Hedge fund Melvin sustains 53% loss after Reddit onslaught • Hacker News Board

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#301

Post by coffeecat » Mon, Feb 01, 2021, 4:17 AM UTC

fairity wrote: post #164

bluGill wrote: post #110

Earlier quoted context omitted.

The problem with puts is they can expire before this calms down. If you can get a short in and not get a margin call this is the opportunity of a lifetime. Only the biggest players dare risk it though.

There are long-dated puts that expire 1-3 years from now. In what world would this not calm down before then?

Not exactly a 1-3 year timescale, but Elon Musk tweeted something about Signal earlier this month, causing SIGL (completely unrelated to the messaging service to which he was referring) to spike from ~$0.50 to $40 per share. Three weeks later, and SIGL seems to have settled down at around $5 per share - 10x the original price. In other words, the price after the shock is not correlated with the price prior to the shock.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#302

Post by cpascal » Mon, Feb 01, 2021, 4:18 AM UTC

mledu wrote: post #263

autokad wrote: post #253

Earlier quoted context omitted.

if I gained 50%, 44%, followed by a 53% loss with a 2% fee, I'd be under water for the last 3 years, but the sp500 would have yielded me a 37% gain - virtually no fees. I'd rather the sp500 over these guys

This is the point Nassim Nicholas Taleb makes in his book Fooled by Randomness. In a long enough timeline luck plays a big part in performance. People or firms like Melvin can perform well in a short timeline but when you stretch the timeline out the reality becomes clearer.

This reminds me of a metaphor made by Burton G. Malkiel in “A Random Walk Down Wall Street”. He attempts to give a possible explanation to why there are star traders or funds that greatly outperform the market. It’s something I like to remind myself of from time-to-time.

The metaphor was a coin flipping tournament. You have a bracket of players who flip a coin against an opponent. In each matchup, the player that flips a heads advances to the next round to face another opponent who won a parallel matchup in the previous round. Suppose this is a 100 round tournament, that would mean the eventual winner would have had to flip a heads 100 times to win. You might look at this coin flipper and think they are an extraordinary coin flipper. That they have some innate ability to flip a coin and make sure it lands with the head sides up. In reality, it was just random chance that they flipped the coin correctly, they do not posses any more coin flipping talent than anyone else. They just got really lucky. You can potentially look at a successful hedge fund or trader through this same lens. They have survived the proverbial coin flipping tournament and random chance was on their side.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#303

Post by jussij » Mon, Feb 01, 2021, 4:25 AM UTC

PragmaticPulp wrote: post #297

jussij wrote: post #293

Earlier quoted context omitted.

The thing that moved the share price up was simple supply and demand. From what I've read the short sellers had taken a short interest that exceeded 100% of the available GameStop shares. But remember these are short sellers are selling something they don't yet own. They are selling a promise to sell shares at some time in the future for given price. When that future date turns up the they are forced into the market…

> From what I've read the short sellers had taken a short interest that exceeded 100% of the available GameStop shares. When someone shorts a stock, it creates a new long position as well. The term is "short sell" because the borrowed shares are sold to someone else. The new buyer is also long. Long interest is always greater than short interest for this reason. This is why short interest can be greater than 100%. Th…

That 'borrowed' position has to unwind sometime in the future and to unwind it requires a share purchase.

Now if no one is selling where do the shares required to fulfill these burrowed position come from?

If it was not that buy pressure created by the excessive short selling, what did drive up the share price?

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#304

Post by f430 » Mon, Feb 01, 2021, 4:27 AM UTC

fractionalhare wrote: post #269

f430 wrote: post #268

Earlier quoted context omitted.

They have potentially unlimited source of funds at disposal from their parent hedge fund. They often don't shut down especially when they have better information than the public. They can eat the cost of getting the timing wrong if it means they stand to make a killing which they are poised to do as average retail traders are simply transferring wealth to the pockets of executives and hedge fund managers while thinki…

Melvin does not presently have a parent hedge fund, and it never has. It received investments from two other hedge funds, but those were for non-controlling revenue share.

https://en.wikipedia.org/wiki/Melvin_Capital

does seem like a relationship to me and if so they likely have Cohen's liquidity close by. Rarely are these groups independent, they all eat from the same bowl, a very large one at that.

I just do not believe they have thrown in the towel. Wouldn't you be drunk with lust when you realize a very rare opportunity? Timing isn't the concern here its the inevitability of the obvious in the long run. Anytime GME shoots up due to retail exuberance, the probability of bearish plays go up. There's simply no fundamentals that justifies its price.

Benjamin Graham said something about voting machines and weighing scale...

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#305

Post by lc3sim » Mon, Feb 01, 2021, 4:33 AM UTC

fractionalhare wrote: post #196

dataflow wrote: post #139

> On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. Is this true? Louis Rossmann pointed out they would have a huge incentive to lie about this (to prompt people to sell and drive prices down).

The arguments that Melvin lied about closing their position are as follows: 1. Short interest on GME is still high, even after they claimed to have closed their short position. 2. They have a "huge incentive" to lie about this, because people believe it would encourage a selloff. That is the entirety of the evidence. It is uncritical despite the fact that it gets frenetically repeated on reddit. Here is the evidence…

I am not a financial advisor and this is not financial advice.

