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GameStop Is Rage Against the Financial Machine

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Re: GameStop Is Rage Against the Financial Machine

#181

Post by ISL »

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…

One way to counter the risk is broadening the diversification of your positions. Half the time, meme-status will make you a lot of money, too.

A more-sophisticated investor than I could also hedge against undesirable long-tail events.

To me, with a long-term/value perspective, these transients are a bummer because they distract from efficient price discovery. But, with a long-term perspective, these transients are mostly irrelevant. If a quality company's price drops precipitously, it is then on sale and worth buying. If it becomes quickly inflated, I can either hold with a smile or, if it is just too insane, sell with the expectation of buying in again later. The only real risk is of a meme-driven fluctuation shorting an otherwise-okay company into bankruptcy.

Re: GameStop Is Rage Against the Financial Machine

#182

Post by mrec »

koheripbal wrote: post #169
jimbob45 wrote: post #138

Earlier quoted context omitted.

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.

> the fact that the SEC has neglected to investigate insider trading for years now. Obviously false: https://secsearch.sec.gov/search/docs?utf8=%E2%9C%93&affilia... > 4chan and several other sites... Scale dictates enforcement priorities, obviously. Like a lot of people, they don't deal with issues until they are large and impact the market. They are ABSOLUTELY going to intervene here. First with some immediate actio…

> bubbles would rise higher and poop much bigger

Please don't fix this, it's perfect.

Re: GameStop Is Rage Against the Financial Machine

#183

Post by as1mov »

diarrhea wrote: post #105
thepasswordis wrote: post #86

There's a mantra among these people of "I just wanted to play video games, why couldn't you leave me alone?" The culture of a lot of redditors and internet trolls in general seems to be that they feel like they are the eternal punching bag of society. They were the punching bag in high school, they didn't get into a good school (or go to college at all), and now they're the punching bag of society as "incels" or "whi…

I'm not sure there's much of an overlap. Incels are a rather small group, and I think most wallstreetbets users are surprisingly... normal. You can't bet on stocks if you're poor. So you'll have lots of mid/late 20s educated guys with decent incomes. This to me really feels like a classic "for the lulz" (and some personal profit), avalanche-style event.

This applies even to the internet "cesspools" really. Most of my friends were/are regular posters on reddit/4chan, and they are surprisingly normal. All of them have decent jobs that pay well, some are married. If you met them in real life, you couldn't really tell there's something wrong with them.

They seem a far cry from what internet tells you a 4chan user looks like. Funny enough, none of them (including me) are white.

Re: GameStop Is Rage Against the Financial Machine

#184

Post by gnicholas »

Apocryphon wrote: post #59
chrisseaton wrote: post #25

Earlier quoted context omitted.

Aren't almost all companies like this an integral part of almost everyone's pensions? Through your pension you're probably an investor in tens of thousands of companies and funds.

You’re not wrong, but are there pension funds that include revenue made from shorting stocks? Seems like a reckless practice if there are.

I am far from the most knowledgeable HNer on this topic, but my understanding is that pension funds are more conservative than most, but that they do get involved in riskier asset classes as well. They probably allocate a portion of their assets to hedge funds or VCs because otherwise they miss out on lots of upside. Of course, there can be downside as well...

Re: GameStop Is Rage Against the Financial Machine

#185

Post by mdoms »

ping_pong wrote: post #16
tempsy wrote: post #12

Earlier quoted context omitted.

that isn’t what the article is saying. it’s arguing that the short squeeze is less about pure profit making, though of course that’s part of it, but more about actively trying to hurt hedge funds who are naked short selling and potentially forcing them to liquidate as a sort of populist driven “payback” against the elite.

It's all about making money. WSB was about hurting the hedge funds or screwing the system. And to be clear, I know wsb because I was one of the first group of subscribers of wsb way way back, but quit it because it wasn't engaged in what I thought was trading strategies, but a lot of shitposting. But they didn't cause this crazy short squeeze. It's the other hedge funds and day trading shops that are causing this bec…

There's no evidence for this. There's plenty of evidence that it's WSB.

Re: GameStop Is Rage Against the Financial Machine

#186

Post by chrchang523 »

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...

I've been keeping an eye on the far-out-dated put options, and I haven't seen anything that's more compelling than simply leaving money parked in an index fund. The expectation that GME will drop back down to Earth over that timeframe remains priced in.

The main takeaway from this incident is that margin-call-constrained short selling is even more dangerous than previously understood.

Re: GameStop Is Rage Against the Financial Machine

#187

Post by ab_testing »

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...

THe price of that put is $240 . So GME has to fall to 320-240 = $80. Also the cost of that put is twenty four thousand dollars. Not exactly chump change.

Re: GameStop Is Rage Against the Financial Machine

#188

Post by krok »

arafa wrote: post #154
krok wrote: post #128

Earlier quoted context omitted.

You are missing something - these aren't naked shorts. The fact that more than the whole float is out on loan does not imply that naked shorting is going on.

Please explain. I thought this was the whole purpose behind hedging, was to avoid the short squeeze. Are people reneging on the purchase agreements or overpromising? How can we know these aren't naked shorts and if so, why are they still facing the short squeeze?

You can have a short squeeze without naked shorting. Shorts who aren't naked have borrowed the stock from someone. If that person asks for it back, they have to go out and buy it in order to return it.

At least in theory, if retail investors buy up the stock, some of the institutional investors who own it, and who have lent it out, will sell it to them. This could mean that they recall lent stock. As this happens, shorts might have to compete to buy the stock. Equally, as the price gets higher, shorts might have to cut their losses, which also means buying back the stock. If the people buying it now don't sell it and don't lend it they will withdraw a lot of the supply.

Re: GameStop Is Rage Against the Financial Machine

#189

Post by mLuby »

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.

Derivatives provide useful abstractions over primitive financial data types. Instead of saying "give me the {id: int, name: string, birthday: date}" we can just say "give me the User" and that's helpful. But as in software, it's possible to build towers of abstraction high enough so as to lose sight of the fundamental data upon which they rest, and then differences between the abstraction and implementation open the door for bugs (i.e. financial crises).

Options are similar to a down payment, or trip cancellation insurance. It gives you the ability to buy something (or not buy it) in the future, but for that privilege you must pay something right now. Options provide leverage (using more money than you presently have), like a credit card or mortgage. Just as most people can't bring piles of cash to buy a car or house outright, options give you the ability to buy the thing but also the chance to walk away. Key caveat: there situations where options that have unlimited risk; these can easily be avoided, but that's where options get their bad reputation.

You're right that both can serve to accelerate growth, and that's a good thing for individuals, companies, and nations. But if things go wrong, crashes at high speeds are much more dangerous than those at low speeds.

Re: GameStop Is Rage Against the Financial Machine

#190

Post by ineptech »

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.

If you put $X in to AAPL, you can hedge against catastrophe by putting $X/10 in to an option to sell AAPL, which will limit your losses if the stock drops to 0 tomorrow. So in theory, they can be used sensibly.

But in practice I think it's not the existence of the derivatives market, it's the size. Our economy is like a town with 1 farmer and 9 investors who spend all day wagering with each other on whether the farmer will have a good crop.

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