Also known, rather uncharitably, as the Greater Fool Theory or Greater Idiot Theory. The idea is not to be the fool left holding the stock when its value crashes.
The idea is the infinite squeeze (see VW 2008). A short squeeze that just keeps going up. (It has obviously has to stop at some point). At the beginning 140% of tradable stock was in a short position. The WSB crowd are trying to set up a play in which the price goes up and the shorters have to buy to cover. So the price goes up, and more shorters have to buy. Eventually the price is very high and there is not enough tradable stock to cover (remember 140%). So the price gets very very high.
Thanks for your help FP. Great explanations.
Be very careful. It obviously wasn’t worth $150 yesterday, but if you’d tried to short it for a few weeks starting yesterday, you’d be in a world of hurt. The market can remain irrational longer than you can remain solvent.
The safe way to do this is to buy put options at a price somewhere below the current price and above what you think the price will be at some point in the future. A put option is a legal right to sell stock at a given price, but not an obligation.
So, for example, say you buy a 2-week put option with a strike price of $200. This costs you, right now as I’m typing this, about $80, and gives you the right to sell 100 shares of the stock for $200 in the next two weeks. If any time in the next 2 weeks the price of GME goes below $200, you can exercise your option and make the difference (if it goes to $199.20, you break even, any less and you make money).
If you don’t exercise the option, then at the end of 2 weeks your option is worth nothing. But you can only lose the $80 you put in.
You can buy options from standard financial brokerages, although you generally have to apply to be able to trade options because they are weird and complicated and inexperienced people can get absolutely routed if they do it wrong.
Good and clear summary, iamthewalrus_3, but minor nitpick:
The break-even price is actually $120 ($200 strike price - $80 option price).
Speaking of which, daaayyyuuum, I knew the implied volatility would be big, but this is practically saying that the market is expecting the stock to drop 65% (from today’s closing price of $347.51) in just two weeks!
Well that’s different. The elites make the rules. I wrote what I wrote precisely because the elites are going to protect themselves.
Let’s see how long it takes the big players and their political servants to squash that noise. Remember, rules can be interpreted in an infinitely malleable way when necessary or desirable.
What sort of requirements are on that? I know with a margin account you need proof of assets and income and that sort of stuff, but what do you need to have an option trading account?
Does anyone have a reasonable guess what Ryan Cohen’s original plan was? (I’m assuming what has unfolded was not part of that plan.) He seems to have been aware that GameStop had a dying business model back when he bought into the company.
- . 2. . 1
From the Reddit sub to the SEC: (spoilered because of language)
To the SEC retards in this sub: go fuck yourself. Why don’t you start investigating why companies can shut down trading so their hedge fund buddies don’t lose money. But when people lose money it’s completely ok. Eat a dick.
From Twitter, baffled industry expert:
“Hey, this is not how this is supposed to work” /s lol
Their argument is that a lot of short seller contracts that were done by large financial firms end on friday, and these short sellers will ‘have’ to buy the stock on friday no matter how overpriced it is. Thats what I’ve heard.
I ‘think’ gamestops market cap was about 5 billion before all this started (when it was about $70 a share). So if 1 million investors each invest 1k thats 20% of the entire company’s stock being bought up. Its interesting the age we live in.
This isn’t correct. Options prices are quoted per share of the underlying security, but one contract is for 100 shares of the underlying. So you always multiply by 100. That put option is trading for $8000, not $80.
Another factor here that many people aren’t aware of is that this is not just a short squeeze, but a gamma squeeze:
Basically, when people buy out of the money call options, market makers are taking the other end of that trade, selling those options. In order to hedge their short call position, they buy shares of the underlying. The higher the stock price goes, the more shares they have to buy to keep their position hedged. This creates a feedback loop of its own as the stock price rises. So much of the r/wallstreetbets crowd were able to contribute to this squeeze, not by buying GME stock itself, but merely by buying a bunch of far out-of-the-money call options (back when they only cost a few bucks each.)
Here’s a fucking hilarous Reddit comment that lays it out in very plain English. I can’t recommend it too highly!
CNBC is reporting that Melvin Capital covered their short losses.
Redditors are not buying it.
In the meantime, r/wallstreebets was closed for a short time causing a bit of uncertainty. The sub was opened a short time later.
Wallstreet Bets Set to Private Megathread
I just had to add this quote from the Mooch.
I just visited the r/ and it’s pretty crazy. It’s clearly a coordinated effort, albeit decentralized, and I’m not sure that was the case with the 140% shorts. It could have been a bunch of funds just betted on the stock to fail because it was way overvalued afaik.
But I have a second point!
It looks like the same HODL mentality that bought up Bitcoin if not the same people. BTC, like GME, has no value other than scarcity. So what’s the difference? Is GME the new BTC, will it be at $30K in five years with people putting money into it as a safe haven like gold, even after GameStop stores have long since shuttered? I honestly don’t see why not.
GME will be the next reserve currency, just you watch!
HAHAHAHAHAHAHA! 
Also!
Thanks for the correction. See, this is a good reason to be really cautious with this stuff. Could easily get burned following some random internet advice from someone like me who has no idea what he’s talking about.
So, if you buy that $200 option, you’re really betting that the price is going lower than $120? Wow.
That’s a pretty impressive and powerful group of people. Citron’s minimum investments was over 2 million
CNBC reported that at the height of after hours trading with the price at ≈ $377. Weird that they chose that time.
There have been price walls built, ladder trading shit that I don’t understand. A loan of ≈3 billion dollars from “a friend”. Bot attacks pushing other stocks. Every news outlet calling these people crazy. Calls for regulation on retail investors. Rich people will do anything to screw you, and they own every avenue to do it.
I hope the whole fucking mess burns down. The stock market is not “the economy” and I’m fucking sick and tired of those shitbirds at the top of the heap tendentiously intoning about how megacorps and hedge funds are “tOo BiG tO fAiL!!1!!!” as they refuse to help the millions starving, losing their homes and dying during a pandemic so they can make a few greedpigs even fatter. Burn, fuckers, burn!