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Hedge fund Melvin sustains 53% loss after Reddit onslaught

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

#371

Post by UncleMeat »

pcthrowaway wrote: post #359
UncleMeat wrote: post #278

Earlier quoted context omitted.

> Say 2 million of them bought some GME. I think you are off by one or two orders of magnitude. I'd wager that a full half of the subscribers haven't even opened reddit in the last week.

Well considering it's currently at 7.8 million subscribers, and a week ago it was 2.1 million subscribers [1] I'd love to know how 4 million redditors subscribed without opening reddit [1] https://web.archive.org/web/20210125060034/https://www.reddi...

Ok that's fair. New subs does mess with my estimate.

I'll still insist that only a small minority actually purchased GME.

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

#372

Post by sailingparrot »

dcolkitt wrote: post #326
runako wrote: post #275

Earlier quoted context omitted.

Context is important, so the Nasdaq 100 (as represented by the QQQ ETF) returned ~49% in 2020, 39% in 2019, and 24% over the last 5 years. Beating the indexes by 5-6 points consistently is very good, but it's important to keep in mind that most equities were doing really well over that period. (Edit: It's been reported elsewhere that these numbers are net of fees. However, it's entirely possible that for taxable acco…

The correct benchmark for a hedge fund is T-bills, not the S&P or the Nasdaq. That's because hedge funds are an absolute return product that offers an income stream uncorrelated to the market. This may sound counterintuitive, but it's the basis of modern portfolio theory. The price that an investor should be willing to pay for an investment has to do with its beta to the broader market. Think of it this way, imagine…

> The correct benchmark for a hedge fund is T-bills

T-Bills are virtually risk free, which is not the case of hedge funds, so why would you compare one with the other?

> But the point is an investment that's about equal to the S&P, yet uncorrelated to the S&P

How can you say that a hedge fund's return and the S&P are uncorrelated? They may not be identical but they are very strongly correlated.

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

#374

Post by newacct583 »

elihu wrote: post #270
newacct583 wrote: post #14

Earlier quoted context omitted.

The stock is currently around $300, up by a factor of five from last week and much more than that over its historical base. The question should be who isn't shorting GME, not leading questions about a conspiracy theory as to whether or not Melvin actually closed its shorts or not. I mean, I haven't shorted GME personally. But I've absolutely joked with friends that it's an obvious play. Maybe I should.

I'm not an expert, but my understanding is that this isn't like a tug-of-war where if there are more people betting short than long then the shorts win. It's asymmetrical. There are a finite number of shares and if enough people are willing to hold them at a certain price, then that will be its price. Someone with infinite money can't force the price to drop. (At least not through normal "market" means that don't inv…

That's actually not how it works. "Holding" a share doesn't, by definition, do anything to its price. The price is determined by trades. That's what a trade is. You can be sitting on 99% of a company, but as long as that 1% of shares is active in a market it will determine what gets reported as the share price.

And yes, someone with infinite resources can absolutely push a share price down. Borrow every share you can and sell it at $1, for example. Obviously no one does this because it's a terrible investment decision, but it's certainly possible.

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

#375

Post by ajross »

sschueller wrote: post #361
ajross wrote: post #102

Earlier quoted context omitted.

That's about fictional TV shows, not news.

Only a small segment during the 247 news station day is actually designated as news. Everything else is news entertainment which has different regulations.

I still don't see what this has to do with the point above, which is that a promoted tweet from CNBC for one of their segments is clearly not a paid advertisement by the guest in the segment.

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

#376

Post by nrmitchi »

imtringued wrote: post #357
nrmitchi wrote: post #321

Earlier quoted context omitted.

> only feasible end game is if WSB makes Gamestop the most valuable company in the world and criples the global financial system. Is it possible? Sure, lots of things are possible... I wouldn't bet on them Another good reason to assume this wouldn't happen: the existing system will not let it. You may argue that that is "changing the rules" or "cheating" or "being on the institutions side!", and you're right, but I w…

Exposing those superior rules is the reason why people join the short squeeze. Every new special rule only justifies their existing anger.

I disagree that these "superior" rules are really hidden at all, and need exposing. These are basic assumptions that anyone can make if they spec 5 seconds using common sense.

