GameStop

[LionFlyer]

https://www.nytimes.com/2021/01/27/busin...-bets.html

Don't understand this at all. 

‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game

GameStop shares have soared 1,700 percent as millions of small investors, egged on by social media, employ a classic Wall Street tactic to put the squeeze — on Wall Street.

By Matt Phillips and Taylor Lorenz


Jan. 27, 2021

A real estate salesman in Valparaiso, Ind. A former line cook from the Bronx. An evangelical pastor and his wife in Huntington Beach, Calif. A high school student in the Milwaukee suburbs.
They are among the millions of amateur traders collectively taking on some of Wall Street’s most sophisticated investors — and, for the moment at least, winning. Propelled by a mix of greed and boredom, gleefully determined to teach Wall Street a lesson, and turbocharged by an endless flow of get-rich-quick hype and ideas delivered via social media, these investors have piled into trades around several companies, pushing their stock prices to stratospheric levels.

Some of the names are from an earlier business era. BlackBerry’s shares are up nearly 280 percent this year. Stock in AMC, the movie theater chain, has surged nearly 840 percent. But the trade that captures the David-versus-Goliath nature of the moment involves GameStop, the troubled video game retailer that was once a fixture in suburban malls.

On Wall Street, individual investors are often derided as “dumb money,” destined to lose against the highly compensated analysts and traders who buy and sell stocks for a living. But in recent days, individual investors — many of them followers of a popular, juvenile, foul-mouthed Reddit page called Wall Street Bets — have upended that narrative by banding together to put the squeeze on at least two hedge funds that had bet that GameStop’s shares would fall.

While the hedge funds and other professional money managers had been shorting GameStop’s shares, betting that its stock was doomed to further decline, the retail investors — online traders, mom-and-pop investors, small brokers and others — have been pushing the other way, buying shares and stock options. That caused GameStop’s market value to increase to over $24 billion from $2 billion in a matter of days. Its shares have risen over 1,700 percent since December. Between Tuesday and Wednesday, the market value rose over $10 billion.

The tribal framing online, as a kind of team sport pitting plucky upstarts against well-heeled Wall Streeters, has been especially helpful in motivating more investors to participate. This week, Tesla’s chief executive, Elon Musk, fueled the trading by posting about the Reddit page on Twitter. And speculation is growing that other investors are seeing fresh opportunities to push the stock even higher.

Ben Patte, 16, a high school student in Wisconsin who said he made $750 off GameStop stock, said the campaign felt like vindication for himself and fellow young traders. “It’s a good opportunity to make money and stick it to the hedge funds,” he said. “By buying GameStop, it’s kind of like beating them at their own game.”

No one knows how this ends. Some analysts say the intense activity could eventually prompt a wider sell-off in the market by forcing hedge funds on the losing side of these trades to sell parts of their portfolios to raise cash to cover their losses. While this speculative frenzy played out on the market’s sidelines, the S&P 500 fell more than 2.5 percent on Wednesday, its worst day since late October, as the Federal Reserve gave a glum assessment of the economy and before a number of big tech companies announced their earnings.

“What happens in situations of stress is that people are forced to raise funds and that often means selling your winners,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn. “How does it end? Badly. Eventually, the bigger the balloon, the louder the pop,” said Mr. Sosnick. “When does it end? I don’t know.”

On Wednesday, the retail brokerage firm TD Ameritrade put restrictions on the trading of GameStop, AMC and other stocks, citing “unprecedented market conditions.” And market regulators could step in.

But for now, the siege is on.

[weijian]

There will always be something that we don't understand and from us to observe and then learn from. This is why Markets and its constituents are the best teachers and so enduring for us.

The best thing is, we don't have to pay for a ticket to watch and learn.

[specuvestor]

Yes what's fun about investing is that it is free to watch... and learn from others' mistakes as life is too short to learn mistakes ourselves

It actually reminded me of MMORPG players coordinating to kill the Big Boss… if you play online games you will understand what I mean. Like the movie Ready Player 1. So it is familiar for these gamers / "investors"

But there are fundamental / technical reasons as well cause 1) the amount shorted is more than the shares outstanding which is insane 2) Mike Burry of the “Big Short” fame was actually long the stock in 2020 as there is residual value in the stock. So there are underlying reasons that just needed a spark or catalyst. OTOH it would have disappeared into the night if there were no sparks.

In any case shorting is an asymmetric bet so it has to be very diversified not concentrated. Worst time to get out of a position, long or short, is when one is forced out. Like March 2020 for equities if one is on margin. But short is even worse cause the upside is unlimited while downside for long is limited to your investment.

That's why I don’t believe in market neutral strategies which are inherently lerveraged to multiply the alpha. Shorting sounds sexy but it can actually be hazardous to one’s financial health cause the risk / reward is asymmetric.

