gamma,” and people who like this sort of technical explanation love talking about “gamma.” 6 ) You haven’t done anything else—you bought the options on Tuesday, and then stopped trading—but the market maker kept buying hundreds of dollars more stock as the stock went up to keep the option hedged. 7 Multiply that by the extreme popularity of GameStop options, and you get a lot of stock being bought as the price goes up—which, of course, pushes the price up more.

The technical story is just that these two factors—a short squeeze and a gamma trap, if you like—combined to push the stock up rapidly on Friday. Something started the ball rolling—the stock went up for some fundamental or emotional or whatever reason—and then the stock going up forced short sellers and options market makers to buy stock, which caused it to go up more, which caused them to buy more, etc.

Here is a YOLO story, a story of utter nihilism. You know this story. This story is perhaps best told with a series of rocket emojis, but let’s try words instead.
I keep coming back to the nihilism thesis. We talked recently about how the stock of a micro-cap company called Signal Advance Inc., which shot up 5,100% after Elon Musk tweeted something about an unrelated app named Signal. The error, as it were, was quickly corrected: Lots of news stories, and a tweet from the “real” Signal, clarified that Musk was not talking about Signal Advance. The stock kept going up. (It’s still trading at roughly 10 times its pre-tweet price, weeks later.)

tHE mARkEt EfFiCeNTLy alLoCAtEs CApITaL

This story only get sadder. Apparently Google didn't like that users were downrating the Robinhood trading app, since it is clearly unreasonable to downrate a company that failed its users.

Man 2021 is starting off weird. The Google thing is annoying but the robinhood thing feels like a lawsuit and maybe new legislation. Then there is the short selling that now I bet is going to have some internal policies changes for some companies for a while to avoid doing this again.

Listening to some people talk about this on the news also reeks of "the poors got in and touched the money, we must stop this a fumigate the market so this cannot happen again"

Well of course they'll blame "the poors," who apparently can magically spend thousands to make millions.

Anyone else appreciate that the tool that enabled all of this was called Robinhood?

Nevin73 wrote:

Anyone else appreciate that the tool that enabled all of this was called Robinhood?

I’d call that marketing. Seemed fitting until it was learned 40% of the company responsible for the app is owned by one of the very hedge funds put on the ropes by those filthy poor people and they locked out purchases for the stocks that are being used to do it.

I'll just explain my views in memes:

IMAGE(https://i.imgur.com/JzSwv2P.jpg)

Also:

IMAGE(https://i.imgur.com/xIPPR7Y.jpg)

I’ve never really held any illusions about how the rich feels about the non rich, but the deep derision and contempt the rich are showing for me personally, and people like me is astounding even to me. We’re talking about people who *at best* will retire comfortably (someone named Deepf*ckingValue managed to increase his investment by 22 million) but *most likely* will be able to pay off some medical or college debt. Maybe they’ll be able to help their parents buy back the house these hedge funds stole in 2009. And remember, wsb and the larger public didn’t do anything wrong or even dumb. They noticed someone made a bad bet, and bet against them. It’s like noticing someone bet Michael Jordan would miss 100% of the shots he took in a game, then betting he’d make at least one.

Meanwhile the ceo of Melvin just bought a 30 million dollar house and another 15 million dollar house so he could knock that one down and have a bigger yard.

you’re the baddie, Gabe Plotkin.

So far, this has made for strange bedfellows. Rashida Tlaib, AOC, Ben Shapiro, Don Trump Jr, Ja Rule, Mia Khalifa, and Mark Cuban are going after Robinhood. Meanwhile hedge fund cronies and their sycophants at CNBC are trying their best to keep people from paying off that medical debt because their second house they want to knock down is more important.

edit: "“The reason the market is doing what it’s doing is people are sitting at home getting their checks from the government, okay, and this fair share is a bullsh*t concept.” --Angry Hedge Fund Billionaire Leon Cooperman

Seth wrote:

So far, this has made for strange bedfellows. Rashida Tlaib, AOC, Ben Shapiro, Don Trump Jr, Ja Rule, Mia Khalifa, and Mark Cuban are going after Robinhood. Meanwhile hedge fund cronies and their sycophants at CNBC are trying their best to keep people from paying off that medical debt because their second house they want to knock down is more important.

