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GameStop Is Rage Against the Financial Machine

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Re: GameStop Is Rage Against the Financial Machine

#871

Post by FabHK »

arafa wrote: post #204
beervirus wrote: post #192

Earlier quoted context omitted.

https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga... See footnote 3. "This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding! Here is an explanation of how options market makers (discussed below) are allowed to short without a locate, but I want to offer an even simpler explanatio…

Right, seems like a similar problem to banks and leverage. People can short more in aggregate than exists the same way the money multiplier exists for banks. But there are bank runs and it's built on trust, so that's risky too and we make people hold on to a certain amount to cover what they lend. I guess I'd just prefer they use call options to cover the shorts instead of borrowing. No leverage or multiplier effect…

So, first of all, the net shares outstanding are still 100. All the extra, whatever, 200 shorts are balanced out by 200 extra longs, and that creates obligations between them, which must be managed as usual (collateral, margin calls, risk limits, ...)

To short a share, you must borrow and sell it.

If you buy a call, you're long. You could write a call and then you'd have short exposure, indeed, but on the wrong side - you lose on the way up, while you want to win on the way down. So, you could buy a put - that makes you short, winning on the way down. However, now the entity that wrote the put is long, and will generally cover their exposure by - shorting. No magic bullet there.

Re: GameStop Is Rage Against the Financial Machine

#872

Post by mdtusz »

xmprt wrote: post #487
swiley wrote: post #432

Earlier quoted context omitted.

They won't lose their shirts, just the beer money they spent on a meme. Plenty of them really don't care.

Things may have changed since you last used reddit but now I regularly see people playing with $1000s of dollars joking about buying weekly options and trading on leverage that they don't have and then not understanding the implications of that when things come crashing down.

The subreddit has ~65,000 weekly active users (ignoring this week), and the screenshots of "big" positions aren't that common, and often from the same accounts.

It's a bit disingenuous for people to make it seem like there's thousands of people putting their life savings and retirements into stocks - and even so, I would guess that many of the people who do claim to use "life savings" actually mean "the 10k I had in my bank savings account" because they're only 23.

Re: GameStop Is Rage Against the Financial Machine

#873

Post by nrmitchi »

CrazyDave wrote: post #650
mancerayder wrote: post #511

Earlier quoted context omitted.

It ruffles my feathers when I read that we should "combat institutional gambling via trading and not allow retail investors to gamble." Who died and made the author a moral decision-maker? Is the problem that gambling is a 'sin' or is the problem that we're TRULY worried about people losing all their money and we want to protect them from themselves? Do you want to put them in prison when they bet money on fantasy fo…

Irresponsible gambling costs the government money because we have safety nets. This applies to both institutions and individuals. The government needs to bail out banks and provide social welfare. It's not a moral issue to me. Gambling through leveraged stocks should to be taxed more heavily to offset its cost. Something like the rate on lottery tickets.

> Gambling through leveraged stocks should to be taxed more heavily to offset its cost. Something like the rate on lottery tickets.

I agree with your initial point, but I don't believe this would actually help. People who are gambling typically don't look at the expected outcome and make "rational" decisions. Therefore, taking action that just modifes the expected outcome is unlikely to have any impact on the behaviour. People will still assume/hope that they will win, and if they win just a bit less, then so be it.

Re: GameStop Is Rage Against the Financial Machine

#874

Post by was8309 »

liveoneggs wrote: post #719
stale2002 wrote: post #701

Earlier quoted context omitted.

There is no burden of proof on anyone. The person was simply explaining a concept, known as a short squeeze. A short squeeze is a well known financial concept. It is not a claim. It is a concept.

was there a double blind study proving the existence of cows in the first place? I don't want to be mislead.

hilarious, given i just came from https://news.ycombinator.com/item?id=25928183

Re: GameStop Is Rage Against the Financial Machine

#875

Post by sidibe »

rubatuga wrote: post #840
dcolkitt wrote: post #711

Earlier quoted context omitted.

