Gamestop and Stocks

[JBMcB]

Here's a summary of the Gamestop situation with a primer on short selling.

A short position is where you sell an option to buy a stock to someone else at a specific price. So, let's say it's January, and you think a company is overvalued at $100/share for some reason. You can sell an option to buy a stock to another investor at, say, $90/share in September. If the stock goes down to $40/share when the option comes due in September, you buy the stock at $40 and sell it to the buyer for $90/share, making $50/share profit. If the price goes *up* however, the short seller is on the hook to buy the stock at whatever price it's at when the contract is due. This is why short selling is limited to investors with a lot of cash on hand because the most you could ever make on short selling the above stock is $100/share, as that is how much the price could fall, maximum. The amount you could lose, however, is unlimited, as the price could go up to $1000 a share, and you would be *losing* $900/share. The thing to keep in mind is often, when selling these contracts, the seller does not currently *own* the stocks, but borrows them from other investors they have agreements with, or signs similar option contracts to buy them at a specific date from another investor.

So what happened in the Gamestop situation, is that a hedge fund called Melvin Capital took on *huge* short positions on Gamestop. We're talking billions of dollars of short contracts. These are all coming due this week. A couple of weeks ago, a bunch of individual investors [[called "Retail" investors) on a Reddit subforum found out about the short position. This is not unusual, as all stock trades are public information - anyone can find out who is buying or selling what. What *was* unusual was the size of the short. So the group of Reddit investors started buying up shares of Gamestop. Lots of shares. The thing is, to cover their short position, the hedge fund was going to have to buy a *lot* of shares, above what they had contracts to buy. In the meantime, the price starts creeping up, making other investors hop on board causing the price to increase even more. Then, it's time for the hedge fund to start buying up shares to cover their short, driving the price up even more. This is called a short squeeze. You know that some huge institutional investor is going to be hoovering up shares, which should drive the price up a bit, so if you are large enough to bump the price up a little bit, the resulting increase is amplified, driving the shares you own up even more. The last part of all of this is that, as the Redditors took a dim view of hedge funds taking these short positions, they all agreed that they wouldn't sell their shares to Melvin, starving them of shares and driving the price up even more.

There is nothing illegal about any of this. There is no insider information being used, as all transactions are public record. The only thing keeping the large hedge funds doing this to each other, as far as I can tell, is professional courtesy. The end result is that Melvin Captial is loosing *huge* amounts of money on this short, as they were planning on the stock price being somewhere around $10/share, and it's currently trading somewhere around $300 a share. So, that is the price at which they have to purchase shares, to cover their contracts to sell the same stocks at $10/share, or whatever their short position was.

By the way, this isn't too far away from what Valentine and Winthorp did to the Duke brothers at the end of Trading Places. In that case, though, Valentine and Winthorp made it seem like the price of OJ would increase due to a fake crop report delivered to the Duke brothers, causing them to buy contracts at high prices [[that Valentine and Winthorp sold) After it was revealed there wouldn't be a bad crop of oranges that year, they waited for the price to collapse, and bought the shares they sold contracts for at a very low price. Also, while buying the cheap shares, they refused to buy from the Duke's trader, making their own contracts worth even less. As the Dukes were buying the high-priced but ultimately worthless contracts on credit, by the end of the trading day they were bankrupt, and kicked out of the exchange as they could not cover their contracts regardless.

Online trading platforms have subsequently stopped their users from buying more Gamestop stocks, causing quite a bit of outrage. Politicians weighing in run the gamut:

A.O.C. and Ted Cruz agree that what the independent investors are doing is fine [[!)

Elizabeth Warren thinks the SEC should investigate the independent investors [[?)

When asked about it at a White House briefing, press secretary Psaki said that the Treasury now has the first female head, and that the stock market is not a good indicator of American prosperity - so she had no idea what the reporter was talking about

[old guy]

I think all of this made for a much needed interesting news cycle. It’s good to see entrepreneurs of a different ilk on occasion. More power to them.

[Richard]

And he will still take home his salary of 300 million a year at Melvin.

This is game playing and teaching lessons at levels few are at,at the end of the day it was all the little mom and pop investors that end up holding the bag.

That guy was a shady snake from back in the Milken junk bond scam days,Poland stopped him short for trying that stuff over there.

I personally think those at the top,at the very top behind it all,like to teach lessons to people.

1929 everybody and their brothers housewife was buying and selling stock,people that really had no business in doing so,a few months before the crash all the ones at the top cashed out and crashed the market wiping the slate clean in the process.