Tbh Ja Rule probably just wants anyone to acknowledge he's still alive.

But yes the weird combination of people coming together makes this even more interesting.

Dave Portnoy of barstool is an asshat. Him railing against the hedgefunds though? I don't have enough popcorn.

I absolutely share your take on Portnoy. Related to Barstool: Chamath Palihapitiya turned a 100k GME investment into 500k in 48 hours and promptly donated the entire half million to barstool's attempts to help small businesses in the pandemic. If you haven't watched Palihapitiya's recent CNBC interview defending retail investors, it's worth a watch. Best part in my opinion:

CNBC host: Well I'm glad these people are making money.
Chamath: No you're not. You hate it.

I saw bits of that interview on Twitter, it is freaking amazing. The host trying to say that there is no way that GME should have the value it does and Chamath coming back with "You don't know what value it should have, and you don't understand Tesla's value either." Chamath is the hero I didn't know I needed in my life.

jowner wrote:
Seth wrote:

So far, this has made for strange bedfellows. Rashida Tlaib, AOC, Ben Shapiro, Don Trump Jr, Ja Rule, Mia Khalifa, and Mark Cuban are going after Robinhood. Meanwhile hedge fund cronies and their sycophants at CNBC are trying their best to keep people from paying off that medical debt because their second house they want to knock down is more important.

Tbh Ja Rule probably just wants anyone to acknowledge he's still alive.

But yes the weird combination of people coming together makes this even more interesting.

Dave Portnoy of barstool is an asshat. Him railing against the hedgefunds though? I don't have enough popcorn.

I'm still floored that Cohen responded directly and was naive enough to ask if they could take the convo offline. I get that hes got this man of the people thing going (also hilarious), but somewhere his publicist is bashing holes in the wall. And yeah, get me some popcorn please.

There's a really good interview on CNN with the CEO of Robin Hood. The first 15 seconds when the host grills him about what his company is doing he swallows obviously, then his eyes dart around wildly as he begins the sentence "That's just not the case" Its obvious he's nervous and lying through his teeth.

You can catch it here: https://www.cnn.com/videos/business/...

Edit: Bad formatting! Bad!

I can't seem to link directly to the video, but this article has the full interview on MSNBC with Chamath Palihapitiya praising WSB and taking MSNBC to task for their dismissal. Pretty great.

https://www.google.com/amp/s/www.cnb...

One observation about this whole situation: this is the first event in almost half a decade that, thanks to the noble efforts of Twitter and other social media giants, hasn't been stained with the sewage of Trump's opinion.

Deplatforming works. Cancel culture is good.

Another observation: the hedge funds are bailing each other out with loans and cash infusions. Imagine that a business was going under and its competitors loaned it money to stay afloat, rather than gleefully watching it die and then buying its remaining assets at a fire sale. They collude to manipulate the market at "idea dinners" and they collude to save each other when their risky bets go bad.

Capitalism is bad.

Yep absolutely. Dunno if it was mentioned here but Robin hood and about a dozen other brokerage apps limited your GME buys to 1 share per person, with the net effect being effectively neutering the stated goal of preventing hedge funds from covering their shorts.

to paraphrase: brokerage firms colluded with hedge funds and cost their own customers billions.

Oh and also when faced with backlash, Google went ahead and deleted hundreds of thousands of 1 star reviews on the Robin hood app.

They sure learned their lesson from 2008, didn't they?

I read a few people had some reservations about “revenge” being a motivation for investing. They’re probably right, but at the same time finding out hedge funds have already bled 20 billion and have no plans to surrender despite their short positions being horribly dangerous after everything they did this week sure makes me feel feelings.

Seth wrote:

I read a few people had some reservations about “revenge” being a motivation for investing. They’re probably right, but at the same time finding out hedge funds have already bled 20 billion and have no plans to surrender despite their short positions being horribly dangerous after everything they did this week sure makes me feel feelings.

