Robinhood

By the way, Steve Cohen—the new owner of the New York Mets—is supposedly in pretty deep in the losses off this short trade. His fund (along with some others) had to come in and bail out Melvin. Fortunately for him, he has many more billions $$$ to backstop him, and it wouldn’t surprise me if he ends up profiting massively by the time this is all said and done.

Regulators really hate this guy, and have tried to take him out before. Supposedly, he was the hedge fund guy they based the show Billions on.
 
Having said that, I'm a little conflicted on this. I think it's funny that a bunch of dorks on Reddit dicked around with hedge fund managers trying to short sell GameStop. However, I think the practice is bad, because it undermines distorts the information stock prices communicate about a company to the public and to investors.
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It's not like they randomly dicked around - 145% of the available stock got shorted! That may be legal, but it's not ethical - and neither is the way they turn their wagers of company failure into self-fulfilling prophecies:

Chop said:
Few tears will be shed for the hedge fund guys losing their shirts on this trade. They’ve manipulated this markets, and many other markets, by buying puts, selling short, going on tv and proclaiming what a crappy company it is, then selling short more with their buddies, causing a downward avalanche.
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Yep. They played with fire and got burned. And now essentially the Hedge Funds are saying "We can collude, but nobody else can." Robinhood (needs to change their name to Sheriff Nottingham) and TD Ameritrade agreed with them due to cronyical conflicts of interests, it sounds like.
 
This story is a little more complicated than the David vs Goliath story that the media is putting out.

The original guy who started everything on reddit actually wasn't trying to create a short squeeze at first, he just did his homework and thought GME was being greatly undervalued. He happened to luck into a short squeeze later on, but that was at least a year and a half after he put in 50k+ into the stock. His portfolio peaked at 50+ million before he started closing some of his call options.

Robinhood's decision to restrict buy action was not so much them taking orders from Citadel, but due to RH's liquidity being threatened by the DTC collateral requirements for "insurance" during the 2 day settlement cycle between the time a stock order is entered into the system and the time it is finalized. These transactions are not instantaneous, and your brokerage disclosure forms will state as such. DTC started requiring exponentially higher collateral in order to guarantee the transfer.

Where Robinhood really screwed up was the CEO lying about why they shut down the buy orders for GME. He went on TV and when asked if RH was having a liquidity problem he stated "no" which was a lie and instead made up BS about how RH was trying to "protect investors" and ensure that "market volatility" didn't get out of hand. He should have been up front and told the interviewer that yes, RH was having a liquidity problem because of the escalating collateral demands from DTC. Since RH has an upcoming IPO, he probably didn't want to say anything about liquidity problems and so he lied instead.

What RH and the other brokerages did was not illegal, but it should be, and it's certainly unethical. When they started restricting buy trades only, RH got into the business of picking stock winners and losers. If buy action was restricted due to liquidity problems, then sell action should have been restricted as well, despite the fact that sell orders don't carry the same DTC collateral requirements.
 
BTW, if you think GME is a bubble (and it is) you can buy put options that are almost a guaranteed payday. You can wait it out too so you don't have to bet on the collapse happening in the next few days. There are put options available stretching all the way into March that will let you effectively short at $300-$325.

The only issue is the put option premiums are quite high. I bought a put option for GME with strike of $312 for March but the cost of 1 contract (x100 shares) is over $18,000. But the payout is over 90% return if the GME stock falls below $100, which it should by that point, probably much sooner than March.

Out of anything else in finance, it's a virtual guaranteed winner. Reddit buyers may stave off the collapse for a week or two, but after that this thing will crash and burn. If you read their stock forums, it's clear that many of them are already getting skittish and thinking about reducing their positions or cashing out completely.
 
“A virtual guaranteed winner”
“Out of anything else in finance”

Two bigger lies have never been told. It might payoff. It might not.
There are thousands of investments that have a greater chance of being a winner.
 