We saw it again in the housing market crash,all of the sudden housewife’s became home flippers overnight.

A year before the crash,all the bigwigs cashed out and everything crashed and wiped everybody out in the process.

Then they come back in loaded with cash and pick up the pieces for pennies on the dollar.

The only way they can do all of that is because the individual investors are greedy,you see it in stock talk forums,people get in,double and triple thier initial investment thinking it is going to fly to the stars,then poof it is all wiped out in a second.

I think hedge funds are just big money laundering vehicles for those operating at a much higher level.

They do not really have anything to lose,it’s the retirement funds,city pension funds etc that take the fall.

I do not think the stock market is even controlled by market forces,it gets pumped up by individual investors thinking they hit the gravy train but it is still controlled by others.

Example and maybe off topic.

Keystone pipeline = two ways to move the oil.
Rail or pipeline

BNSF [[Berkshire Hathaway) owns the rail line,the only rail line.

BH lobbies Congress to shut the pipeline down based on environmental concerns.

It is announced that the pipeline is shut down,so that stock crashes.

BNSF stock shoots up because they stand to make billions on transporting the oil south via rail with zero competition they set the rate.

They just play their billionaire games,we get to pick up some of the crumbs in the form of buying stocks while assuming all of the risk in a controlled situation.

Back in March billionaire investor Ackman went on CNBC for 28 minutes and sent the message that because of the corona virus the stock market was going to crash and Hilton hotels was going to go bankrupt and we were at the gates of hell. His words but he scared everybody.

Based on that,the stock market took a dive,he jumped in and bought up and made 2 billion dollars instantly by buying the crashed hotel stoc, the stock market and economy was going strong before he said that and after the initial scare it all rebounded.

He cleared 2 billion dollars in less then 30 days.

Of course they are calling for criminal charges now,but it shows how one person can alter the stock markets in order to make them rise or crash.

Remember he was the same one that destroyed Herbalife and also made billions in the process.

His whole intent was to destroy it in the markets,so he could profit.

These people use the media to spread fear in order to crash a companies stock,and then swoop in a pick up the stock for profit.

Kudos for Reddit giving them the spanking they deserve.

You know who made all of this possible and funneled trillions into Wall Street in order to help transfer it all to the top while loosening restrictions?

Janet Yellen during the Obama administration,it was a part of the bank/Wall Street bailout program.

Where is she now?

Biden’s choice for the treasury department.

That is like giving the keys to the vault to the robbers.

That is why the White House press secretary diverted from the question,she knows exactly the game.

For those that have 401k,you need to find out who exactly is managing your money and where it is invested ,or it will be gone and there will be nothing you can do.

[old guy]

This is game playing and teaching lessons at levels few are at,at the end of the day it was all the little mom and pop investors that end up holding the bag.

Au contraire, the little people more or less, made out on this one. Hard to say in the long run who wins on the short side, but this was an eye opener for the fat cats on Wall Street.
Beat with their own religion.

[Richard]

Yea I know a few that made bank,but just as many that thought they could time it and lost it all.

Interesting enough Janet Yellen received $800,000 from citadel,who is right smack dab in the middle of all of this.

See we should have become politicians,easy money.

It is interesting how the new Biden proposal of taxing capital gains based on the increased value verses the cashed out value,is going to impact individual investors in the stock market.

So your stock rises,you get taxed on those gains,without you even pulling them out.

But what happens if the stock then drops in value,will they send you a refund?

Even home owners,you bought your house at $50,000 and it is now worth $100,000,they want to tax capital gains on the other $50,000 before you even sell it,you will owe that capital gains tax before even realizing the gain.

IF that becomes a reality,o am thinking it will pull a lot out of the market fast.

The really interesting part is Reddit tried to save AMC,but AMC is owned by the CCP,so it hardly needs saving when they are owned by the Chinese government.

If I was a conspiracy theorist and wanted to take it up another notch,I would think that this was not Reddit acting alone,they would not have made that play if they did not have somebody very powerful behind them.

If I was an even bigger conspiracy theorist,I would be thinking this was a probe or a test by the CCP to see how they could take control of the market.

As you can see,if you have enough money,you can crush anybody.

[JBMcB]

Interesting enough Janet Yellen received $800,000 from citadel,who is right smack dab in the middle of all of this.

Citadel is denying they have anything to do with this, as Citadel Inc. and Citadel Securities [[which has quite a bit to do with all of this) are completely separate companies. Citadel Securities is a wholly owned subsidiary of Citadel Inc, but they are completely different, see? No problems or conflicts of interest here.