That points out that a lot of them were able to sell some on Thurs. So the buy freeze that forced the stock to drop saved billions probably.

Market manipulation indeed.

I know I'm new here, so I am going to try and (despite my past posts) step a little more quietly. That said, the first fifteen seconds of that video I posted are all you guys need to know. You don't even have to watch the rest of the video to know the dude is guilty. The microexpressions give it away. I urge everyone who hasn't watched it to.

So I've been using eTrade for all of my stock buys, i've tried to transfer some money in from my personal bank and have also sold a few other stocks so that i can load up on silver. None of these funds have come through though (as money i can buy more stocks with) even though I did this a few days ago. Very sus

It is hard to get through all of the misinformation out there, but silver seems to be a concerted effort by the investment companies to distract from Gamestop. There is evidence that a bunch of big players, like Citadel, bought huge options on silver recently and then all of the media attention came. It is not a WSB thing like GME. Personally I wouldn't go for silver but it is your money do what you want.

The most common form of Electronic Funds Transfer(EFT) is known as an ACH(automated clearing house) these typically take 3-5 business days(nothing happens during the weekend) to transfer the funds, verify the funds and fully clear between both banks.

Some banks are nice and give you access to the funds before they’re actually “there”, but that opens the bank to fraud risks. Thus the hold/ delay period will vary between banks.

Now if you really want/need funds quickly you’ll want to do what’s known as a Wire Transfer. This will typically require that you fill out a form and pay a fee, $30 seems typical for the industry. As long as your bank processes the request prior to the 1 pm EST cut off, the funds will arrive to the other bank that business day, and is typically posted by the receiving bank same day. Better yet wire funds are guaranteed, i.e. verified, so you can typically use these funds same day.

Money movement between banks is slow and archaic, but is slowly getting better.

TLDR: That long/short of a delay for funds moving between banks is typical, and not a sign of shenanigans. Want your funds faster? Do a wire transfer, at a cost.

Note that a wire transfer is often $30ish on both ends.

This is a site allegedly tracking the state of the short squeeze:
https://isthesqueezesquoze.com/
I don't know if it's updated often enough to make a timely decision, but I don't have the know-how (or access) to get more rapid updates.

The pattern over the past few days (Thursday, Friday, apparently Monday) is the funds shorting the stock trying to drive the price down by trading between themselves, but the bet is that is a play to shake off the people holding the options and doesn't resolve the core problem of needing to pay back the shorted stock.

At this point, there's a decent chance that the retail investors are now overshadowed by other big players who noticed the potential short squeeze and started to weigh in on either side.

There's also a lot of people out there trying to muddy the situation with misinformation, on both sides.

/r/wallstreetbets doesn't do commodities, so silver isn't them.

There are people buying physical silver, and silver did go up, but it's apparently a very different game and you can't just buy SLV.

Mostly interesting as a discussion of the different motivations of people buying the options:
Bnet Substack: a 19-year gamestop bet pays off / here’s my gamestop take, if that matters

There have already been too many pieces about this so unfortunately, I'm gonna go meta and talk about how we talk about this stuff. One could boil this down to The Internet Vs. Wall Street, but that's really not true and does everyone a disservice.

Though reddit crowdsourcing has a very mixed track record when it comes to accuracy. (If you'd asked me two weeks ago if you should take financial advice from /r/wallstreetbets, I would have said no, never do that.)

I don't have a cent in this, and I'm not an expert, but I think it's probably a bad idea to jump in on this if you're new to all of this. Especially at this late hour.

I should probably put some kind of disclaimer that nothing I post is actual financial advice because I'm just some shmoe posting on the internet, so don't blame me if you lose your shirt.

Gremlin wrote:

I don't have a cent in this, and I'm not an expert, but I think it's probably a bad idea to jump in on this if you're new to all of this. Especially at this late hour.

Yeah there was a window there, last weekend. Just starting to hear buzz on Twitter and prices still under $100. Could have thrown in my stimulus check and then got out at 3-400 any of the last 3 days.

But it seems like every day there's a $100 swing or more. Too volatile to jump in now. And no idea how much longer this will go on.