I understand your response. There is one assumption that I think marks the difference between what side of the line one falls on.

My understanding of your belief is that you think Melvin would not lie due to there being a large risk associated with lying.

One might also assume that Melvin would not be dumb enough to short over 100% of GME stock.

In exercise, I believe this to be the crux of the speculative argument that Melvin is dumb enough to use psychological warfare (which may have legal ramifications if they get caught) to try to get GME stock back down.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#306

Post by dghlsakjg » Mon, Feb 01, 2021, 4:36 AM UTC

nradov wrote: post #187

ClumsyPilot wrote: post #169

Earlier quoted context omitted.

"My theory is that they are not only doubling down but quadrupling down everytime the stock shoots up. " You can do the same at a casino - double your bets every time you loose. The technique works, 100%. The trouble is, it requires exponential amounts of money. "We have no way of knowing if people posting gains on wsb are doing it on paper accounts or not." That's starting to sound a lot like "moon landing was faked…

That technique doesn't work at the casino. Even if you had a huge amount of capital the house still has a slight edge so if you keep playing long enough you'll eventually lose everything.

The technique works very well at the casino under the right conditions. So much so that casino workers know to look for it, and to boot you. If you play it as an infinite game as you imply, you WILL lose. If you make it a finite game, you can win.

Here's what it takes to work

1.You have to remain liquid long enough to hit a win. It doesn't take many doublings to break yourself.

2. You have to end the game at the right time. The side that chooses when to end the game is, almost certainly, the one that will win. This is why casinos will give you the boot when they realize that you are doing it BEFORE you have a chance to go up.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#307

Post by dvngnt_ » Mon, Feb 01, 2021, 4:37 AM UTC

cpascal wrote: post #302

mledu wrote: post #263

Earlier quoted context omitted.

This is the point Nassim Nicholas Taleb makes in his book Fooled by Randomness. In a long enough timeline luck plays a big part in performance. People or firms like Melvin can perform well in a short timeline but when you stretch the timeline out the reality becomes clearer.

This reminds me of a metaphor made by Burton G. Malkiel in “A Random Walk Down Wall Street”. He attempts to give a possible explanation to why there are star traders or funds that greatly outperform the market. It’s something I like to remind myself of from time-to-time. The metaphor was a coin flipping tournament. You have a bracket of players who flip a coin against an opponent. In each matchup, the player that fli…

What if no one gets tails on a flip?

Is it the first person to first get heads or does it have to be consecutive

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#308

Post by PragmaticPulp » Mon, Feb 01, 2021, 4:37 AM UTC

motohagiography wrote: post #58

%53, so far. The problem with the short interest being %140 is that the notional value of shares to cover that extra %40 is in fact, infinite. It's literally everything those funds can sell, borrow, and get bailed out to cover their position. My prediction last week was this has system wide implications, and I'm thinking 1. the Fed will intervene, leverage Robinhood's EULA, and buy out everyone's shares at a price th…

> The problem with the short interest being %140 is that the notional value of shares to cover that extra %40 is in fact, infinite.

No, this is misinformation.

When someone shorts a stock, they create a synthetic long.

113% short interest translates to about 53% short when you include the synthetic longs.

S3 Partners includes this info: https://twitter.com/ihors3/status/1355249817048522755

WSB is all about pumping stock, so they've been perpetuating this myth that anything over 100% short interest results in an impossible position to cover, which isn't true at all. The number of Redditors buying into this trade with the belief that the stock must go to infinity if they all have "diamond hands" is terrifying at this point.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#309

Post by robjan » Mon, Feb 01, 2021, 4:38 AM UTC

cpascal wrote: post #302

mledu wrote: post #263

Earlier quoted context omitted.

This is the point Nassim Nicholas Taleb makes in his book Fooled by Randomness. In a long enough timeline luck plays a big part in performance. People or firms like Melvin can perform well in a short timeline but when you stretch the timeline out the reality becomes clearer.

This reminds me of a metaphor made by Burton G. Malkiel in “A Random Walk Down Wall Street”. He attempts to give a possible explanation to why there are star traders or funds that greatly outperform the market. It’s something I like to remind myself of from time-to-time. The metaphor was a coin flipping tournament. You have a bracket of players who flip a coin against an opponent. In each matchup, the player that fli…

This was a common investment scam in the past. Create an email newsletter, split it in half and give opposing advice to each side. You then keep ramping up the fees to the winners until eventually they become one of the losers. Once the list gets too small, create a new entity and start again.

Re: Hedge fund Melvin sustains 53% loss after Reddit onslaught

#310

Post by gruez » Mon, Feb 01, 2021, 4:42 AM UTC

blackrock wrote: post #284

0xy wrote: post #277

Earlier quoted context omitted.

TSLA's valuation can only be described as extremely optimistic, hedging on "huge bubble" status. I don't think we've seen the brakes on the buy side at all, considering the buy side has been artificially constrained by limits and restrictions. Is $2,000 GME possible? Of course it is. It's not even unprecedented considering the other businesses valued at billions of dollars with shaky business models.

At $2000, GME can reinvent itself and become a software/hardware tech company.

...only if they issue shares, which would surely tank prices.