GameStop Is Rage Against the Financial Machine • Hacker News Board

Re: GameStop Is Rage Against the Financial Machine

#781

Post by bobbylarrybobby » Thu, Jan 28, 2021, 2:46 AM UTC

joseph_grobbles wrote: post #627

cbozeman wrote: post #623

Earlier quoted context omitted.

It wasn't David vs. Goliath. CNBC, Financial Times, WSJ, etc. can't tell you what it really was, because they're beholden to all these Wall Street types. They don't get stories unless their relationships are cordial. This was arrogant idiot billionaires vs. autistic retards of the Internet, and the arrogant billionaires in this case (Melvin Capital) had the chance to walk away when they got their $2.75 billion capita…

The assumption that this is a bunch of robin hood everyday-man sorts conspiring on Reddit seems incredibly naive. The GameStop play (as with BBB, AMC, Express, etc) are classic pump and dumps, albeit with a short-squeeze magnifier (basically equal to a DDOS amplification). And if you really traced back to the origin, I highly doubt you're going to find some Joe Nobody -- you're going to find some very well financed,…

Nobody thought GME was a good company (certainly not worth $15+ a share). They thought that the short interest in GME stock was too large, and that longing the stock could trigger a short squeeze the likes of which has never been seen. So far it seems they were right.

Re: GameStop Is Rage Against the Financial Machine

#782

Post by anonymouse008 » Thu, Jan 28, 2021, 2:46 AM UTC

dcolkitt wrote: post #711

noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

> A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. This is a common misconception, but fundamentally wrong. Every short sell has an equal but opposite buy. Therefore every share shorted creates a new synthetic long share. Alice owns 100 shares. Bob borrows 100 shares from Alice, then short sells them to Chuck. There are now 200 shar…

I'm really confused because wouldn't that require a filing with the SEC to authorize shares? Wouldn't that number become part of the float?

I looked into "fails" data, and I'm a bit lost [0].

Is Alice's IOU sellable as a security with voting rights? Who gets to vote on those 100 shares? There are now 200 votes? That's very strange.

I've heard of synthetic longs before but in options [1]

[0] https://www.sec.gov/data/foiadocsfailsdatahtm

[1] https://www.theoptionsguide.com/synthetic-long-stock.aspx

Re: GameStop Is Rage Against the Financial Machine

#783

Post by mehwoot » Thu, Jan 28, 2021, 2:47 AM UTC

SigmundA wrote: post #768

noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

What makes no sense to me as a layman is how can you sell something you don’t own legally? If I borrow your cow and sell it that’s illegal without consent, if you give me consent to sell the cow, there is still only one cow and ownership changes hands, there are not now two cows.

Because cows aren't really fungible, but stocks are.

If I borrow $10 from you, you don't expect the literal note that you gave me back. I can give you $10 back in coins, or $10 transferred to your bank account. I can burn the $10 note you gave me, give it to a homeless person, or re-lend it to my friend. There's nothing illegal about that.

On the other hand if I borrow your car, you're expecting the same car back. I can't sell it and then give you another similar car in return. I can't borrow your car and then lend it to my friend.

Re: GameStop Is Rage Against the Financial Machine

#784

Post by parsimo2010 » Thu, Jan 28, 2021, 2:47 AM UTC

yudlejoza wrote: post #677

noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

Thanks. Great explanation. I don't get the over 100 percent part though. Is it required to squeeze the short (i.e., beat hedge-fund at this game)? Wouldn't hedge-fund still need to purchase 100 cows even if they only borrowed once? Because as I understand, the way it works is that: - You borrow 100 cows. - You sell them immediately. - You wait for the cow price to drop. - Now you buy 100 cows, netting a profit. (but…

You don't have to have over 100% but you do need a significant amount. For a squeeze to occur you have to have 1) some initial upward price movement and 2) enough short interest that as people get uncomfortable with the increased downside (or their broker calls them on their margin), they have to buy real shares to close out their short positions, thus increasing the upward pressure on the price. That drives the price higher, and causes more people to get uncomfortable and more margin calls to be made, driving the price even higher. Other people notice the price and trade volume going up and want in on the action, which drives the price even higher. This cascades until there are no more surviving short positions.

The whole thing about borrowing 200 cows is illustrating the concept of leverage, but it isn't necessary. We could have illustrated the concept of a short squeeze by saying the hedge fund borrowed 50 cows, and a Redditor noticed and bought 51 cows. When the hedge fund needs to close their position there are only 49 cows available and the Redditor can ask an insane amount of money for the last cow. And that isn't even really how a short squeeze works (see top paragraph).

