They aren’t. How is a bunch of people talking on Reddit any different than Warren Buffet opining?
It’s not chortling. It’s pointing out the inherent hypocrisy in people complaining that their bet has more intrinsic morality or worth or propriety than someone else’s bet. The short sellers are betting that the stock is overvalued and are hoping to profit off of someone buying the stock at a value the short seller believes is inflated. Their actions and words influence the market. Now the shoe is on the other foot and suddenly it’s a problem.
Then they should do a margin call.
I’m not aware of anyone complaining about these things, nor has anyone cited anything of the sort in this thread. If the SEC is investigating it, it’s probably relating to some rules which were formulated to prevent market manipulation (i.e. deliberately skewing the price of stocks independent of your own belief as to the true value). I’m not an expert on any of that.
But I’m commenting on the notion that the winners are the Reddit people and the losers are the hedge fund billionaires. That’s extremely short sighted. Once the music stops, the winners will be hedge fund billionaires and the losers will be Reddit people.
What’s this about? Who should do a margin call?
You said a short position can get margin calls and can’t wait it out. What triggers that? There is more than 4 billion dollars missing from hedge funds that hung their assess out shorting stock. I would think someone taking advantage of that would be a correction to the market, but rich/powerful people are going on the news saying this is terrible and the Nasdaq needs to shut it down? If your going to shut it down, shouldn’t people have to make good on the shorts?
Especially if your allowed to short over 100% of the tradable stock
If your brokerage decides that the value of your position with them is not enough to cover your short-related debits, then they’ll ask you to put in some more cash or close out the short. They won’t be willing to wait until the stock returns to a sane price just because you assure them that this will happen. So you can get closed out of your short position and not be able to recoup your losses, let alone make profits, even if you ultimately turn out to be right.
I’m not aware of what rich powerful people are saying. Certainly it’s hard to imagine that anyone important is seriously advocating that people shouldn’t “have to make good on their shorts”.
From this
"The CEO of the Nasdaq exchange, Adena Friedman, among other people, offered her opinion on the case. Although she declined to name the company per se, it’s safe to assume that she spoke about the GME surge and other similar stocks.
Friedman admitted that Nasdaq had seen a significant increase in retail investors. However, she warned that the exchange could take extreme measures to act against such scenarios, even suggesting halting those particular stocks."
“When we evaluate how we would manage through a situation where you see a significant run-up with a stock that is not based on news or fundamentals, we have technology that evaluates social media chatter, and if we see a significant rise in the chatter on social media channels and we also match that up against unusual trading activity – we will potentially halt that stock.”
So if Citron takes a short position and then announces to the world every negative about a company, it’s all good. If they get caught with their pants down while a bunch of message board investors increase the stock price it’s bad.
“The marketplace should be a place where risk is taken, but not reckless risk and not a situation that undermines the system, and that’s what we’re looking at here,” Massachusetts Secretary of the Commonwealth William Galvin
Halting a stock wouldn’t mean that short sellers wouldn’t have to honor their shorts. It would just be a temporary break in trading activity, designed to ameliorate the impact of momentum.
There are already rules about trading halts which are triggered by extreme movements in the markets. Generally extreme declines in share price. I’m not sure of the details. But in any event, there’s no implication that anyone shouldn’t have to honor their shorts.
In the grand scheme of things nobody feels sorry for the hedge funds other than those directly affected by the hit. The SEC’s interests are going to primarily be twofold: is this legitimate market speculation or a new version of pump and dump (which may be the case if there are specific individuals or entities driving this), and is this having a detrimental effect on market stability? Individual stocks come and go, but destabliizing the wider market is a bad thing overall, and illegal trading behavior is still illegal trading behavior.
I’m not sufficiently up on the SEC rules but I suspect that what’s happening now is a sufficiently grey area that they won’t come charging in unless they find something solid to land on. And I’m also guessing that the market will start to adjust to these little games and the players will get bored soon enough when the novelty is gone.
Eh. This is kinda interesting and a (slightly) novel way to enact a short squeeze, but it’s likely nothing more than a short-term story with little momentum- in my best guess, all this will result in is some rules and fines re: meme stocks. The easiest thing the market can do is suspend trading in the security and I’m pretty sure we will see more of this happening.
And as for shorts themselves, I don’t have a problem with people who cast a skeptical eye to the pillars of our capitalist society. David Einhorn has had an interesting career calling bullshit on such companies as Lehman Brothers, Apple, and others.
From the article that FP linked to:
GameStop’s rapid rise has drawn comparisons to the speculative trading during the tech bubble of the late 1990s and led many Wall Street veterans to warn investors about the potential for significant losses.
