yeah - this is just a squeeze. they happen. any sophisticated player in the market will recognize this as a normal (though not common) thing. the weird and new part is that the people cornering the market are a horde of retail traders who are colluding in the open, but in a way regulators probably don't have tools to address.
Wallstreet does it all time at their private meetings in the Hampton’s.
Um no not really. Fund managers don't all get together and decide what they should buy all together. It doesn't work like that.
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…
That is true for businesses with "reasonable" P/E multiples of ~5 or less. When a business has a P/E multiple of >100+, a significant portion of the investment is speculative rather than a rational projection assets and future earnings. It's really hard to make a rational value fundamentals argument for why anyone is willing to invest in TSLA, with its current price putting its P/E of 1700.
There are plenty of value ETFs for those who want stocks with low P/Es. Historically value stocks have even outperformed growth stocks. Also, the long term average P/E ratio is 15. Stocks haven't really had P/Es less than 5 since the Great Depression.
Thanks, I've never looked into ETFs with this thesis before. Could be an attractive investment.
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…
To add something to this: The redditor doesn't need to pay 1 dollar per cow (the market price as sold by fund), the redditor pays .01 cents for an option contract to buy the cow for 2 dollars at the end of the month. The options contract requires the bank selling the contract to buy a cow today. In effect, the redditor is able to force the bank to buy 100 cows by spending only 1 cent.
No. It's a lot more complicated than you buy a call option and the brokerage buys 100 shares immediately.
> 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…
You obviously know nothing about the folks at wallstreetbets. It's not just a bunch of random people doing pump and dumps. Their methods and DD might be questionable at times but they base them on something and at times try to stick to that thesis.
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.
holding a hedged portfolio (with shorts) is less risky than a long only portfolio in the vast majority of cases.
Moreover some asset that is risky on it's own can decrease the risk of the entire portfolio. From a quantitative perspective, specific risk from an asset is largely irrelevant (and doesnt carry a risk premium), because it can be diversified away to 0
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…
You're incorrect, nobody can go around shorting stocks like crazy. First one need to borrow the stock, which may be difficult for some stocks. This creates a concrete imbalance between long and short holders and a limit for how much can be sold short. But that's not the whole problem, every short stock needs to be covered by some margin. If the stock goes up too much, the short seller needs to buy it back no matter water, for lack of margin. In other words, it is NOT just the buyers who are forcing the price up, but the short sellers who are forced to cover their shorts. That's why it doesn't matter that the price is insane, it will go up as long as the shorts are forced to buy back the stock at those ridiculous prices.
The bank has an "asset" in their account that is the debt note from you. This asset has the value of the money you borrowed, plus interest, and it can be sold for that. One dollar just became two. (If it's a mortgage it's called a mortgage-backed security which the Federal Reserve will gladly take off your hands currently. The money they pay is created from nothing.)
That asset has associated risk vs cash that for the most part doesn’t. The risk being you don’t get the cash back. One dollar did not become two. If you sell the asset you get your cash back from whoever bought it, and it comes out of their account, again one dollar did not become two, unless it’s the Fed sure, they can create money. Shares aren’t created unless the company issues more right?
Right, risk plays into it, but the loan the bank creates is an asset, (a liability for the bloke that has to pay it back in the future) - If I can sell that loan to someone else great, I just have to make it look low risk. But whether or not I sell the contract/loan off, I do have an asset that I didn't have before. It may not be a dollar from the Fed, but it's worth a dollar as long as the risk is low.
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 $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…
To add something to this: The redditor doesn't need to pay 1 dollar per cow (the market price as sold by fund), the redditor pays .01 cents for an option contract to buy the cow for 2 dollars at the end of the month. The options contract requires the bank selling the contract to buy a cow today. In effect, the redditor is able to force the bank to buy 100 cows by spending only 1 cent.
The bank has to buy the cows right away? I thought when the redditor buys the call someone else, let's say Bob, sells the call. If Bob already owns 100 cows (covered calls), then no one will be forced to buy cows ever. If Bob doesn't own 100 cows (naked calls), Bob will have to buy 100 cows at the end of the month if the call is in the money, not right away.
> Game stop is maybe worth 5-40$ What fundamentals make you think that? That's substantially discounted vs revenue.
you don't seem to understand what's going on. gamestop itself is just stuck in the middle of a battle created because of financial investment tools. It doesn't really matter which company it is, it just matters that the company is shorted at >100% of total issued shares. if the gamestop is still shorted at 130-150% of total issued shares (finra report coming soon) that means the shorters are going to be paying intere…
I understand very much what’s going on, I wasn’t asking why it isn’t worth today’s price, I was asking why it’s worth $5-$40.
GameStop did 6 billion in revenue 2020. At $5 per share that’s a ~348mm valuation.