There is a rumor on reddit (purportedly from Dan Pipitone/TradeZero) that 10 hedge funds may have gone down over Gamestop
 
$$$$$$$$$$$$$$$$$

Larger societal issue that ties into these clever hedge funds:

For the last few generations, very high intelligence individuals have tended to make their careers in finance rather than in math, science, and engineering—the traditional domains of those with very high intelligence.

$$$$$$$$$$$$$$$$$
 
Chop said:
$$$$$$$$$$$$$$$$$

Larger societal issue that ties into these clever hedge funds:

For the last few generations, very high intelligence individuals have tended to make their careers in finance rather than in math, science, and engineering—the traditional domains of those with very high intelligence.

$$$$$$$$$$$$$$$$$
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Correct. Previously that intelligence was used to the betterment of everyone in society. Not sure what betterment is being achieved by hedge funds except the wealth may be better directed towards innovation and other endeavors than before. I think the latter is true to some extent.
 
I pulled out of stocks after GOP lost the GA senates races, fearing a Dem **** show. So, if the market drops 20% in February due to RH, I am not going to care that much.
 
iatrogenic said:
“A virtual guaranteed winner”
“Out of anything else in finance”

Two bigger lies have never been told. It might payoff. It might not.
There are thousands of investments that have a greater chance of being a winner.
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So you think there's a chance that GameStop is still 300+ dollars at the end of March?

Because I'd put those odds at close to zero percent.

I wouldn't buy a big put option for a contract that expires next week, that's too risky. But a couple of months out is a very good reward/risk ratio.

Now if you are saying that a put on Gamestop is more risky than expecting a 5% gain on an index fund, then I agree with you. But you won't find the 100+ percent returns on any other kind of investment that has nearly the same good odds that betting against Gamestop has.

Let's put it this way. I have more confidence that GameStop will bust by the end of March than I do that Tesla will still be trading at 700+ by that same time frame.
 
Here’s one possibility going forward (only one of many):

The big hedge funds scale out, buying to cover, and take their big losses. They find high interest private lenders as needed and as available. The Robinhood and other small retail crowd keeps buying and buying and driving the share price up and up. The big hedge funds then come back in at the new, much higher, price and start buying puts to open. Then they sell short shares more and more. And they bring more of their billionaire pals to the party for round 2 or 3 to sell short and drive the price way down. Brokers, market makers, and regulators don’t do a dang thing now that it’s the big hedge funds holding the winning positions.

The new retail $ that only jumped in late in the game get cold feet and sell as their losses cascade. These new-to-the-game retail $ get caught holding the bag and lose big. The hedge funds win round 2 or 3, making up their losses and making overall net profits by the time it’s all said and done.

Meanwhile, some % of the retail $ scale out of their positions before the worm turns down and make (and keep) lots of $. They then brag about it on message boards for years.

This may or may not happen. The price could continue to skyrocket so the hedgers might also lose round 2 and even round 3. You never know.

Risky business.
 
I could definitely see that happening.

I bought some Gamestop shares when it was at $40, but after Robinhood and other brokers started limiting buy action, I knew the short squeeze was going to be much weaker than what the redditors had predicted and I cashed out except for 5 shares. I'm now just riding out those 5 shares and if they go to zero, then it was only a $200 loss so no big deal.

But if this thing does somehow cause a massive short squeeze and shoots up to $5000 or even $10,000 like some of the financial guys estimated, taking the chance of losing $200 was worth the risk so that I can tell my grandchildren someday that I participated in the most dramatic short squeeze stock rise in US history.
 
Chop said:
Here’s one possibility going forward (only one of many):

The big hedge funds scale out, buying to cover, and take their big losses. They find high interest private lenders as needed and as available. The Robinhood and other small retail crowd keeps buying and buying and driving the share price up and up. The big hedge funds then come back in at the new, much higher, price and start buying puts to open. Then they sell short shares more and more. And they bring more of their billionaire pals to the party for round 2 or 3 to sell short and drive the price way down. Brokers, market makers, and regulators don’t do a dang thing now that it’s the big hedge funds holding the winning positions.

The new retail $ that only jumped in late in the game get cold feet and sell as their losses cascade. These new-to-the-game retail $ get caught holding the bag and lose big. The hedge funds win round 2 or 3, making up their losses and making overall net profits by the time it’s all said and done.

Meanwhile, some % of the retail $ scale out of their positions before the worm turns down and make (and keep) lots of $. They then brag about it on message boards for years.

This may or may not happen. The price could continue to skyrocket so the hedgers might also lose round 2 and even round 3. You never know.

Risky business.
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Chop you are exactly right. Whoever can hold out the longest in terms of liquidity will win. The hedge funds are going to win in the end once the RH folks start to sell.
 