Yeah, pretty much. The market now is out of its mind with stocks that are trading at values that they probably won’t possibly even earn over the next 50 years. Eventually, the effects o the magic fairy dust will wear off.
Apple has real market cap; Lehman…not so much.
Einhorn made his LB short bet 15 months prior to September 2008, when LB was in the $70s.
Please correct me if I’m wrong, because I want to understand this, but I don’t really understand the financial industry that well.
But this is what it seems like to me: some very rich guys decided to short gamestop stock. The fact that some super rich financial entities decided to do that, by itself, probably generally drives down the value of the stock because people start thinking “oh shit, giant fund X thinks this stock is gonna tank, it’s probably gonna tank!” then people sell their shares to get away from that stock and because the stock market is at least partly mass psychology/mass delusion it becomes self-fulfilling prophecy. The giant fund casts doubt on the stock and short sells it, the doubt makes the stock actually go down, the giant fund wins their shorts. The fact that the stock was 140% shorted (as in, every share was shorted more than once on average) seems to indicate that they were basically willing to kill gamestop just to make a buck.
But this time a bunch of redditors with some money said “okay, they’re just shorting this stock and if we all buy this stock up we’ll prevent the price from plunging and they’ll lose on their shorts and we’ll win”, and the fact that they all bought gamestop propped up the stock price, causing the giant rich funds to lose their short bets.
Because of the audacity of a bunch of regular retail investors daring to take on and beat a giant elite hedge fund, they’re treated like some sort of financial terrorists. They represent a threat to the financial industry, which often works by having super rich funds manipulate the market to get richer. Having a bunch of regular people interfere with the work of the elite financial class poses a threat to the games they play, and so they’ve got the entire financial industry, and their lapdogs in the media, and potentially their (captured) regulatory agencies to crack down on this new threat.
So it’s fine that a giant hedge fund wants use market manipulation to kill gamestop to make a buck, but someone that’s not a giant hedge fund elite financial industry corporation counter-manipulating the market to screw them over is outrageous and needs to be stopped.
In the past the idea that a sufficient number of “retail investors” would all do this would have been laughable. I think that’s what has changed. These redditorz are buying the stock at some lofty prices, not just the shorts, right? Don’t they eventually have to sell and wouldn’t that crash the stock price?
So in all seriousness, obviously gamestop stock is not worth $350. It’s going to come crashing down. So wouldn’t it basically be free money right now to short the stock for a few weeks?
How would someone actually go about doing that? Like, what sort of account do you have to create with who?
Saagar Enjeti (a conservative) and Kyle Kulinski (a progressive) are laughing about it. The billionaires that are screaming about it are now talking about more regulation and foreign actors. Hee!
They’re saying Reddit may be democratizing Wall St.
I rarely “beg” for an answer, but I’m literally begging for someone to help me understand this. To help on my end, I’ll say what I “think” I understand and you can correct me and fill in the gaps.
AIUI This whole thing started when I saw a post on r/wallstreetbets that some regular dude, who happened to have like $53k in funny money to burn, bought up a bunch of cheap GME stocks, and they went up and suddenly his stocks were worth $11 MILLION. Correct me if I am wrong.
Since then, r/wsb has DOMINATED all of Reddit’s first page with various posts directing people what to do in order to stop the Fat Cats from “shorting” the stocks. “Shorting,” AIUI, is when the Fat Cats borrow their billionaire buddies’ stocks, sell them high knowing they’ll drive the price down (tank the company), then buy them back cheap when the company flounders, keep the profit and hand the borrowed stocks back (I really do NOT understand the stock market).
So what I understand is happening now, is this teeming maelstrom of regular dudes on Reddit are bulldogging the market and causing all these firms and Fat Cats who are trying to short GME to fail and bail, and the Fat Cats are losing billions and billions of dollars. As they bail out on the stocks to cut their losses, they FURTHER push the GME stock up up up.
Is that right?
So what I don’t understand is how this eventually pays off for the little guys who are bullying the big guys. Like, the stock is artificially high, and they need someone to buy it while it’s high to cash out…right? GAMESTOP can’t/won’t rebound as a company, so ultimately how does anyone make real money off this…?
Is it just a flex–that we’re proving the little man, in large enough volume, can defeat the grey-headed ol’ Fat Cats and cause them to hemorrhage money…?
It’s kind of like a pyramid scheme right now. As long as people keep buying, the stock will keep going up. But eventually this game will come to an end and the stock will crash. Then whoever still has stock will likely lose a lot of money. The trick is to know when to sell. If you sell now, you take your profits and go home. Hang on too long and you can lose a lot.