A squeeze can happen with any amount of short interest. But if it's a tiny amount it will be swallowed by the other random noise in the market, and won't cascade into a giant news story. Gamestop had right around 150% short interest in December. The other crazy thing is not just the number of shares shorted, but what prices they might be at. The 50 day moving average is about $30. If you shorted at $30, you had a 500% downside yesterday. If you still weren't forced to close your position then you were at 1000% downside today. The one year low is $2.57. If you shorted any sizeable position at $2.57 you're probably thinking about jumping off a skyscraper.

Re: GameStop Is Rage Against the Financial Machine

#785

Post by CGamesPlay » Thu, Jan 28, 2021, 2:48 AM UTC

SigmundA wrote: post #768

noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

What makes no sense to me as a layman is how can you sell something you don’t own legally? If I borrow your cow and sell it that’s illegal without consent, if you give me consent to sell the cow, there is still only one cow and ownership changes hands, there are not now two cows.

Cows aren't fungible, so that analogy isn't great. The key thing to keep in mind is that here you do legally own the share you bought, except that when buying it you also signed a contract that says you will resell a share to the original owner at the original price, plus interest.

This is exactly how loans from banks work. You took money from the bank and bought a house. You now do not have enough money to pay back the bank, but the bank doesn't mind, because they only care about the contract that says they will get their money back plus interest.

Re: GameStop Is Rage Against the Financial Machine

#786

Post by gpm » Thu, Jan 28, 2021, 2:48 AM UTC

ww520 wrote: post #745

gpm wrote: post #682

Earlier quoted context omitted.

> Hedge-fund cries foul. Doesn't like being beaten in it's own game. Have any of the hedge funds actually cried foul?

CNN just had someone talking about the government should ban people talking about the stock market on the internet. edit: Here's the link in case people want to see it. Ignore the article about Trump (really weird to blame Trump in this case), but watch the video. https://edition.cnn.com/2021/01/27/politics/gamestop-stock-s...

CNN is a news site not a hedge fund, do they have quotes from hedge funds that I missed (entirely possible)?

Re: GameStop Is Rage Against the Financial Machine

#787

Post by gpm » Thu, Jan 28, 2021, 2:50 AM UTC

astrange wrote: post #669

wolverine876 wrote: post #666

Earlier quoted context omitted.

Can you provide some factual basis for these claims? We can type out claims without foundation endlessly; the Internet demonstrates that well; what we need is real knowledge and facts.

Are there any claims in that post?

Well, that "Hedge-fund cries foul" (which I've questioned in a direct reply, let's keep that discussion over there).

Re: GameStop Is Rage Against the Financial Machine

#788

Post by bilekas » Thu, Jan 28, 2021, 2:55 AM UTC

noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

I have to admit. Its really a bit disappointing to see how many people don't understand the short, given we bailed out and financial institutions, its worth everyone to know.

Re: GameStop Is Rage Against the Financial Machine

#789

Post by gregable » Thu, Jan 28, 2021, 2:56 AM UTC

dcolkitt wrote: post #711

noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

> A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. This is a common misconception, but fundamentally wrong. Every short sell has an equal but opposite buy. Therefore every share shorted creates a new synthetic long share. Alice owns 100 shares. Bob borrows 100 shares from Alice, then short sells them to Chuck. There are now 200 shar…

I'm curious, if this is the case, why doesn't the market realize this and short sell like crazy right now, given it's clear the price isn't sustainable. That would then generate more negative price pressure and generally keep the whole thing from happening in the first place, no?

Re: GameStop Is Rage Against the Financial Machine

#790

Post by dillondoyle » Thu, Jan 28, 2021, 2:56 AM UTC

Quarrelsome wrote: post #744

jondwillis wrote: post #704

Earlier quoted context omitted.

didn’t Melvin already cover? https://www.msn.com/en-us/money/topstocks/gamestop-short-sel...

people in /r/wsb are assuming these stories are planted. Given the ridiculously nervous delivery of the story when it broke by the chap on TV (has to be seen to be believed) I can understand how people would be suspicious but idk. The suggestion is that Friday is apparently the day when the bets actually become due and then we'll actually know if Melvin did cover or lied about covering and actually doubled down.

They also parsed the actual language they said, they didn't say cover their entire short. Maybe they just closed one contract.