That I think is the real scandal here. Robinhood was built to market to (and in some sense coevolve with) the wallstreetbets culture of crowd-sourced market manipulation. And that was a great growth hack.
Until it grew enough that the crowd source market manipulation was... actually manipulating significant markets. GME has been ballooned to the tune of something like $13B over the past few days, based almost entirely on a flawed understanding of short trading.
And absent any discussion about Robinhood in particular, I think we need to be asking whether or not this crowd of people who didn't quite understand shorts were fed those lies at the direction of users who did. Someone has (or will have) made a ton of money here at the expense of the late-arriving GME traders. It seems like we should find out who.
If - hypothetically, ignoring the nominal legalities - it were possible to do the same on Reddit without leaving too obvious a trail, what's to stop one or a small number of players from running a virtual operation that creates this kind of sentiment for trading?
And then betting for or against it - or perhaps both, in sequence - for some very easy money?
It's a good point. Many of the more popular subs are transparently astroturfed, and more than a few mods are bought and paid for. Reddit is already neck deep in information warfare. I'd be surprised if what you describe isn't already happening, although who knows at what scale.
"The short interest staying at a similar range means nobody has closed out their old positions so we can keep squeezing" seems to be a big one.
If you assume that new short positions are being opened - and at the recent prices, that's not an entirely unattractive thing to do - then the short interest staying steady suggests some positions being closed and others being opened, and tells you little about single actors.
And anyone opening short positions at today's prices is basically "resetting the clock" on how long you'd need to squeeze to get them to back down... so if I were to sell it short now, I'd be betting that some folks making some of their first investments ever to ride the hype train are going to be more likely to blink first than I am.
Technically not. Shorts have a borrow fee, and if you trust the wsb guys on this number, the current borrow fee on gme is 80 percent per annum. So if I'm not getting anything wrong here, short sellers do have a bit of a clock.
Does 80 percent per annum mean that carrying the short for ~9 months will cost roughly the same as closing it out today, assuming the price remains constant for the next 9 months?
It means your broker will charge you that carry cost on a pro rata basis, assuming borrow also remains constant. (It's generally not a fixed rate.)
So if you carry a 9mo short with 80% borrow rate on a stock that realizes 0 vol, you played yourself.
If you don't want to deal with borrow, you can buy a put and sell a call on the same strike (usually slightly higher than ATM) which comes with an implied borrow rate that is locked in.
Overlap between which world views? Are you saying between the short sellers’ world views and WSB’s? I have a feeling that a lot of the people on WSB actually work on Wall Street and are just on their phones at work. There seem to be some experienced professional traders there(among many who aren’t), but I don’t see much similarity between them and the shorters in particular.
It’s really creepy how you just compare WSB to a group that half the country considers “supporters of terrorism” or literal terrorists. This is the “magical thinking” to me.
The original GME investment groupthink (Reddit always works this way, it’s lovingly called “the hivemind”) was based on complex, but logically-sound technical reasoning. A lot of due diligence was done. QAnon, as far as I know at least, was based on a post on 4chan with no verifiable evidence whatsoever. WSB’s GME buying was motivated by logic and evidence at its core, and many aspects of this logic have happened exactly as predicted (for example, the multiple gamma squeezes). Unlike QAnon, the more you learn about this, the more it makes sense (though, very obviously, the price is going to crash eventually, and these people know it). Respectfully, I think it’s disingenuous and below-board to try to baselessly compare something you don’t understand well to an alt-right hate group. Show me the solid due diligence and technical analysis that underlies QAnon, and maybe I’ll give your comparison a closer look.
I'm just saying that it's all the same magical thinking. I'm not saying it's the same people, though given the demographics I suspect the overlap is bigger than we think.
Your suspicion, and you’re baseless assumptions about the “demographic” of several million Reddit users, sounds a lot like “magical thinking” without any evidence to offer.
Most people seem to have been led to understand that the short leverage of 140% meant that when the short call happens, the hedge fund will "have to buy more stock than exists" to settle, and thus that something like an infinite price spike will happen. The same people tend to refer to this as a "naked short", which it is not[1]. Most of these people seem to have latched onto a theory that the short calls are all coming due today and that they NEED to buy as much GME as possible ahead of the metaphorical rapture.
But the hedge funds in question closed out their short positions days ago. The stock right now is being propped up by simple (and misinformed) speculation. And effectively all of the purchase price that people are paying right now is going to end up being transferred to the people with earlier positions who are getting out at the peak of the bubble.
[1] A naked short is a short sale where no underlying stock was borrowed first. This is a crime, but only possible for certain very privileged traders with control over the various tracking records. Leverage over 100% just means (for example) that you borrowed a share, sold it, then later went to the same buyer and borrowed it again. You end up owing them "two shares", but not necessarily the same share twice. In practice what happened is that as the stock started rising, Melvin closed its position buy repeatedly buying and returning shares to the tune of 140% of the capitalization. (Edit to add: it seems likely that it did so in combination with a bunch of loans and favors from other hedge funds with the ability to buy and hold GME across the inevitable collapse. The WSB folks complaining about hedge fund corruption and insider dealing aren't wrong.)
> And effectively all of the purchase price that people are paying right now is going to end up being transferred to the people with earlier positions who are getting out at the peak of the bubble.
