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Gamestop and shorting on Wall Street


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Just now, SSoutherner said:

Massive simplification coming up

 

Remember when they sold short Melvin basically sold a bunch a stock at $3 (or whatever it was I havent looked it up) expecting to be able to purchase that stock at £2.50 or whatever thus making a gain.

 

They entered into contracts to deliver those stock on a set date at a price of $3, they now have to purchase those stocks to complete those contracts, even if the price they now have to buy them at is $240 now, at that point they will be buying at $240 and getting $3 for them. That is where Melvin lose money AND unless there are now vastly more shares being traded than Melvin has to purchase the individual micro investors will get their money as well, they are providing the shares for Melvin to buy

 

However it is a bit of a pyramid scheme, you dont want to be one of those left at the end with a share bought at $200 when Melvin has fulfilled all it's contracts and there is no demand left - at that point the price will drop back to it's true value

Selling short is telling your mates to give you £20 each for grand final tickets in the expectation you can go and pick them up for less, if it is suddenly a sell out, you have to pay the touts >£20 and take the hit yourself

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18 minutes ago, SSoutherner said:

Massive simplification coming up

 

Remember when they sold short Melvin basically sold a bunch a stock at $3 (or whatever it was I havent looked it up) expecting to be able to purchase that stock at £2.50 or whatever thus making a gain.

 

They entered into contracts to deliver those stock on a set date at a price of $3, they now have to purchase those stocks to complete those contracts, even if the price they now have to buy them at is $240 now, at that point they will be buying at $240 and getting $3 for them. That is where Melvin lose money AND unless there are now vastly more shares being traded than Melvin has to purchase the individual micro investors will get their money as well, they are providing the shares for Melvin to buy

 

However it is a bit of a pyramid scheme, you dont want to be one of those left at the end with a share bought at $200 when Melvin has fulfilled all it's contracts and there is no demand left - at that point the price will drop back to it's true value

Absolutely, though Melvin apparently went in for 140% of stock

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31 minutes ago, Farmduck said:

Zero commission isn't the same as zero fees though.  https://cdn.robinhood.com/assets/robinhood/legal/RHF Fee Schedule.pdf

If you read the footnote about ATACs that could generate some substantial fees.

They say you can spend as little as $1, which would probably mean buying fractional shares, but the fine print says fractional shares can't be transferred outside the App.

You also have possible bank fees moving cash for trades, which I don't have because my bank and broker are the same.

Those apps look good but I'm happy with my system.

Oh absolutely, but in terms of the raw fees involved this has democratised the system massively.

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1 hour ago, Bedford Roughyed said:

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This is really no different to hedge funds stating they have shorted a stock in the hope that nudges the price into decreasing. As hedge funds do every day, WSB picked out a position for a particular reason and threw money at it. There's no insider trading and no false information being spread. The only difference here is that some ordinary people are making profit and the millionaires are losing money, which probably means we're due for a government bailout! 

However now I see Robin Hood and Trading 212 have stopped all purchases of Gamestop stocks, only allowing people to sell. How is this not market manipulation? 

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17 minutes ago, Saint 1 said:

This is really no different to hedge funds stating they have shorted a stock in the hope that nudges the price into decreasing. As hedge funds do every day, WSB picked out a position for a particular reason and threw money at it. There's no insider trading and no false information being spread. The only difference here is that some ordinary people are making profit and the millionaires are losing money, which probably means we're due for a government bailout! 

However now I see Robin Hood and Trading 212 have stopped all purchases of Gamestop stocks, only allowing people to sell. How is this not market manipulation? 

It's not manipulation if it's a club member doing it.  Fully expecting a very rapid example of governmental things that 'take time to process' being, well, processed.

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2 hours ago, Tommygilf said:

I know its Fox but give this a watch

 

That video is everything I hate about this stuff. I had to stop watching. I don't care if he's right or even really what point he's making, it's just bragging about how well you're doing or how badly someone else is doing and totally based on short-termist BS.

Can anyone give a good reason why short selling shouldn't be illegal?

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Shorting isn't "investing" - it's not what shares are supposed to be about.

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"I am the avenging angel; I come with wings unfurled, I come with claws extended from halfway round the world. I am the God Almighty, I am the howling wind. I care not for your family; I care not for your kin. I come in search of terror, though terror is my own; I come in search of vengeance for crimes and crimes unknown. I care not for your children, I care not for your wives, I care not for your country, I care not for your lives." - (c) Jim Boyes - "The Avenging Angel"

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They've stopped retail invetors buying any of the target stocks through the democratisation broker apps all day and are using this breathing space to repeatedly short the stock - which is still rallying after each attempt.

