# Reddit users trying to manipulate stocks
**URL:** https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627
**Category:** Miscellaneous and Personal Stuff I Must Share
**Created:** [January 27, 2021, 6:14pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627 "2021-01-27T18:14:22Z")
**Posts on this page:** 20
**Page:** 9
### Author:  [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)
#### Post date: [January 29, 2021, 3:02pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/162 "2021-01-29T15:02:40Z")
> [@SenorBeef](#):
>
> Citadel capital owns Melvin Capital. Citadel Capital owns Robinhood. They took away the ability to buy GME stock so that buyers could not drive up the price, and therefore the stocks Melvin shorted would be cheaper to buy back up.
ISTM that RH closed buying after Melvin Capital had already covered their short position.
> [@yarblek](#):
>
> To my knowledge, RobinHood has never restricted the buying or selling of cryptocurrencies in a way they did with GME, AMC and other stocks, and we all know cryptocurrencies are just the most stable and not at all speculative investment vehicles.
There are differences of opinion as to whether cryptocurrencies are a bubble or not. There are no differences of opinion as to current pricing in these short squeeze stocks.
> [@Cervaise](#):
>
> However, in real-world practice, obviously, it becomes a tool by which very large players can manufacture manipulative distortions for their own purposes. Establish a major short position with a quick turnaround, push the stock down a couple of pennies, cash out for a tiny gain per unit that translates into a substantial profit because of the volume you’re able to command.[/quote]
> This doesn’t make sense mathematically. If your short position based on X number of shares pushes the stock down by a couple of pennies, then covering the short by buying back that same X number of shares would push the price back up by the same amount, and you gain nothing. Shorting a stock does impact the company, but in other ways.
>
> Firstly, short sellers don’t target random stocks. They target stocks about which there are legitimate concerns already. When other investors see the price of the stock going down, and in particular when they see the short interest rising, it validates and exacerbates these concerns, and causes other investors to bid the price lower as well.
>
> Complementing the above is that major short sellers often back their positions with major PR campaigns against their target companies, claiming that they are very overpriced and/or will go bankrupt. A couple of recent examples of this are the Bill Ackman short campaign against Herbalife, and the Harry Markopoulos short campaign against GE. (Interestingly, these campaigns were celebrated at the time on this board, the same board which seems so opposed to shorts now.)
>
> Lastly, there are some financial harms to a company in having a low market cap. They are unable to raise new funds by issuing new stock, and some lenders may also look askance at it.
>
> Bottom line is that a short campaign can cause legitimate harm to a company (though in many cases it will be well deserved hard), but it’s not just simply “sell to drive down the price and then buy back at a profit”.
>
> [quote]Do that repeatedly, sabotage the image of the company, and then launch a leveraged buyout to exploit the depressed valuation, in order to strip the company for parts and walk away from its bones. This is called “vulture capitalism” for a reason.
I don’t recall ever hearing of short sellers subsequently launching a leveraged buyout of their target company, and while I can’t guarantee that it’s never happened, I don’t believe it’s at all common. Is this something you’ve actually seen in practice or are you just conjuring it up based what you think theoretically could happen?
---
### Author:  [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)
#### Post date: [January 29, 2021, 3:11pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/163 "2021-01-29T15:11:47Z")
Prior post got mangled and I didn’t notice until after the edit limit expired - sorry.
> [@yarblek](#):
>
> To my knowledge, RobinHood has never restricted the buying or selling of cryptocurrencies in a way they did with GME, AMC and other stocks, and we all know cryptocurrencies are just the most stable and not at all speculative investment vehicles.
There are differences of opinion as to whether cryptocurrencies are a bubble or not. There are no differences of opinion as to current pricing in these short squeeze stocks.
> [@Cervaise](#):
>
> However, in real-world practice, obviously, it becomes a tool by which very large players can manufacture manipulative distortions for their own purposes. Establish a major short position with a quick turnaround, push the stock down a couple of pennies, cash out for a tiny gain per unit that translates into a substantial profit because of the volume you’re able to command.
This doesn’t make sense mathematically. If your short position based on X number of shares pushes the stock down by a couple of pennies, then covering the short by buying back that same X number of shares would push the price back up by the same amount, and you gain nothing. Shorting a stock does impact the company, but in other ways.
Firstly, short sellers don’t target random stocks. They target stocks about which there are legitimate concerns already. When other investors see the price of the stock going down, and in particular when they see the short interest rising, it validates and exacerbates these concerns, and causes other investors to bid the price lower as well.