There is at least one other group that is likely benefiting massively through all of this: Those who have been selling options. There are a lot of levels here, but when this is all done I suspect that the aggregate spent by retail traders on premiums for options that expired worthless will eclipse the final market cap of GME.
When there is this much volume, you have to remember that someone is in the middle of it taking a tiny fraction in order to facilitate it. These people are likely doing a very good job limiting their risk, and just printing money right now.
I suspect that overall we'll end up with "Hedge Funds" (as an aggregate) in likely the same positions, intermediaries and market makers wayyyy up, and Retail (as an aggregate) way down. Which, I guess is the system that people are virtual-rioting over.
I don't know what you mean. You want a list? I don't have one, but I'm sure you can find one.
If you mean a tradeable index so you can invest in market makers... I doubt it. Their entire business is making money for themselves, and likely don't need or want public shareholders that they have to report to.
They are paying for ads saying they closed their position. Why would they do that if they actually closed? The occams razor pushing naivety of this forum is really starting to grate. How many times do they have to fool you before you get the message?
Seen this twice now. This is another conspiracy theory. The screenshot going around is NOT a paid ad from Melvin, it's a promotion of a headline from a CNBC show. CNBC doesn't take money to issue ads on behalf of its guests, they were merely teasing the content of the segment.
Individuals buying now are more likely to get screwed. On a self-interested side, they could be wanting as few retail investors to lose as possible to minimize the calls for new regulations
> But the hedge funds in question closed out their short positions days ago.
I have asked people about this. They accuse me of buying into corporate media propaganda. Melvin must still be in and be near exploding in their minds.
They put ads on Twitter saying the had closed their positions. Why would someone put ads on Twitter saying that? They're either lying or playing 4D chess.
That link is to a screenshot of a routine promoter for a CNBC show. I mean, I guess it's possible that this was done because CNBC took a kickback from Melvin to put paid content out on its twitter feed, but that would be a huge, huge scandal if so, much larger than the story of Melvin failing would be. CNBC may be business journalism but they're still selling journalism under the NBC brand.
They don't do that, basically. This is a conspiracy theory.
But it's old news. It's not even relevant content as of three days ago, where they first announced that they had closed their position. Is there even a new press release that restates the action they took and announced three days ago that would make it news?
>But the hedge funds in question closed out their short positions days ago.
No they haven't, because they are literally running ads on CNBC telling people that right now. Why would they spend money doing that if they no longer have skin in the game?
Please be patient, I seem to be experiencing some genuine cognitive dissonance. Rare to catch oneself at it so I hope you'll help.
In your example, if I understand it, I go to Alice, take her share and give her an IOU. I give the share to Bob, and take his money. Then I go to bob, take his share and give him an IOU. I give the share to Christy, and take her money.
I have two people's money, and two people have my IOU's. If ten shares exist and these are the only shares that changed hands, it would be 20% shorted - or am I misunderstanding already?
Assuming I'm not, I would think I need to buy any two of these ten shares to give one each to Alice and Bob, and it could be the same one if Bob or Alice sell it back to me after I return it for my IOU. Okay, so far so good for a 20% short position.
If the shares were 140% shorted, that would imply that I've sold each of the ten shares once, and four of them twice. This sounds like the same situation in theory except that now rather than having the option of buying a share from someone whom I've just returned it to for an IOU I now have to do that - four times at least in total. The difference practically though seems to be that people know I don't have much bargaining power. If ten of the twenty-four people who own either a share or one of my IOU's conspire to not sell me a share back at any price, I'm in a world of hurt - and the more shares I've sold, the higher the odds that enough of the people owning these shares would want to do exactly that.
Go to a broker, search for the security you're interested in but don't have a position in. Hit sell. You will receive cash, and you will see a negative number of shares in your account.
I keep seeing over and over again that hedgefunds MUST buy stock if the price goes up, and that 100% shares short is some sort of trigger that means everyone must buy.
There is another common misconception that stock cannot be created, that there is some finite supply. People should take note that AMC has (shrewdly) issued a lot of new shares in response to their stock price climb.
There's a few issues for the short sellers though, one is that their brokers are charging them interest on their borrowed shares as a function of their share price. The higher the share price, the more interest they have to pay. Not just that, the harder the shares are to borrow, the more interest they have to pay. This creates a ticking clock. During the initial BYND squeeze, some people were being charged 100% APY.
Then of course as it goes up and they bump up against their personal (or their brokers' personal) risk tolerance, they're forced by them to buy.
Is that what happened? Did hedgefunds run out of credit? The problem with this reasoning is that it takes rules which apply to small investors trading through an intermediate platform and applies them to Melvin. It's just false that anything would be a legal or rules-based trigger for Melvin to buy. They don't HAVE to buy like people have been claiming. Melvin isn't trading on Robinhood.
Melvin may not be trading on RH, but they are trading on a prime broker who has a personal risk tolerance expressed as a function of mark to market losses. Once you exceed your collateral the broker is on the hook for your losses and “shorting GME” is not part of a prime brokers business model.
Until it grew enough that the crowd source market manipulation was... actually manipulating significant markets. GME has been ballooned to the tune of something like $13B over the past few days, based almost entirely on a flawed understanding of short trading.
And absent any discussion about Robinhood in particular, I think we need to be asking whether or not this crowd of people who didn't quite understand shorts were fed those lies at the direction of users who did. Someone has (or will have) made a ton of money here at the expense of the late-arriving GME traders. It seems like we should find out who.