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GameStop Is Rage Against the Financial Machine

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Re: GameStop Is Rage Against the Financial Machine

#901

Post by smabie »

taurath wrote: post #803
thekyle wrote: post #730

Earlier quoted context omitted.

> Make shorting illegal. Short sellers profit from exposing fraud (like those that researched Enron and Wirecard). Making the only market participants with financial incentive to put downward pressure on stock prices illegal seems like a bad idea.

They also profit from creating the perception of fraud, filing spurious lawsuits and marketing against companies they are shorting. Shorting is illegal in Australia, Germany, Italy, Spain, Portugal and a few other countries with large financial markets. The US has the most "open" policies on shorting in the world. Short selling was an extremely large contributor to the 1929 stock market crash.

Short selling is not illegal in Germany. I also suspect you are wrong about some of the other countries as well. But regardless, you would be hard pressed to find anyone in the industry who thinks shorting is bad. The overwhelming consensus is that shorting is very good to allow

Re: GameStop Is Rage Against the Financial Machine

#902

Post by Mtinie »

doingmyting wrote: post #885
sidibe wrote: post #875

Earlier quoted context omitted.

> 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.

Thesis in this case being “let’s protect GME from vultures and make some money on the side?” I have a hard time believing that is anything but PR. I’d hardly call the denizens of r/WSB altruistic. Sanctimonious, energetic, and smart? Absolutely. But they aren’t there because they want to empower the meek against the mighty.

Having lived through a number of cryptocurrency boom/bust cycles I’ve seen first hand how everyone is coordinated and holding the line...until those who have profit in their sights decide to find a bunch of bag holders to cover their exit. Poof.

Re: GameStop Is Rage Against the Financial Machine

#903

Post by dcolkitt »

coliveira wrote: post #887
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…

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 w…

> First one need to borrow the stock, which may be difficult for some stocks.

In the US, stock loan markets are extremely deep and liquid. Finding borrow is rarely a problem. Borrow fees may be relatively high, about 0.1% per day right now for GME. But considering that short sellers are targeting an 80%+ profit within a few weeks, that's not a real deterrent

Virtually 100% of shares held at retail brokers are available to borrow. This is especially true at discount brokers like Robinhood, where borrow fees are a primary revenue stream. Ironically the more WSB people that buy GME, the easier it becomes to borrow.

> If the stock goes up too much, the short seller needs to buy it back no matter what, for lack of margin.

This is incorrect in the vast majority of cases. Virtually every prime broker (i.e. the brokers used by hedge funds), uses portfolio margining. The prime broker calculates an aggregate "value-at-risk" for the entire portfolio, then requires the fund to post that collateral. As long as they have over that threshold, they won't trigger any margin calls. But even if they do, there's no reason they have to buy back GME specifically. They could just as easily liquidate any other position to bring down VaR in another less lucrative position.

Remember a major multistrat fund like Citadel or SAC will have something like $30 billion AUM, then lever that up by 500% or more. One of these players could short 30% of the float in GME, and it'd still only be 2% of their portfolio.

Re: GameStop Is Rage Against the Financial Machine

#904

Post by HideousKojima »

fennecfoxen wrote: post #628
6nf wrote: post #615

Earlier quoted context omitted.

How do you know they don’t think that the GameStop bag will have money in it?

It's possible they think so, but if they think it'll have money in it, after it lost money six of the last seven quarters, I'm not sure what they're smoking.

While the ever accelerating shift to digital purchases will definitely gut what used to be Gamestop's core business, it's entirely possible that Gamestop could successfully pivot to a new business model that makes them profitable again. Not probable, mind you, but definitely possible.

Re: GameStop Is Rage Against the Financial Machine

#905

Post by rib3ye »

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…

Additionally... Tulip-mania was driven up by false scarcity. People are buying up GME on principal as punitive action against hedge funds. SWJs + Day Trading = /r/WSB

Re: GameStop Is Rage Against the Financial Machine

#906

Post by smabie »

jacksnipe wrote: post #93
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.

I'm generally sympathetic to the idea that financial derivatives are a great evil, and a huge part of what feels "broken" about the current system. However, consider futures, which are very similar to options. Futures were, as I understand it, popularized in Chicago as a way for farmers to be able to get money for their crop right now, at a fixed price. In this way, they could pass the risk -- and a little bit of the…

I wouldn't call futures as very similar to options. The mathematical profiles of the two are very different, though a far ITM option is basically a future

Re: GameStop Is Rage Against the Financial Machine

#907

Post by whoisninja »

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…

wron, ex-CEO of Chewy is quite a bit long

Re: GameStop Is Rage Against the Financial Machine

#908

Post by smabie »

mdnahas wrote: post #238
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.

Options are valuable because they are how Wall St. deals with probabilities. We don't actually know what a company is worth. You can imagine estimating the worth (a.k.a., "net present value") of a company based on its future dividends (or stock buybacks). But any formula will contain a lot of probabilities of when each dividend will occur, the amount, and the discount factor (that is, how much future money is worth t…

This isn't really true. An options value is derived from a variety of inputs that have nothing to do with the price of the stock, namely, forecasted volatility and interest rates.

No real option market maker is using anything except the current price of the stock to price their options. This isn't strictly true, but what I'm saying is that people don't determine the fair value of a stock through looking at option prices.

If you want to learn more, check out black Scholes pricing model and option Greeks.

Re: GameStop Is Rage Against the Financial Machine

#909

Post by risyachka »

silexia wrote: post #366
Traster wrote: post #347

Earlier quoted context omitted.

The second that the shorts have covered the price isn't going to drop to $90, it's going to drop back to $20 and most of the WSBers who were holding out for $2000 will lose their shirts. The shorts are going to lose, no doubt. But once they've lost, the stock price is probably $20. A lot of WSBers are going to be holding stock at that point, and possibly on margin. And that stock is going to be a crappy retail stock.…

I sold a GME call option with a strike price of $320 and expiration in July today for $200. A pump and dump by novices is easy money if you know how to play it. Everyone knows this is going to crash, the question is when?

With how things go your break even price of $520 seems optimistic.

Re: GameStop Is Rage Against the Financial Machine

#910

Post by sidibe »

doingmyting wrote: post #885
sidibe wrote: post #875

Earlier quoted context omitted.

> 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.

> base them on something

All the talk of short squeezing and sticking it to the hedge funds and Wall Street aside, they are really basing it on the belief that someone will buy it at a higher price than it is now which will be true until it's not.

Unlike Tesla or Bitcoin which many think are bubbles, this is a case where absolutely no one believes in Gamestop (being a $24 billion company, at least). There's not anyone who thinks holding it forever is a good idea at this price (or even at a fraction of the current price). In these cases when the stock stops going up it implodes very very quickly.

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