AustinHorn24 said:
BTW, if you think GME is a bubble (and it is) you can buy put options that are almost a guaranteed payday. You can wait it out too so you don't have to bet on the collapse happening in the next few days. There are put options available stretching all the way into March that will let you effectively short at $300-$325.

The only issue is the put option premiums are quite high. I bought a put option for GME with strike of $312 for March but the cost of 1 contract (x100 shares) is over $18,000. But the payout is over 90% return if the GME stock falls below $100, which it should by that point, probably much sooner than March.

Out of anything else in finance, it's a virtual guaranteed winner. Reddit buyers may stave off the collapse for a week or two, but after that this thing will crash and burn. If you read their stock forums, it's clear that many of them are already getting skittish and thinking about reducing their positions or cashing out completely.
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Hope you realize that puts, just like call options, can be called early...there ARE people who have been burned by acting as you describe.
 
mchammer said:
Chop you are exactly right. Whoever can hold out the longest in terms of liquidity will win. The hedge funds are going to win in the end once the RH folks start to sell.
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The big game of chicken. For billions of $. As they say, sometimes 'the markets can remain irrational longer than you can remain solvent.' Could go either way, but I'd expect Steve Cohen to come out ahead, or at least even, by the end of all this.
 
Yeah. There sure is a lot of counter-intuitive wizardry in the world of finance. I guess that should be expected. We have fiat money after all (which beats the alternative). It’s all an illusion. And yes, sometimes it is rigged.
 
What is money? Something printed or minted by humans. We agree on it's worth and then the great game of pretend begins. Why is it valuable? Because if a bank fails either our tax dollars bail out the depositors or the government prints more money to cover everyone. So we believe in it.

Everything else is a wire to walk on, raised to varying degrees of height without a net underneath.

So why do we believe printing more money and handing it out is good? Because it helps us today. But the more we print the less a dollar is worth. Inflation is a situation where you have an over supply of currency. If a product is worth so much it will cost more if you give more money in which to bid to those who wish to purchase the product.

All of this requires confidence and pretending that printing money is someone else's problem; that it is benign to our economy. And we do. But every game depending solely upon confidence ends. We are anxious beings. We hoard toilet paper. So if the economy is dependent upon our faith in the economy then we will be sheep awaiting the slaughter.

What is the alternative to printing money? Take it from those who hoard it.

Yeah, tax the rich, feed the poor.

Or maybe an industrial revolution that draws out the hoarded dollars for new investment. But even in a boom where voluntary redistribution of hoarded wealth occurs, what happens to the profits? Taxation, reinvestment and hoarding. And if the government gets their cut what happens? Retire debt? Retire printed money? Give it away to others?

Regardless, that's only if we have an industrial revolution.

Right now we have a social revolution. It doesn't draw out hoarded wealth.

So now what?

Tax the rich. Feed the poor?
 
Reading WSB chat is like perusing a Surly Horns thread. Gotta get past 40 pages of boys restroom quotes before you find a decent nugget of information.
 
Bailouts for federally insured commercial banks—Yes

Bailouts for hedge funds, their investors, and their billionaire owners—No.
 
A lot of buzz circulating around silver now. Who knows what’s going to happen with it. I have no idea.

I do know this much: Consult your investment advisor, don’t bet the farm on what some anonymous guy on an internet chat room says to do, and don’t invest $ you can’t afford to lose.
 
AustinHorn24 said:
So you think there's a chance that GameStop is still 300+ dollars at the end of March?

Because I'd put those odds at close to zero percent.

I wouldn't buy a big put option for a contract that expires next week, that's too risky. But a couple of months out is a very good reward/risk ratio.

Now if you are saying that a put on Gamestop is more risky than expecting a 5% gain on an index fund, then I agree with you. But you won't find the 100+ percent returns on any other kind of investment that has nearly the same good odds that betting against Gamestop has.

Let's put it this way. I have more confidence that GameStop will bust by the end of March than I do that Tesla will still be trading at 700+ by that same time frame.
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You better check your math. In fact, post it so we can see your calculation.
 
Fiat money is a source of recession and crazy events like the Gamestop thing. Fiat money facilitates unlimited money creation. Unlimited money creation makes return on investment more difficult. Then hedge fund managers have incentive to do crazy things to be profitable. If you want stock shorting and subprime mortgages to go away or at least decrease to a safer level, then set up commodity money.
 
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