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I can half-understand why these platforms shut down or banned trades in specific stocks but I'm not sure I can explain it clearly. It relates to clearing houses, like the system banks operated for cheques. When I buy or sell, settlement is always due within 48 hours. In my case, because my brokerage a/c is linked to my savings a/c, this is never a problem on my end  because of the immediate access. But, generally, the clearing house will charge a deposit or fee of 1% because they put up the cash during that 48 hour period in anticipation of the settlement.

Now, in a period of absurd volatility around certain stocks, these clearing houses may be required to fork over gazillions (or, more accurately, 1% of gazillions) to facilitate trades which may only be worth half a gazillion by the time the 48 hours is up. In these situations, some of these outfits will up the required cash deposit on particularly volatile stocks to cut down their own risk.

There is an outfit called Depository Trust and Clearing Corporation (DTCC) which, just to make things even clearer, is owned by DTC.  https://www.investopedia.com/terms/d/dtcc.asp

Now, I think (don't sue me over the details here) DTC or some other brokerage forms or clearing house increased the required deposit on specific firms to 100% of the trade value. This has resulted in some brokers being unable to fork out the required up-front dollars for all the trades they process - don't forget that even these "democratic" apps ultimately link their customers to broking firms who do the trades. Robinhood has no ability to directly buy shares on the floor of the NYSE.

Because they can't afford to pay these "deposits" they stopped trading in these stocks.

Another common question is: Why have they stopped buying but haven't stopped selling? Think about it: in any transaction, it's the buyer who has to stump up the cash (or deposit.) So there's no reason to stop sellers because there is no upfront deposit required with those trades. If a broker has only sellers (or clearing house) then they aren't putting up any money.

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They've stopped retail invetors buying any of the target stocks through the broker apps all day and are using this breathing space to repeatedly short the stock - which is still rallying after each attempt.

Interestingly Robinhood, the major US platform, was given significant financial backing by Citadel, the parent company of Melvin Capital who you guessed it, are set to lose loads as a result of shorting Gamestop.

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20 hours ago, SSoutherner said:

Selling short is telling your mates to give you £20 each for grand final tickets in the expectation you can go and pick them up for less, if it is suddenly a sell out, you have to pay the touts >£20 and take the hit yourself

Ah but then you'd just get 4 for £20 on Groupon and still be quids in. 👍🏻

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On 28/01/2021 at 16:34, M j M said:

That video is everything I hate about this stuff. I had to stop watching. I don't care if he's right or even really what point he's making, it's just bragging about how well you're doing or how badly someone else is doing and totally based on short-termist BS.

Can anyone give a good reason why short selling shouldn't be illegal?

I completely agree. I have a bit of money in shares in ISA'S and SIPP but I loathe these types of segments.

When people talk about the stock market as gambling then this is what they mean... expecting quick returns on investments or taking a short position when they have no idea what will happen next. That is gambling.

Invest in a decent ETF or Investment Trust in a sector that has potential for growth and then be patient... at least 5 years and ideally 10+ and ensure you are not in a position to have to sell when it is not your choice and you should be OK (no guarantee of course).

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These Redditors need to pick a number - say $200 - and sit there otherwise they could end up burning themselves and/or each other. If you look at GME's 5-year chart a realistic price would be somewhere around $4-$7. Lets assume the short-sellers came in around $7 - for most of 2020 it was under $5 - then even driving the price to $100 would have hurt them severely.

There's no need to keep the price at $325 where it is right now. If Wall St Bets is still encouraging people to buy then I think they are committing fraud. If you think about it, any short-selling hedge funds have got out already and are currently treating their wounds so who is still buying? Not Big Money, that's for sure.

Before this current kerfuffle the last time GME hit $30 was in 2016. It can't stay at $300+ for very long. The smart move by Redditors would be to sell enough now to cover their initial outlay and let the rest sit there for 6 months. Otherwise they're selling to suckers who've been caught up in the hysteria or the desire to "stick it to the man." The moral superiority they claim will disappear because they will be the ones who encouraged unsophisticated investors to pay $300 for a $10 stock.

They can't make specific plans to set the price but they could write a post called, "Here's a completely theoretical plan for my next move," or something similar.

 

 

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4 hours ago, Farmduck said:

These Redditors need to pick a number - say $200 - and sit there otherwise they could end up burning themselves and/or each other. If you look at GME's 5-year chart a realistic price would be somewhere around $4-$7. Lets assume the short-sellers came in around $7 - for most of 2020 it was under $5 - then even driving the price to $100 would have hurt them severely.

There's no need to keep the price at $325 where it is right now. If Wall St Bets is still encouraging people to buy then I think they are committing fraud. If you think about it, any short-selling hedge funds have got out already and are currently treating their wounds so who is still buying? Not Big Money, that's for sure.