Complementing the above is that major short sellers often back their positions with major PR campaigns against their target companies, claiming that they are very overpriced and/or will go bankrupt. A couple of recent examples of this are the Bill Ackman short campaign against Herbalife, and the Harry Markopoulos short campaign against GE. (Interestingly, these campaigns were celebrated at the time on this board, the same board which seems so opposed to shorts now.)
Lastly, there are some financial harms to a company in having a low market cap. They are unable to raise new funds by issuing new stock, and some lenders may also look askance at it.
Bottom line is that a short campaign can cause legitimate harm to a company (though in many cases it will be well deserved hard), but it’s not just simply “sell to drive down the price and then buy back at a profit”.
> Do that repeatedly, sabotage the image of the company, and then launch a leveraged buyout to exploit the depressed valuation, in order to strip the company for parts and walk away from its bones. This is called “vulture capitalism” for a reason.
I don’t recall ever hearing of short sellers subsequently launching a leveraged buyout of their target company, and while I can’t guarantee that it’s never happened, I don’t believe it’s at all common. Is this something you’ve actually seen in practice or are you just conjuring it up based what you think theoretically could happen?
---
### Author:  [@Slow\_Moving\_Vehicle](https://boards.straightdope.com/u/Slow_Moving_Vehicle)
#### Post date: [January 29, 2021, 3:28pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/164 "2021-01-29T15:28:55Z")
@Ann_Hedonia, bit of a hijack just to say that between this and your posts in the QAnon and insurrection threads, you’re really proving your value to the board. Pretty much every post you’ve made in the past month has been worth reading, including that wonderful Pit rant. Thanks for taking the time!
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### Author:  [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)
#### Post date: [January 29, 2021, 3:39pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/165 "2021-01-29T15:39:41Z")
> [@Fotheringay-Phipps](#):
>
> Interestingly, these campaigns were celebrated at the time on this board, the same board which seems so opposed to shorts now.
This accusation of hypocrisy only works if the board is a hive mind. Are you entirely positive that it was the exact same posters that “celebrated” the shorting of herbalife and GE that now “seem” so opposed to shorts? Are you sure that any celebration that was done was specifically because of the act of shorting these companies?
The only thing “interesting” about the observation that you choose to share is that it is evidence against the next time someone makes the accusations of groupthink that seem to be so popular with some posters.
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### Author:  [@Ann\_Hedonia](https://boards.straightdope.com/u/Ann_Hedonia)
#### Post date: [January 29, 2021, 4:20pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/166 "2021-01-29T16:20:34Z")
> [@k9bfriender](#):
>
> But, as @Dr.Strangelove accurately points out, you don’t have to be an insider to break the law. If you act on a tip, or otherwise non-public knowledge about a security, then you can be prosecuted.
>
> Martha Stewart was not an insider, she still went to jail over acting on a tip that saved her less than $50k.
IIRC, Martha Stewart was convicted for obstruction of justice and lying to investigators, but was not convicted of ( or charged with) the underlying insider trading.
James Comey wrote about the Martha Stewart investigation in his book. IIRC, he didn’t feel the case against her was strong enough to support the insider trading charge. He describes the moment when she started lying and trying to run a cover-up as a “Why the hell did you do that? We were going to slap you on the wrist but now you’re really in trouble” moment.
Here’s an article I found. The problem with charging her for actual insider trading was that the investigation showed that she did not have any direct knowledge of the problem at ImClone. All she knew was that someone that _did_ have direct knowledge had dumped their stock. That, combined with the fact that she wasn’t on the board of ImClone or affiliated with them, made for a weak case - so prosecutors decided to go for the obstruction charges instead.
> **[Economics](https://www.thoughtco.com/economics-4133521)**
>
> Whatever economics knowledge you demand, these resources and study guides will supply. Discover simple explanations of macroeconomics and microeconomics concepts to help you make sense of the world.
I am aware of this because it’s my go-to counter to one of the “talking points” of the operatives seeking to discredit the Mueller Russia investigation. They consistently claim that it was improper to charge certain people with lying and obstruction because they weren’t charged with the underlying offense. I then point to the Martha Stewart case to tell them they are full of it,
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### Author:  [@Gyrate](https://boards.straightdope.com/u/Gyrate)
#### Post date: [January 29, 2021, 4:31pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/167 "2021-01-29T16:31:09Z")
> [@Heffalump\_and\_Roo](#):
>
> Gamestop was 140% short sold when the Redditors started this which is why they did it.
