stock market was up today...

[Thunder Good-Oil]

The hedge funds have to disclose their short positions per SEC rules and now that is being exploited by the commoners. Watch for the SEC to change the reporting requirements to protect the institutions from the peasants.

 

[VolnJC]

I haven’t seen OPM. The Trading Places orange juice futures was obviously fiction, but it’s a similar concept. Pump and dump. Right now Reddit is pumping targeted stocks that are being shorted by the hedge funds... but the pumping is just the community creating a supply/demand imbalance rather than pushing BS news to drive prices up. It’s hilarious. No doubt the “smart money” is working on a way to take advantage of the movement.

Its a good movie.. rare a smart comedy...Danny Devito is a "corporate raider" convincing stockholders to sell and move money from beloved but dying business....like Gamestop and AMC maybe? I love the speech he gave...cold but on point Quotes from "Other People's Money"

 

[red butler]

can someone explain to me the whole game stop thing. Is it like some Trading Places thing

Here’s my understanding, maybe others can point out if I’m off base:

-Hedge funds identified GameStop as a company that has a dying business model, selling physical discs at a physical mall location in a digital download world.

-Said hedge funds figured they could make a quick buck by shorting the stock. The stock went down to about $4.

-At $4 a Reddit poster pointed out it could be a good deal. He figured the company has enough cash to get through COVID and makes a profit in normal years. There is still demand for discs and the company could make a transition to digital like NETFLIX.

-Some hedge funds figured there was still money to be made if they destroyed the company, so they added to the short positions- targeting $2. GameStop became the most shorted stock in the market. In some cases they even used a legal loophole version of a naked short which set up this once in a lifetime opportunity - where the shorts were 140% of available shares.

- Some of the geniuses at Reddit figured out the short options expire this week, setting up the opportunity for the biggest short squeeze ever. So they’re advising everyone to buy and hold.

- The hedge funds will be forced to buy shares at the market rate to close their options.. driving the price even higher and losing billions in the process.

-some of the Reddit investors are willing to lose it all just to stick it to Wall Street. It’s going to be a bloodbath for somebody.

 

[Velo Vol]

-Some hedge funds figured there was still money to be made if they destroyed the company, so they added to the short positions- targeting $2. GameStop became the most shorted stock in the market. .

How does people shorting the stock impact the company?

 

[Thunder Good-Oil]

How does people shorting the stock impact the company?

Companies sell shares to raise capital. GameStop has actually been selling treasures shares into the “fake” rally and is raising a lot of cash.

 

[red butler]

How does people shorting the stock impact the company?

I’m not an expert, but this is how I understand it would work in this case:

- hedge fund borrows share at $4 for a specific amount of time. It then sells the share at $2 and waits. If the stock drops to $2 before the contract expires, the hedge fund buys the share and returns it to the broker it borrowed it from - pocketing the $2 difference.

-on a large enough scale, the initial sale of the shorted shares at $2 can move the market price downward. If the downward pressure gains enough momentum, it is essentially a self-fulfilling prophecy.

 

[Thunder Good-Oil]

I’m not an expert, but this is how I understand it would work in this case:

- hedge fund borrows share at $4 for a specific amount of time. It then sells the share at $2 and waits. If the stock drops to $2 before the contract expires, the hedge fund buys the share and returns it to the broker it borrowed it from - pocketing the $2 difference.

-on a large enough scale, the initial sale of the shorted shares at $2 can move the market price downward. If the downward pressure gains enough momentum, it is essentially a self-fulfilling prophecy.

Not exactly. Take the options out of the equation. The hedge fund borrows the shares and immediately sells them for $4/share. Then they hope (sometimes “manipulate”) the shares lose value, they buy the shares at the lower price, and then close their position by returning the shares that they borrowed.

But the question was how does shorting affect the COMPANY. This is an example of how the OWNERS of the shares are affected (value is transferred from the shares owners to the hedge funds). The companies are hurt because they raise less money when they sell their own shares (while diluting their own equity on their balance sheets when the additional shares are floated).

 

[red butler]

Not exactly. Take the options out of the equation. The hedge fund borrows the shares and immediately sells them for $4/share. Then they hope (sometimes “manipulate”) the shares lose value, they buy the shares at the lower price, and then close their position by returning the shares that they borrowed.

But the question was how does shorting affect the COMPANY. This is an example of how the OWNERS of the shares are affected (value is transferred from the shares owners to the hedge funds). The companies are hurt because they raise less money when they sell their own shares (while diluting their own equity on their balance sheets when the additional shares are floated).

Thanks for the education. How do they manipulate the price down?

 

[Velo Vol]

Thanks for the education. How do they manipulate the price down?

OK, I incorrectly thought that the initial short sale has no impact on the price, as it is done at the market price. But given that it creates more sellers, it effectively lowers the price. So, in that sense, mass short selling drives down the market cap.

 

[DD4ME]

Thanks for the education. How do they manipulate the price down?

By selling at lower prices hoping the trend helps carry out their plan and provides their parachute to not be caught holding an IOU on the stocks they borrowed. The reddit users caught them essentially in a pickle trying to steal home.

 

[newarkvol]

 

[Thunder Good-Oil]

Thanks for the education. How do they manipulate the price down?

Well, it’s illegal to “manipulate” the stock price. So what the shorts do is to look for overvalued securities. They borrow and immediately sell the securities. A lot. Which pushes the stock price down with the selling pressure. BUT... the shares short are counter intuitive to the goal of the hedge funds. They’ll have to buy shares and cover their positions at some point (increasing demand for the shares). But they’ll attempt to get the momentum of the stock price moving in their favor (down) by talking s**t about the company. They’ll go on CNBC and trash the company’s business model or their liquidity or their management or their stagnant revenue or rising expenses or problems with the SEC or with the IRS. They’ll publish articles trashing the stock. They’ll make it sound so toxic that nobody will want to own the shares. But the Reddits are now organized and are buying up the shares (or buying call options/selling put options). So the small investors have manufactured a short squeeze... the shorts must pay a premium to buy shares back in the open market to return what they’ve borrowed and the stock price snowballs upward.