Why do you think that the SEC, Fed, and all aspects of the US Government would sit back and knowingly let a new financial crisis happen? It doesn't really matter who it's not fair to, it wouldn't happen. You can argue who will get the short end of the stick in the end, and why it's not fair, but that's secondary to my point.

Another good example of this is claims (which yes, have fizzled out over the last couple of days) that Melvin Capital has lost $100B dollars already, and only has $13B in assets (which, if you account for a firesale, is likely much less than that). That amount of money is pretty much the practical maximum that you could get out of Melvin Capital, even if they have done the shady and illegal things that have been alledged. At a point you can't get blood from a stone, no matter how much you feel that you are in the right.

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

#377

Post by fairity »

shmoogy wrote: post #313
fairity wrote: post #163

Earlier quoted context omitted.

You can avoid the borrowing fee and margin call risk by purchasing PUT options. The $320 PUT expiring in 1 year costs $240. I purchased 2 contracts on Wednesday bc I don't see a scenario where the price doesn't crash back down below $60 within a year. Expected ROI of 10-20%. Not a large return, but also a pretty safe bet imo considering their ATH prior to this squeeze was $60, and that was back in 2007.

Won't IV collapse from the ludicrous 800% killing any gains? Better to sell cash secured put to gain the premium then sell the underlying maybe?

No idea how time value will trend, but I’m comfortable holding these contracts til expiration at which point I think the price will be sub 60. Could definitely be wrong - I just don’t see how! Investing isn’t my profession.

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

#378

Post by elif »

ajross wrote: post #375
sschueller wrote: post #361

Earlier quoted context omitted.

Only a small segment during the 247 news station day is actually designated as news. Everything else is news entertainment which has different regulations.

I still don't see what this has to do with the point above, which is that a promoted tweet from CNBC for one of their segments is clearly not a paid advertisement by the guest in the segment.

You don't think it is relevant in a discussion about deceptive paid primetime television marketing, that the company in question has the highest documented rate of deceptive paid primetime marketing?

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

#379

Post by gvhst »

sailingparrot wrote: post #372
dcolkitt wrote: post #326

Earlier quoted context omitted.

The correct benchmark for a hedge fund is T-bills, not the S&P or the Nasdaq. That's because hedge funds are an absolute return product that offers an income stream uncorrelated to the market. This may sound counterintuitive, but it's the basis of modern portfolio theory. The price that an investor should be willing to pay for an investment has to do with its beta to the broader market. Think of it this way, imagine…

> The correct benchmark for a hedge fund is T-bills T-Bills are virtually risk free, which is not the case of hedge funds, so why would you compare one with the other? > But the point is an investment that's about equal to the S&P, yet uncorrelated to the S&P How can you say that a hedge fund's return and the S&P are uncorrelated? They may not be identical but they are very strongly correlated.

Many hedge fund's run a factor neutral (market + other risk factors are hedged out of the portfolio) long short book. If done right (and thats the catch) there should be low correlation to S&P.

T-bills are the performance benchmark for hedge funds but not the risk benchmark (which is generally something riskier). This can sound counterintuitive as T-bills are a very low hurdle to clear. However, in a downturn scenario generally causes rates to fall, increasing t-bill return when the rest of the market goes down. In that case its a very difficult hurdle to clear.

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

#380

Post by sailingparrot »

gvhst wrote: post #379
sailingparrot wrote: post #372

Earlier quoted context omitted.

> The correct benchmark for a hedge fund is T-bills T-Bills are virtually risk free, which is not the case of hedge funds, so why would you compare one with the other? > But the point is an investment that's about equal to the S&P, yet uncorrelated to the S&P How can you say that a hedge fund's return and the S&P are uncorrelated? They may not be identical but they are very strongly correlated.

Many hedge fund's run a factor neutral (market + other risk factors are hedged out of the portfolio) long short book. If done right (and thats the catch) there should be low correlation to S&P. T-bills are the performance benchmark for hedge funds but not the risk benchmark (which is generally something riskier). This can sound counterintuitive as T-bills are a very low hurdle to clear. However, in a downturn scenari…

Do you happen to have any resource that dives into this? This is really interesting would love to know more about how this works in details.
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