File this under “idle grumbling” but this is one of the things that piss me off about shorting. Maybe I’m too concrete-minded, but while I agree that there is value to the market in the practice of short-selling in general, being able to short more stock than actually exists is indicative of just how far removed from reality some market behavior is (and don’t get me started on naked shorting in general). There’s an obvious natural cap there and the ability to blow through it is just asking for malfeasance and artificial inflation.
But then I’m the sort of guy who thinks senators should still have to stand and talk through filibusters too. Now get off my lawn.
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### Author:  [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)
#### Post date: [January 29, 2021, 4:37pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/168 "2021-01-29T16:37:44Z")
> [@Ann\_Hedonia](#):
>
> IIRC, Martha Stewart was convicted for obstruction of justice and lying to investigators, but was not convicted of ( or charged with) the underlying insider trading.
Thanks, I didn’t follow it all that closely at the time, and kinda _assumed_… But I appreciate your explanation.
That still supports my larger point that you don’t have to be an “insider” to at least be investigated for insider trading, and it sounds like she still broke the law, just not with strong enough evidence to guarantee a conviction for that.
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### Author:  [@Asuka](https://boards.straightdope.com/u/Asuka)
#### Post date: [January 29, 2021, 5:31pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/169 "2021-01-29T17:31:34Z")
I’m not liking that CNN story that heavily implies in a negative way that Trump supporters are responsible for these wall street bets simply because Reddit has been [where Trump supporterd](https://www.cnn.com/2021/01/27/politics/gamestop-stock-surge-trumpism/index.html) hung out in the past.
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### Author:  [@Miller](https://boards.straightdope.com/u/Miller)
#### Post date: [January 29, 2021, 7:29pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/170 "2021-01-29T19:29:43Z")
How much risk are the Redditors at when the stock collapses back to a sane price? I understand (more or less) how the hedge funds could spend X money, and end up owing 10X because the price didn’t collapse like they expected. What’s the risk on the other side? Are folks in a position where they put up 500 bucks because something got upvoted on Reddit, and now could end up losing their house?
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### Author:  [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)
#### Post date: [January 29, 2021, 7:35pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/171 "2021-01-29T19:35:20Z")
> [@Miller](#):
>
> Are folks in a position where they put up 500 bucks because something got upvoted on Reddit, and now could end up losing their house?
Unlikely. the hedge funds invested in options with a fixed upside and unbounded downside. The Redditors are investing in stocks, which have a fixed downside and unbounded upside. The hedgers sold at a fixed price and have an unfixed price in the future to complete the sale. The Redditors bought at a fixed price and have an unfixed price to sell at in the future, they can’t lose more than they put in.
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### Author:  [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)
#### Post date: [January 29, 2021, 7:37pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/172 "2021-01-29T19:37:49Z")
If the Redditors are just buying stock, their downside risk is simply losing their investment.
It’s like a pyramid scheme. The people who will make out like bandits see the ones who bought the stock earliest at the lowest price, and are now selling to all those reddit buyers at incredibly high prices. And of course, new hedge funds are shorting the stock now that it’s at insane levels, and assuming they can survive any more margin calls, will eventually make a fortune. The money will come from Redditors and Melvin capital.
So a few reddit people will get rich. A lot more will lose most of what they paid. But no one is risking more than the money they spent on the stock.
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### Author:  [@Fiendish\_Astronaut](https://boards.straightdope.com/u/Fiendish_Astronaut)
#### Post date: [January 29, 2021, 7:43pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/173 "2021-01-29T19:43:20Z")
I bought $100 worth earlier today just for larks, expecting that I will probably lose it. But if the short sellers still have to get rid of their positions it will drive the stock higher, or at least keep it at a high price for a few more days.
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### Author:  [@asterion](https://boards.straightdope.com/u/asterion)
#### Post date: [January 29, 2021, 7:44pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/174 "2021-01-29T19:44:04Z")
The question is still one of how much longer the short squeeze can go on. I completely expect it to drop to, say, $15 a share or lower once it’s over, and there definitely won’t be enough buyers for the paper losses. But I’m not sure what the breakdown is of people who are buying who don’t understand what’s going on versus those who are willing to lose money, even lots of money for everything from making a point about the markets to the lulz.
If you think of it as a form of political action, nobody ever says “You shouldn’t donate to that PAC.” Or “You donated $2,000 to a politician who lost, what a waste of money.”
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### Author:  [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)
#### Post date: [January 29, 2021, 7:45pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/175 "2021-01-29T19:45:12Z")
> [@Sam\_Stone](#):
>
> new hedge funds are shorting the stock now that it’s at insane levels
In order to short a stock, they have to find someone willing to lend it to them. They have to pay for the privilege of borrowing it, and right now, that’s at a premium.