Before this current kerfuffle the last time GME hit $30 was in 2016. It can't stay at $300+ for very long. The smart move by Redditors would be to sell enough now to cover their initial outlay and let the rest sit there for 6 months. Otherwise they're selling to suckers who've been caught up in the hysteria or the desire to "stick it to the man." The moral superiority they claim will disappear because they will be the ones who encouraged unsophisticated investors to pay $300 for a $10 stock.

They can't make specific plans to set the price but they could write a post called, "Here's a completely theoretical plan for my next move," or something similar.

 

 

That would all make sense if the Hedge Funds had originally acted rationally. Instead they shorted over 120% of stocks in the initial phase and in the past couple of days have repeatedly tried "ladder attacks" to drive share-price down, used friendly media sources to push various ideas (such as that they were out after Wednesday) and ultimately scare retail into selling - which looking at volume by and large hasn't happened. They haven't "got out already".  

Moreover the shorting of over 100% of their stock leaves them in a position of extreme vulnerability caused by their own extreme risk taking. That's why the stock has been witheld by the brokers to the average Joes. The lawsuits out of Thursday's shenanigans will be very interesting to see, especially given the SEC and Politicians comments. 

I agree there is a lot of madness in the system right now and a lot of silly ordering of shares. There's also an incredible amount of solidarity. Market manipulation is also so hard to prove (the hardest according to a Asset Management CEO on CNBC yesterday) - though the SEC (now under a Democrat administration) has come out for the "free market" and individual investors. Focussing on the value of the company is missing the point entirely - the share price is in the value of shares to the short sellers.

Perhaps the final point here is that for some, not all, this isn't about the money in so many cases. This is as much a political attack as an economic one. A self-confessed "don't care if we lose so long as they do too" attitude is something Wall Street hasn't ever encountered on this scale. That isn't moral superiority its just laughing at the system whereby average joes have just got stimulus cheques for hudreds of dollars and seen repeated bailouts of Wall Street over the past decade and a bit for billions - privatise the winnings but socialise the losses is a mantra WS has faced. Equally this is now on a global scale, Americans were hit hard by 08, but so were Europeans and everyone else. In a lot of ways this is Occupy Wall Street got tech savvy.

Perhaps the best thing about this is Gamestop's slogan, "power to the players"...

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Where did all these "little guys" find the sellers to sell them these $200 - $350 shares? Here are some of the average Joes who had big chunks of GME and thus may have made billions over the last week:

  • Black Rock Inc, the World's largest asset manager with assets under management of $8.6 trillion
  • State Street Global, the World's third-largest asset manager, with $3.5 trillion in assets under management
  • Fidelity Investments Inc, with $3.3 trillion in assets under management and a combined total customer asset value number of $8.3 trillion.
  • The Vanguard Group Inc, with about $6.2 trillion in global assets under management
  • Senvest Capital, a Canadian investment firm which barely even belongs on this list since they only have $C2.8 billion in total assets and that's Canadian moosebucks.

But, yes, it's all about the little guy screwing over Wall Street by encouraging other little guys to give billions of dollars to some of the World's biggest investment banks. Yes, that'll really show them.

 

For the record, I have no money at stake here so I don't care if I turn out to be completely wrong. If anything, I'm starting to feel very Dunning-Kruger about this whole episode. I see nearly every media mention of this event caught up in the romantic mythology and I don't understand why others aren't raising the same concerns I have. I believe the people who will get burnt the worst will be the small-timers caught up in the hysteria and mythology. Some of those people are still buying at $300+

 

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1 hour ago, Farmduck said:

Where did all these "little guys" find the sellers to sell them these $200 - $350 shares? Here are some of the average Joes who had big chunks of GME and thus may have made billions over the last week:

  • Black Rock Inc, the World's largest asset manager with assets under management of $8.6 trillion
  • State Street Global, the World's third-largest asset manager, with $3.5 trillion in assets under management
  • Fidelity Investments Inc, with $3.3 trillion in assets under management and a combined total customer asset value number of $8.3 trillion.
  • The Vanguard Group Inc, with about $6.2 trillion in global assets under management
  • Senvest Capital, a Canadian investment firm which barely even belongs on this list since they only have $C2.8 billion in total assets and that's Canadian moosebucks.

But, yes, it's all about the little guy screwing over Wall Street by encouraging other little guys to give billions of dollars to some of the World's biggest investment banks. Yes, that'll really show them.

 

For the record, I have no money at stake here so I don't care if I turn out to be completely wrong. If anything, I'm starting to feel very Dunning-Kruger about this whole episode. I see nearly every media mention of this event caught up in the romantic mythology and I don't understand why others aren't raising the same concerns I have. I believe the people who will get burnt the worst will be the small-timers caught up in the hysteria and mythology. Some of those people are still buying at $300+

 

I agree. This seems more astroturf rather than grass roots.

"You clearly have never met Bob8 then, he's like a veritable Bryan Ferry of RL." - Johnoco 19 Jul 2014

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