> 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…

> The only reason Gamestop is going up is because of Tulip-mania. It's a classic bubble. If only. This has no signs of being "classic". People on WSB realize that if many people purchase and hold on to GME stock for long periods of time, there will be an increase in stock price. If/when this occurs, this increases the annual cost for GME short sellers through increases in both Margin Interest and Stock Borrowing Cost…

> People on WSB realize that if many people purchase and hold on to GME stock for long periods of time

You have a lot of faith in a bunch of people not wanting to realize their profits on a stock that everyone knows is going to tank sooner or later. I'm sure some of them who got in on the run early won't make a dime because they'll hold on too long and then not give up even on the way back down, but some will want to make sure it's real money for them and then this thing is going to go down fast.

Re: GameStop Is Rage Against the Financial Machine

#876

Post by nrmitchi »

AlexCoventry wrote: post #700
AdmiralAsshat wrote: post #20

> 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…

> Who is this hurting, exactly? I think the narrative around this trade is a bit simplistic, and a lot of people in it are likely to wind up disappointed by the details it ignores. For instance, with potential losses this big, counter-party risk is huge. Even if everything works as the trade intends, and the losers have to chase after an ever smaller pool of increasingly expensive GME shares, it may make more economi…

> it may make more economic sense for some of those losers to declare bankruptcy instead.

This is a thing that goes against the narrative here, where the narrative is "Melvin has $13B, we can take it all!". Even if you assume that is true, and you can somehow push this already $25B cap company high enough, there isn't enough money in that $13B to allow all shares of GME to sell at the current price.

If the entire premise here is "Melvin is screwed, we have him by the balls, and he has $13B", then it seems that the max would be... $13B. Past that, you're no longer "taking from Melvin"; you're taking from the people who don't get out before you do.

There is no bankrupcy judge in the world that will say "Okay Melvin, sorry, but you owe WSB a thousand trillion dollars".

Re: GameStop Is Rage Against the Financial Machine

#877

Post by noncoml »

SigmundA wrote: post #826
adolph wrote: post #796

Earlier quoted context omitted.

Apparently there is some consent and interest payment involved. https://www.investopedia.com/ask/answers/how-does-one-make-m...

Again one cow does not become two, you just may owe two cows when there is actually only one in circulation because you sold the same one twice. I guess the talk of creating new shares threw me off this is just IOU’s

Absolutely correct. The cows remain 100. When I said buy 200 cows back, I meant by the 100 cows TWICE. Buy them, give them back to the second person you borrowed them from, then buy them again, and give them back to the person you borrowed them from originally.

Sorry for making it confusing in my attempt to simplify it.

Re: GameStop Is Rage Against the Financial Machine

#878

Post by Thorrez »

delaaxe wrote: post #767
vpribish wrote: post #750

Earlier quoted context omitted.

yes for hedge funds. some market-making entities are legitimately allowed to be short without borrowing, but is it absolutely not just any random hedge fund!

Isn't it the opposite of what parent is saying, that market makers are allowed to do naked short selling for "liquidity purposes" but hedge funds I'm not so sure

>Isn't it the opposite of what parent is saying

Yes. vpribish is saying that chovybizzass is wrong.

Re: GameStop Is Rage Against the Financial Machine

#879

Post by bo1024 »

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…

If all of Alice's 100 shares are out on loan, is it actually easy for her to sell them?

Assume that her broker doesn't have a bunch of extra shares lying around, due to squeeze or bubble event.

Sincere question, I don't know how this works in practice.

Re: GameStop Is Rage Against the Financial Machine

#880

Post by jaredmosley »

Clewza313 wrote: post #829
phyalow wrote: post #791

Earlier quoted context omitted.

You are not wrong, but you are also missing the part where risk management departments will forcibly unwind shorts of institutional investors, option gamma creating massive amounts of reflexivity and the Weaponized autism of /r/WSB and the viral network effects of its memes encouraging even more reflexivity. I have no doubt this will end in tears for investors on both sides. GME's management would be wise to issue 1-…

Except that would potentially make GME complicit in activity that regulators are already making threatening "market manipulation" noises about. Also, if they were to issue more shares, the mere news of this would likely pop the bubble hard before they would realize any gains.

GME doesn't care if they pop the bubble though. They know their shares aren't actually worth $350 and they're not making strategic decisions based on them being worth that much. They'd much rather issue more shares, take the increase they get, and get back to their own business.
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