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### Author:  [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)
#### Post date: [January 29, 2021, 7:47pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/176 "2021-01-29T19:47:43Z")
And that’s really the thing. Most of the people who stand to lose money stand to lose a couple thousand or so, money they put in on a lark or to help make a statement.
It’s only that there are a whole bunch of people willing to put in and probably lose a few hundred or couple thousand that this works.
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### Author:  [@asterion](https://boards.straightdope.com/u/asterion)
#### Post date: [January 29, 2021, 8:00pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/177 "2021-01-29T20:00:52Z")
It’s sort of the idea behind “If you owe the bank a thousand dollars you can’t pay, you have a problem. If you owe a bank a billion dollars you can’t pay, the bank has a problem.” Ever since 2007-2008 with the Obama campaign, we’ve seen the power of small donations aggregated. There’s currently 5 million subscribers on r/WallStreetBets. If every one is American (they aren’t) and they all decided to throw in the latest $600 stimulus payment, that’s three billion dollars of free money, being used to try to both make more money and, for some, make a political point. They’ve found something where a hedge fund made a very bad bet and are hell-bent on extracting everything they can from it.
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### Author:  [@asahi](https://boards.straightdope.com/u/asahi)
#### Post date: [January 29, 2021, 8:03pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/178 "2021-01-29T20:03:49Z")
Okay, but can we not burn the whole fucking thing down, lol? What does that accomplish exactly?
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### Author:  [@asahi](https://boards.straightdope.com/u/asahi)
#### Post date: [January 29, 2021, 8:12pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/179 "2021-01-29T20:12:44Z")
I don’t in any way pretend to be an investor; I’m your typical passive 401K and IRA guy. But I can’t help but think the market has been way, way, way overvalued for a long time, and that some event is going to trigger a massive sell-off that even the most sophisticated interventions won’t be able to stop. I had thought that the pandemic would do the trick; instead all it has done is to shift investment capital and profits into fewer hands, concentrating their power over the entire economy. The gap between the haves and have-nots is going to be utterly fucking brutal by the time this is over. You’ll have restaurant owners and individual, partnership, and family-owned businesses getting slaughtered, along with their employees. But the financial system by which we falsely keep score may delude us into believing we’re okay - until it just goes up in smoke.
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### Author:  [@asterion](https://boards.straightdope.com/u/asterion)
#### Post date: [January 29, 2021, 8:24pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/180 "2021-01-29T20:24:54Z")
The point at least some of those involved would make is that it shouldn’t be possible to go 140% short on a stock. Also that there shouldn’t be a way for one hedge fund going 140% on a stock and then a group of small investors determined to execute a short squeeze to affect any other part of the market. Combine that with a memory that the last time rich people destroyed the economy they got made whole while the rest of us got screwed over, and it’s as much a political statement as anything.
What at least some of these people want is a level playing field. Not rules that are dependent on how wealthy you are. Not knowing you’ll get bailed out and walk away if you’re rich and crash the economy. What’s going on is a lot of things, but if the politicians are smart, they’ll observe what started all of this and what it has shown can be possible.
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### Author:  [@SmartAleq](https://boards.straightdope.com/u/SmartAleq)
#### Post date: [January 29, 2021, 8:26pm UTC](https://boards.straightdope.com/t/reddit-users-trying-to-manipulate-stocks/931627/181 "2021-01-29T20:26:15Z")
> [@asahi](#):
>
> Okay, but can we not burn the whole fucking thing down, lol? What does that accomplish exactly?
I’m sorry, but if an entire complex system CAN be burned down simply by people doing exactly what the system is supposed to do but doing it by a few million people (and WSB is up to 5.5M subscribers, with even more people unsubscribed but reading on the regular) acting in exactly the same way that a hedge fund does but without the unspoken rules of engagement then your system NEEDS to burn down and be rebuilt in a more sane and durable fashion. We already saw in '08 that the entire market has big fucking problems mostly caused by greedpigs getting greedier but we did absolutely jack/shit to fix those problems. So now, in the middle of a pandemic where Main Street has been subjected to an insane level of funneling money up to the very richest of the rich while millions are losing their jobs, getting sick, going homeless and dying a bunch of regular people have decided to exploit those same loopholes so glaringly revealed by the LAST huge recession and are writing their own stimulus checks–NOW it’s a problem? NOW it needs fixed? Well, might as well give WSB a fucking medal for FINALLY lighting a fire underneath Congress to maybe DO SOMETHING to stop this shit casino from beggaring us all.
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