This is not to say I condone short sellers who create panic in stocks that snowballed into self-fulfilled prophecy when there is liquidity / working capital crunch, as I've posted elsewhere. I appreciate activists that uncover wrong doings, but not raiders for their own benefit. Cause it is also asymmetrical that it is much easier to destroy credibility than to build it.

[Wildreamz]

For those confused about the technical aspect (Short Squeeze, Gamma Squeeze, Social Media coordination, residual value of GameStop, history of events): https://twitter.com/endtwist/status/1354...51393?s=20

For those confused about the sociopolitical aspect: https://taibbi.substack.com/p/suck-it-wall-street

[LionFlyer]

WSB is just out of control. I can understand the sentiments against the hedge funds but this is playing with fire and a lot of good folks are being manipulated and will be burned once this is done.

[Wildreamz]

WSB is just out of control. I can understand the sentiments against the hedge funds but this is playing with fire and a lot of good folks are being manipulated and will be burned once this is done.

For GameStop's specific case, I believe to partake in this or not, is a choice for investors to make; not for brokerages, regulators to influence the outcome by "changing the rules" or "picking a side"; unless it's clear that it would lead to a systemic financial risk (which I don't think that event alone, does).

For the current turn of events, where Wallstreetbets Redditors are starting/attempting to coordinate the pump of seemingly random securities (silver: https://finance.yahoo.com/news/wallstree...13106.html, Dogecoin: https://cryptopotato.com/wall-street-bet...-in-hours/), by their new found "clout"; I think is a dangerous trend.

[Corgitator]

WSB is just out of control. I can understand the sentiments against the hedge funds but this is playing with fire and a lot of good folks are being manipulated and will be burned once this is done.

For GameStop's specific case, I believe to partake in this or not, is a choice for investors to make; not for brokerages, regulators to influence the outcome by "changing the rules" or "picking a side"; unless it's clear that it would lead to a systemic financial risk (which I don't think that event alone, does).

For the current turn of events, where Wallstreetbets Redditors are starting/attempting to coordinate the pump of seemingly random securities (silver: https://finance.yahoo.com/news/wallstree...13106.html, Dogecoin: https://cryptopotato.com/wall-street-bet...-in-hours/), by their new found "clout"; I think is a dangerous trend.

Agree that rules should not be changed on a discretionary basis, unless the event entails systemic risks. The amount of trading associated with GME (and AMC etc) is still small relative to the grand scheme of things. So even if they all go bust/boom tmr,  you will have a lot of noise (esp from people that lost money), but the impact will not be long-lasting. Merely a transfer of wealth amongst individuals.

But I think that going forward, it might be good for regulators/brokers to codify the actions that they could take when things get a little heady. As long as the rules are clearly and specifically spelt out beforehand, I think it's fine.

[LionFlyer]

There is also a wider conversation on the power of some of these tech companies; from Twitter suspending Trump to Robinhood suspending trade. They are making a lot of these arbitrary decisions without any oversight.

That said, while the people that started this might have altruistic motives, movements like this tend to attract the worst in people.

[specuvestor]

For those confused about the technical aspect (Short Squeeze, Gamma Squeeze, Social Media coordination, residual value of GameStop, history of events): https://twitter.com/endtwist/status/1354...51393?s=20

For those confused about the sociopolitical aspect: https://taibbi.substack.com/p/suck-it-wall-street

This is the man himself:
https://www.wsj.com/articles/keith-gill-...opular_AMP

There is a technical aspect that is not related to short covering per se but people tend to forget: stock recall

For those who had lent out the shares and suffered enough, or in this case rebounded enough, they will initiate a recall and once done they will sell next week. That’s why sometimes short sellers are forced to buy back shares only to see them tank the next week

Another reason why shorting is hazardous cause you don’t have such arbitrary forced action if you are long

And in this case with such overwhelming short ratio, my guess is any stock recall would have amplifying effect and the concerted buying on momentum would have fed itself beyond a week.

[weijian]

There is also a wider conversation on the power of some of these tech companies; from Twitter suspending Trump to Robinhood suspending trade. They are making a lot of these arbitrary decisions without any oversight.

That said, while the people that started this might have altruistic motives, movements like this tend to attract the worst in people.

Rules changing have been around for the longest time. In the 1980s, short sellers  shorted tin on the London Metal Exchange due to its secular decline as cheaper/better substitutes were emerging. On the opposite side of the trade was the Malaysian Government who attempted to corner the market to support its own tin industry. The Malaysian Government could have succeeded if not for the LME's rule change to allow the shortists to pay a fine rather than deliver the physical tin on due date. The price of tin crashed as a result and resulted in huge financial losses for the Malaysian Government and its associates.

OTOH, it seems like similar "retail revolution" are mushrooming up across regions and they are not far away from SG!

GameStop phenomenon spreads to Malaysian glove stocks

https://www.businesstimes.com.sg/consume...ove-stocks

Any supporters for battled nationalistic stocks like Keppel Corp, Sembmarine and SIA?