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GameStop Is Rage Against the Financial Machine

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Re: GameStop Is Rage Against the Financial Machine

#171

Post by alfl »

unethical_ban wrote: post #72

So, can someone explain rationally how options/derivatives are actually useful to the economy, rather than a market manipulation and gambling mechanism? In the traditional, elementary school understanding of stock, people buy into a company because they want part ownership, and the stock goes up as the company does well and has solid financial strength. Derivatives seem to be an unnecessary accelerator.

Let's say you want to invest your corporate treasury in equities (you've raised several years of burn and don't need it all now). If you lose the treasury you're out of business.

You decide you can accept X% risk. You estimate portfolio risk is Y%.

You can enter options positions for the portfolio components to force Y to X.

Re: GameStop Is Rage Against the Financial Machine

#172

Post by dheera »

drzoltar wrote: post #159
cwhiz wrote: post #68

I am loving every minute of this. The "professionals" gamble on the market all the time, front run, high frequency trade, and relentless tactics to get rich at the expense of the "retail" investors. Now they are upset that apps like Robinhood has provided unprecedented access to the markets. Their exclusive access to insane gambling nonsense is being torn down in real time. If Wall St can gamble and cause a global fi…

I’m worried what will happen down the road. Robinhood is likely getting super valuable data on this. Combine that with correlating post activity on Reddit and you have a recipe for obliterating the arbitrage of retail investors. These hedge funds will also buy the data that Robinhood freely sells [1]. Sure, squeezes like this will still happen every so often, but on average the hedge funds will win more in the long r…

Really the only thing the hedge funds could do to "win more" in the long run is to stop shorting stocks en masse.

The more they short sell, the more this can be pulled off again and again.

Which is good IMO, I'd be happy in a market where short selling and negativity in general just isn't a thing. If you aren't optimistic about a company just stay out.

Re: GameStop Is Rage Against the Financial Machine

#173

Post by piva00 »

beervirus wrote: post #161
xorx wrote: post #117

Earlier quoted context omitted.

Yes, but retail is going to get destroyed in the end. The power elite always get what they want. Right now there appear to be curbs on GME and AMC buy orders for TD Ameritrade and Schwab customers. If you have to pull strings with your drinking buddy from Dartmouth to blow up a bunch of propertyless zoomers in order to prevent a margin call on the account you've leveraged to buy your house in the Hamptons, then that'…

> Right now there appear to be curbs on GME and AMC buy orders for TD Ameritrade and Schwab customers. Yes indeed. Ameritrade won't even let me exercise the calls I already own. It's ridiculous.

This is absolutely fucking ridiculous. Someone is getting fucked by their own leverage, they got caught, isn't that what the market is supposed to do? Kill the overleveraged non-sense to redistribute wealth to more efficient investments?

It isn't a bank run to be blocked for the sake of society, this is just a bunch of rich people paying the price for risking too much... Boils my blood so deeply.

Re: GameStop Is Rage Against the Financial Machine

#174

Post by yoyohello13 »

ve55 wrote: post #132

I know everyone is having an absurd amount of fun watching this and laughing (so it seems), but I think we should be more aware of the many ways in which this is bad, which definitely includes millions of retail investors losing their money when they buy at the peak, use too much leverage, and so on. The idea of "Don't invest what you cannot afford to lose" has gone from a mantra to an outright joke that many investo…

Yeah as much as I enjoy this whole thing, the new regulations that come out of this will not benefit the average person.

Re: GameStop Is Rage Against the Financial Machine

#175

Post by koheripbal »

cbozeman wrote: post #164
koheripbal wrote: post #120

Earlier quoted context omitted.

Front Running is illegal, and companies get busted and fined for doing that. High Frequency trading is actually GOOD for retail investors because it reduces spreads and increases liquidity.

No it isn't. You know why front running isn't illegal? Because it keeps happening and companies keep getting fined for it. A "law" that allows you a merely pay a fine isn't a law, its a revenue-generating procedure. Murder is illegal. You can't pay $500,000 to the authorities and then go on about your business. For a law to have any weight, you have to be inconvenienced regardless of your financial status.

> You know why front running isn't illegal? Because it keeps happening and companies keep getting fined for it.

This is not a logical sentence. They are obviously getting fined because it's illegal. The traders involved are also terminated, fyi.

All banks are required to submit automated reports on Front Running detection algorithms daily to the regulators. Every trade is evaluated by the compliance systems.

If you think the fines are not big enough or that the algorithms are missing things, then make that more logical argument.

Stay away from hyperbole because it discredits you.

Re: GameStop Is Rage Against the Financial Machine

#176

Post by mdoms »

elliekelly wrote: post #49
ISL wrote: post #32

Earlier quoted context omitted.