The stock exchanges are trying to save the large funds at the expense of the small, individual investors. The SEC will probably try to shut down the use of the social media platforms that the tens of thousands of small investors are using to organize their upward manipulation of the stock prices. They’ll have a hard time doing that so they’ll go after the ringleaders of the Reddit mob. Funny how it was ignored when the hedge funds were doing the influencing/ manipulating and taking from the individual investors but now that the peasants are winning, trading is being halted in the securities by the exchanges and government officials are looking into ways to regulate the Reddit Mob side.

The brokers are also going to get burned because the hedge funds will go bankrupt but those brokers will be responsible for covering their losses for securities owned by the small investors. The brokers loaned out the shares.

It’s far from over. I doubt that Janet Yellen will be fighting for the individual investors. Wall Street firms and their lobbyists make the cash contributions to campaigns.

 

[Electric Orange]

 

[BowlBrother85]

It’s (GME) a garbage company that doesn’t have the financials to support the crazy valuation. But shares of stock are finite and are being bid up by the simple law of supply and demand. Hedge funds push prices down with a coordinated effort to sell shares that they’ve borrowed. Now the Reddit users have targeted specific short positions and are countering by buying up shares in a coordinated attack thereby driving the share prices up to ridiculous levels. The GameStop price will certainly crash at some point. But the Reddit users are now the largest “hedge fund” in the world.

The one thing that the Reddit mob has going for it is that with thousands, or tens of thousands, of users participating each “investor” isn’t necessarily putting a lot of their capital at risk. Whereas the hedge funds have bet the farm with their short positions and are exposed to unlimited losses with their large positions. I’m tempted to kick in a grand just to support the community effort.

This is Capitalism in the age of social media. It's market manipulation made easy. This is a very interesting (if absurd) story. You've explained it well.

 

[Rasputin_Vol]

 

[Rasputin_Vol]

It will be hilarious if the Reddit mob could manipulate a crash by shorting after the hedge funds go long.

I was thinking the exact same thing.

 

[Rasputin_Vol]

I haven’t seen OPM. The Trading Places orange juice futures was obviously fiction, but it’s a similar concept. Pump and dump. Right now Reddit is pumping targeted stocks that are being shorted by the hedge funds... but the pumping is just the community creating a supply/demand imbalance rather than pushing BS news to drive prices up. It’s hilarious. No doubt the “smart money” is working on a way to take advantage of the movement.

Yep

 

[hog88]

This whole Game Stop situation is fascinating, I expect to see some sweeping changes made by the .gov to prevent it from ever happening again. I also think the reddit ringleaders will get the full force of the federal .gov crashing down on their heads.

 

[lawgator1]

Interesting discussion this morning on CNBC with Mark Cuban, pointing to a significant culprit in all of this, which is technology and algorithm trading. Average hold time now for a stock is 40 seconds. 40 seconds.

So what's happened is that investing for actual valuation and growth of revenues or net income is virtually irrelevant. It's just guessing where the next move is in literally one minute.

 

[Y9 Vol]

Interesting discussion this morning on CNBC with Mark Cuban, pointing to a significant culprit in all of this, which is technology and algorithm trading. Average hold time now for a stock is 40 seconds. 40 seconds.

So what's happened is that investing for actual valuation and growth of revenues or net income is virtually irrelevant. It's just guessing where the next move is in literally one minute.

Much like when UT conducts an AD and Coach search.

 

[NorthDallas40]

Interesting discussion this morning on CNBC with Mark Cuban, pointing to a significant culprit in all of this, which is technology and algorithm trading. Average hold time now for a stock is 40 seconds. 40 seconds.

So what's happened is that investing for actual valuation and growth of revenues or net income is virtually irrelevant. It's just guessing where the next move is in literally one minute.

But this is what the institutional traders wanted. They setup this whole environment. And its being used against them by the little guys who got organized and it’s glorious. When the inevitable crackdown on the little guys happen it needs to be screeched across every social media platform because no way in hell it gets air time on the business channels. For once social media got something right.

 

[BowlBrother85]

Business Insider:

Nasdaq CEO, Adena Friedman, is suggesting a trading halt to let big investors "recalibrate their positions" to combat Reddit users. Per S3 Partners, a financial data company, short sellers have lost $23.6 billion on GameStop so far this month, due to the Reddit community's manipulation of the stock price.

 

[golfballs]

Dave Portnoy announced a $1MM purchase of Nokia shares. Now the barstool crowd getting into the action lol

 

[golfballs]

 

[red butler]

This is Capitalism in the age of social media. It's market manipulation made easy. This is a very interesting (if absurd) story. You've explained it well.

Please explain how anything in the modern stock market resembles capitalism because I'm not seeing it. In fact, I don't think we've been a capitalist country in a long time. This seems more like feudal financialization and the serfs are revolting. The financial elite set the rules to extract wealth from the serfs. The serfs band together to beat the elite by the rules the elite set up. The redditors are literally speaking in terms of "hold the line" like they're in a military formation. It's as beautiful in their sacrifice as any of the scenes in Braveheart (it's probably just as fruitless).

I suspect this is the way it will go: The financial elite are now going to change the rules of the game. The rebels will be crushed and put in their place. The leaders of the revolt will be made an example of and the parasitic hedge funds will get some form of bailout (more closely resembling socialism than capitalism). Under true capitalism these non-productive entities would have been wiped out long ago and the remaining capital reallocated to more productive endeavors.