[Richard]

Two words.

Plausible Deniability.

[oladub]

Gamestock unites AOC and Ted Cruz against Wall Street.

Droit du seigneur [['lord's right'), also known as jus primae noctis [['right of the first night'), was a supposed legal right in medieval Europe, allowing feudal lords to have sexual relations with subordinate women, in particular, on their wedding nights. -Wikipedia

Kelo v. City of New London, 545 U.S. 469 [[2005), was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.

Kelo was a major taking. Elites and their corporations no longer had to haggle and pay high prices to commoners for what they coveted. With the help of local governments after more taxes and friendly courts, eminent domain could condemn private property. New London home owners lost their property for prices below the market values Phizer wanted to pay. That's right, Pfizer who brought us viagra and Covid shots, was investing some of its surplus profit into a new shopping center, probably to cut its taxes, so home owners had to go. Republican Judge Souter joined with liberals to make it so. Some people have more rights than others. After all the houses were torn down, Pfizer decided not to build its shopping center.

When asked about Robinhood siding with wealthy hedge funds preventing commoners to buy certain stocks, the Whitehouse press secretary's answer was that a woman was now in charge of the Treasury Department diverting the question to safer territory.

[Wheels]

Citadel is denying they have anything to do with this, as Citadel Inc. and Citadel Securities [[which has quite a bit to do with all of this) are completely separate companies. Citadel Securities is a wholly owned subsidiary of Citadel Inc, but they are completely different, see? No problems or conflicts of interest here.

There is still more to investigate here and Miss circle back may be involved.

https://www.distractify.com/p/jeff-p...d-to-jen-psaki

[Gistok]

Kelo v. City of New London, 545 U.S. 469 [[2005), was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5–4 decision, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a permissible "public use" under the Takings Clause of the Fifth Amendment.

I had heard about this many years ago... but always wondered that since the Supreme Court ruled on this... why it isn't applicable to Michigan, where Mike Ilitch had to buy the land needed for LCA, instead of using the Eminent Domain laws that previously allowed the taking of land for Comerica Park and Ford Field.

I realize that the Michigan state constitution was amended in 2006 to prevent the taking of land for another private purpose... so I assume the Connecticut ruling was not for all 50 states.

[bust]

Gamestock unites AOC and Ted Cruz against Wall Street.

Hell yeah, that's wild!
Not that it matters: I wholeheartedly agree with them too.

Only one correction, regarding the stock market: these days it's hedge funds who call the shots / pull the strings / run the show / wear the boat shoes. Wall Street is pretty empty.

AOC and Ted Cruz against Greenwich, CT would be more accurate.
Even if these days it's not so simple: the generals / puppeteers / masters of ceremony / d-bags* could just as well be in Long Island, North Jersey, even South Florida, or overseas.

* Of course not everyone with a boat.

[oladub]

Bust, AOC and Ted Cruz, you and I are all one one this issue. This must be one of those Age of Aquarius moments or it would be except Facebook is censoring critics of Robinhood. This time its off to the cornfield for a group of 157,000 stock traders who criticized Robinhood's actions.

[bust]

I'll never be an apologist for Facebook, even without following your link.
I guess we have another thing in common.
And dare I put to words how I feel about Elon Musk? Better not. Maybe you agree.
Not sure if they'd be any better than the best I could muster for Ted Cruz, except this once.
They'd certainly be better than any I ever could muster for Trump, and three of his children.
But it warms my heart and gives me hope we agree about hedge funds.
I'll bet were we to explore more deeply the data pertaining to government spending, revenues, and debt we could find agreement there too. With open minds. I've tried before.
We agree on the end goal, if not how to get there.
We'll probably never agree about immigration, without an epiphany.
I've earnestly tried. Maybe you have too.
Maybe we've realized we have better things to do.
I look forward to finding more places of agreement, and discussing our differences with open minds, and facts.

[oladub]

Bust, Dennis Kucinich was a liberal Democrat and Ron Paul was a small government Republican. They voted more often the same way then either did with John McCain. Another thing they had in common was that the DNC and RNC were always trying to boot them from their respective parties. We can't expect to agree very often but there will be those magic moments when we might agree that it's a good idea not to drop bombs somewhere.

[JBMcB]

I realize that the Michigan state constitution was amended in 2006 to prevent the taking of land for another private purpose... so I assume the Connecticut ruling was not for all 50 states.