It isn't just retail that is going to get destroyed -- the option-sellers may not have enough capital to hedge effectively. A lot of parties are going to be harmed by this; it is an expensive tuition payment to the school of hard knocks. The most interesting technical thing about this fracas is the fact that WSB has managed to play the options-sellers off against the shorts to set this off. The kids have temporarily…

And (no one seems to be talking about this) but there's definitely a systemic cost. Going forward, how do you effectively manage the risk of one of your positions becoming a meme? This happening once is an interesting situation and I've certainly enjoyed watching it play out. If it happens repeatedly it will definitely start to undermine the investing public & market participant confidence in the market. That's certa…

> Going forward, how do you effectively manage the risk of one of your positions becoming a meme?

Don't take short positions. They add nothing of value to anyone. They are just fancy gambling.

Re: GameStop Is Rage Against the Financial Machine

#177

Post by dataminer »

cbozeman wrote: post #136
unethical_ban wrote: post #72

So, can someone explain rationally how options/derivatives are actually useful to the economy, rather than a market manipulation and gambling mechanism? In the traditional, elementary school understanding of stock, people buy into a company because they want part ownership, and the stock goes up as the company does well and has solid financial strength. Derivatives seem to be an unnecessary accelerator.

They're not useful. They're a means of wealth extraction disguised under whatever load of bullshit someone wants you to believe. I'll even prove it to you. Ask someone with skin in the Wall Street game to explain this stuff to you, not mathematically, but in layperson's terms, so simple that a young child could understand it. They either won't be able to do it, or they won't do it. You'll get one of two answers, "It'…

Aren't options like insurance? insurance can be explained rather easily. People buy insurance in their home, to protect their investment in an unlikely event that it gets destroyed. Similarly people can buy insurance to protect their investments in financial instruments.

Re: GameStop Is Rage Against the Financial Machine

#178

Post by bilegeek »

jimbob45 wrote: post #138
koheripbal wrote: post #125

Earlier quoted context omitted.

Very likely is that the SEC is making phone calls to the big trading firms. Firms don't restrict transactions like this much voluntarily. They are going to call the Reddit CEO and have wsb shut down under the threat of SEC enforcement actions. Looks like the wsb discord is down.

Same stuff goes down on 4chan and several other sites. Not to mention the fact that the SEC has neglected to investigate insider trading for years now. IMHO why the fuck is shorting legal to begin with. Short insurance should be mandatory for short trading.

Well, the IRS doesn't go after rich people because they don't have the funding[1]; they only go after the people they can afford to go after[2].

I know the IRS is different from the SEC, Apples to Oranges. But like you said, they've neglected insider trading; it's probably for very similar reasons, because those being investigated just have too much power to take down. I'm sure the SEC will hammer these easy targets on WSB well before they even dare touch the Big Boys.

[1]https://www.nytimes.com/2019/05/03/sunday-review/tax-rich-ir...

[2]https://www.propublica.org/article/earned-income-tax-credit-...

Re: GameStop Is Rage Against the Financial Machine

#179

Post by fairity »

bart_spoon wrote: post #152
fairity wrote: post #134

It's impossible to time the top, but one thing you can say with certainty is that eventually the price of these stocks will come back down (because the underlying firm is clearly not worth its market cap). Hence, the smartest bet here seems to be buying put options that expire far out. Currently, the price of the $320 GME PUT expiring in Jan 2022 is $240. That seems like free money?

Note that $240 is the price of a put for a single share, which are typically bought in increments of 100 with options. So buying a single one of those options requires $24,000. There are definitely people spending that kind of money over in WSB, for given the volatility nature of the meme stock, its a lot of money to put on the line for anyone not in the WSB mindset, or who isn't so flush with cash that that's a drop…

Yea, it's definitely not a small amount, but at the same time, it seems like a very safe bet given the fundamentals of the underlying company. You're basically betting that the volatility will subside within 1 year.

If you're right, your ROI will be (320-240-X)/240 where X is the share price 1 year from now. If X is 30, ROI is 20%. Even if you're wildly wrong, and the share price is still $100 1 year from now, your ROI is only -9%.

Re: GameStop Is Rage Against the Financial Machine

#180

Post by beervirus »

fairity wrote: post #146
Blackstone4 wrote: post #140

Earlier quoted context omitted.

I believe you are far off the mark here. Retail investors are well within their rights to drive up a stock to what could be above fair market value....some may well lose money in doing so. The whole narrative around retail vs. hedge funds/wall street is naive to say the least...people in financial services are worried that retail investors may lose a lot of money here which may dent confidence in the market. The iron…

Agree 100%. I think the smartest bet here is buying put options that expire far out. Currently, the price of the $320 GME PUT expiring in Jan 2022 is $240. That's free money...

So you're paying $24,000 to bet that the stock will fall below a breakeven price of $80. Even if we assume that that's likely to happen, your maximum upside (i.e. if the stock goes to zero) is only $8,000.

It is not a trade I would make.

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