811–820 of 1001 posts
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…
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'll walk through an example and maybe someone can point out what I missed.
Let's say we have a market for some stock. There are only 5 traders (Alice, Bob, Chuck, Dave, Eli) and 100 shares that are all owned by Alice. Bob borrows all 100 shares from Alice and sells them to Chuck. Dave borrows the 100 shares from Chuck and sells them to Eli. Thus, Alice and Chuck are each owed 100 shares, Bob and Dave are in debt for 100 shares, and Eli owns the 100 shares.
Thus, Bob and Dave must now compete for the 100 shares owned by Eli, which then drives up the price.
I don't know how the synthetic long shares mentioned fit into this.
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it started with this.. https://www.youtube.com/watch?v=JWdWCtLMoU0
For those downvoting: that‘s u/DeepFuckingValue. He got laughed off by WSB for a year and is now making millions every day. Turned 50k to 48 million as of today.
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I mean... Do we know if anyone actually complain to the SEC? I know they put out a statement they are monitoring it, but it's rather hard to miss, especially when noticing weird market trends is literally your job, unless they've said something otherwise it seems likely they did that on their own initiative. Especially when congress members (i.e. your bosses) have been putting out various statements about it... If th…
I do not think pension funds and mutual funds short GME I mean hope not.
> These points doubtless make me appear to be a complacent shill for the financial industry, talking down to the rubes. For the record, I’m still angry about the way workers were ripped off in Britain more than three decades ago, and about the way the little guy ended up bearing the brunt for the financial implosions of 2000 and 2008. But it looks horribly to me as though the same thing is going to happen again — and…
> The "little guy" refers to the Reddit traders that are making a killing right now, with the expectation that eventually the stock price will crash again. The reddit traders are only making a killing if they're selling these inflated positions. At some point somebody will be left holding the bag, odds are it will be a bunch of people from wallstreetbets and other retail investors that are late to the party. There's…
https://www.usatoday.com/story/tech/news/2018/01/29/vmware-c...
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That's the idea, but there will also be a bunch of retail traders who get caught up in the frenzy and end up losing too much when the bubble pops. Maybe it's their own fault for being greedy, but they do still exist. It won't only be hedge funds left holding the bag. Also, there is a worry about multiple hedge funds going bankrupt and causing a cascading effect when they are forced to close out other positions which…
> Also, there is a worry about multiple hedge funds going bankrupt Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...
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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…
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…
When there is a rapid increase in the price of a stock they have shorted, they will no longer meet the margin requirements. So they either need to deposit more funds/securities to keep the position going or start buying back shares to get back in line with their margin requirements. However, if the fund is maxed out on their positions buying back shares often just helps raise the price further causing them yet another margin problem... it's a downward spiral. Plus, once other hedge funds smell 'blood in the water', they'll start piling on too (i.e. buying shares raising the price further) knowing that the fund(s) that are in trouble have no choice but to cover their short position regardless of the price. That's part of why you'll see these gigantic price spikes.
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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)?
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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?
Market can remain irrational longer than your wallet can remain solvent or something like that.
What I am interested in is how far this can get twisted. Are there more mechanisms at the hedge funds disposal? Will the financial institutions step in at all?