The Kelo decision meant that those types of eminent domain actions were allowable under the federal constitution, but also that states could ban them in their own constitutions. So you are right

[Lowell]

Here's a summary of the Gamestop situation with a primer on short selling.

A short position is where you sell an option to buy a stock to someone else at a specific price. So, let's say it's January, and you think a company is overvalued ...

Great opening post JBMcB!

I have been watching this story unwind, with a mix of amusement and alarm, both as a financial story and an internet story. Regarding the internet story, the center of this uprising formed in the sub Reddit discussion WallStreetBets and was enabled by the rise of the online trading app Robinhood combined with a legion of pandemic stuck-at-home Millennials and genZ's who were mailed stimulus checks ["The Children of the Economic Collapse" see picture below].

Robinhood allows free trades and partial share purchases such that one can buy, let's say, a $30 of a $3000+ Amazon share. So it is very easy for anyone to be a player for a few dollars--far from the days when I first bought a stock position in the 1970's via a stock broker [<- now there's an anachronism!] and paid $120 for the trade. That's likely more than the value of thousands of Robinhood accounts.

The chatter on WallStreetBets is exuberant, celebratory and filled with revenge glee, after taking down Melvin, and filled with pleas for everybody to hold and not to profit take until the short squeeze is completed. [Letting emotion get the better of financial wisdom, in my opinion, but then if you only have a hundred dollars or so at stake, why not join the rebellion?]

Here's a taste.
Attachment 41251
Attachment 41252

[Lowell]

This AP article gives more description of the scorched-earth rebellion.

GameStop traders were fueled by spite
https://freep-mi.newsmemory.com?publ...4ba194_1345bf7

[jcole]

Oh, my God, she shares a last name with someone who works for Robinhood. Hang her from the highest tree. Talk about a desperate attempt at making someone look bad.

There is still more to investigate here and Miss circle back may be involved.

https://www.distractify.com/p/jeff-p...d-to-jen-psaki

[Jimaz]

This AP article gives more description of the scorched-earth rebellion.

GameStop traders were fueled by spite
https://freep-mi.newsmemory.com?publ...4ba194_1345bf7

But as one Reddit user wrote Friday, asserting that hedge fund financiers would drink champagne as they looked down upon Occupy Wall Street protesters in 2011: “I'd rather lose it all than give them what they need to destroy me ... I'll burn it all down just to spite them.”

I had a feeling that imagery would not be forgotten. In general, it's unwise to mock the misery of the masses [[e.g., in a "let them eat cake" way). They were lucky to survive alive.

[Gistok]

This AP article gives more description of the scorched-earth rebellion.

Lets call this the "Wall Street Schadenfreude Rebellion"...

[bust]

Fed up small fry rebellion
Buy on wi-fi rebellion

Joint risk taker rebellion
Market breaker rebellion

Myth remaker rebellion
Sell it later rebellion

Intervention rebellion
Condescension rebellion

Mass subcultures rebellion
Rid the vultures rebellion

Push up put down rebellion
Rise up hometown rebel young

[Gistok]

^^ Bust... I think you just wrote the lyrics to the next Eminem song...

[JBMcB]

A quick clarification on my original post explaining short selling. I was conflating two mechanisms.

In a "regular" short, you borrow stock from someone on contract, immediately sell it, then buy the stock back at the end of the contract to return the shares to the original owner. The profit you make is the drop in price.

There are also options and derivatives you can buy to profit on drops in price, which are more complicated, but also came into play here. For instance, to protect itself from price hikes, Melvin may have bought option contracts to buy the stock at a specific price from another hedge fund, as a sort of insurance. That other hedge fund may not have owned the shares at the time, so, although Melvin was protected by the price hike, the secondary hedge fund was not.

The need for regulating some of this is obvious, however, there are *very* valid reasons for many of these investment techniques to exist. The company I work for, for example, has had a *very* stable stock price, even through the financial downturn in the late 2000s. This is entirely due to the financial officers of the company hedging the stock price against fluctuations using options and shorting techniques. The end result of that was, even during the recession, they could sell stock to raise capital so they didn't have to lay anyone off.

[Richard]

If one wants to make money on stocks and options,just follow what those are in a position to dictate policies.

https://apple.news/AKOOwum6iTMKxXjMCmulwHA

The guys that pulled this off are now switching to SPACs,personally I am thinking they are doing it to set the stage,in order to capitalize on the upcoming “green energy” billions that are going to start flowing into the pipeline.

[bust]

^^ Bust... I think you just wrote the lyrics to the next Eminem song...

Ironically I don't like his music, especially not his lyrics.