Gamestop stock surges 400% this week alone

[Quackers101]

When you hear this money goes to some people that needs it, for medical reasons or other.

What a great gamer move, of course it had to be since it's a new year.

Don't look into why it's on wednesday, jan 6, jan...

[Blade of Grass]

2 hours ago, Shreyas1 said:

Eh, I'd take that with a grain of salt seeing as RobinHood would never just say that they wanted to save their clients. While there is no concrete proof, there's no way they made that decision without also thinking of Citadel. Maybe they were going to do it anyways though

 

Regardless, this hurt them pretty badly.

 

[rcmaehl]

You see Robinhood has reinsurance.

Reinsurance covers large losses

RH get losses when the investors (RH users) can't pay

GME will eventually go down to a reasonable price within a year or so

There WILL be losses and people who can't pay due to lack of buyers on the way down

The amount of money RH will lose overall is likely going to be past their reinsurance policy

 

Or something like that

EDIT: SEE BELOW

[Blade of Grass]

17 hours ago, rcmaehl said:

You see Robinhood has reinsurance.

Reinsurance covers large losses

RH get losses when the investors (RH users) can't pay

GME will eventually go down to a reasonable price within a year or so

There WILL be losses and people who can't pay due to lack of buyers on the way down

The amount of money RH will lose overall is likely going to be past their reinsurance policy

 

Or something like that

 

Mmm no, Robinhood is a member of the Depository Trust & Clearing Corporation (equity clearing house). Part of the DTCC rules (more specifically, National Securities Clearing Corporation rules) requires members to post collateral to mitigate the credit risk associated with T+2 settlement. Essentially, when you buy a stock on day T0, the actual "exchange" (money for stock) happens on the T+2 day later. So for those 2 days pending, there's risk that the buyer or seller (counter-party) won't actually produce the money or shares that they owe, so instead, the NSCC requires all members (like Robinhood, or JP Morgan) to make collateral deposits daily to mitigate this risk. Essentially, losses are socialized between all clearinghouse members.  

 

From Wednesday to Thursday the DTCC required an additional $7.5 Billion dollars of collateral to be posted by member-firms (from $26.5B to $33B).

[steelo]

8 minutes ago, Blade of Grass said:

Mmm no, Robinhood is a member of the Depository Trust & Clearing Corporation (equity clearing house). Part of the DTCC rules (more specifically, National Securities Clearing Corporation rules) requires members to post collateral to mitigate the credit risk associated with T+2 settlement. Essentially, when you buy a stock on day T0, the actual "exchange" (money for stock) happens on the T+2 day later. So for those 2 days pending, there's risk that the buyer or seller (counter-party) won't actually produce the money or shares that they owe, so instead, the NSCC requires all members (like Robinhood, or JP Morgan) to make collateral deposits daily to mitigate this risk. Essentially, losses are socialized between all clearinghouse members.  

 

From Wednesday to Thursday the DTCC required an additional $7.5 Billion dollars of collateral to be posted by member-firms (from $26.5B to $33B).

It's getting worse and worse for short sellers. I can't say that this breaks my heart.

[Kisai]

1 hour ago, steelo said:

It's getting worse and worse for short sellers. I can't say that this breaks my heart.

Metaphorically, eat the rich.

 

It a perfectly, fraud-free, functioning stock market, the stock price would represent the book value of the physical assets + the revenue (profits - losses - taxes), and people buying into it would want a share of that value, and people selling are getting out for whatever reason (eg retirement). Dividend paying stocks have no reason to even be sold short, they already pay out, and thus people are more likely to just buy the stock to hold forever.

 

Short selling has wrecked many companies, just on the rumors alone, and it results in sucking the value out of a company that it would otherwise could function on.

 

High Frequency Trading has made this worse, all the circuit-breakers to prevent a flash crash? That's to prevent HFT from crashing the market every time a stock moves in ways detached from fundamentals. It's something that wouldn't be necessary if short selling was impossible, because nobody in the right mind buys a stock detached from fundamentals right? Until now at least. The power of internet mob mentality.

 

At any rate, short selling at best, should be restricted to assets you own only. Not assets owned by the brokerage, or in other brokerages. 

 

[Zodiark1593]

6 hours ago, Kisai said:

 

 

At any rate, short selling at best, should be restricted to assets you own only. Not assets owned by the brokerage, or in other brokerages. 

 

When I was learning about stock trading, the potential infinite downside of Shorting a stock was among the first things I read through. It would appear that these “professional” investors have neglected to properly hedge their shorts against catastrophic losses. The irony of losing billions in such a rookie error isn’t wasted on me. 

[Kisai]

2 hours ago, Zodiark1593 said:

When I was learning about stock trading, the potential infinite downside of Shorting a stock was among the first things I read through. It would appear that these “professional” investors have neglected to properly hedge their shorts against catastrophic losses. The irony of losing billions in such a rookie error isn’t wasted on me. 

Yep.

 

And when it's infinite, it's literately infinite. If you bought a share at $1.00 and then it suddenly blew up to $1000, you're ahead $999, but if you short it at $1000 expecting it to go down to $1, it potentially could keep going up, heck they may even split the stock and it goes even higher, exploding your exposure. Like shorting stocks is risky to begin with, but if you're not playing with your own money, then you're risking other investors money.

 

Short sellers are -ALWAYS- the bad guy in a trade. Always. Ultimately shorts require a lot of research, and you have to be absolutely certain a company is going down the toilet. Like if Gamestop was on the verge of bankruptcy, you wouldn't want to be in it in the first place, because you don't want to be holding the stock when it becomes worthless.

 

Again, not financial advice, I don't think GME is worth the value it's at, but if there really are enough people removing short'able stocks to bankrupt some hedge funds, this was probably a good choice to pile into, assuming you piled into the stock, and not the options. If you piled into the options, you're basically playing the same game as shorting the market. Options are very complicated. 

 

AMC, I feel was a riskier bet, as it's been on the verge of bankruptcy, but this pile on by reddit may have actually saved it.

 

Nokia and Blackberry, those companies aren't going anywhere. They may not make phones people want anymore, but they're still in infrastructure and software.

 

 

[Quackers101]

places to go to movies can still hold up, maybe not were it's currently at in a lot  of places and if it was automated?

Kinda depends on the location, country, space limitations, social aspects and stuff like that. Then again they can't offer the OLED experience in 4K if one could do so at home, and if the content is in 4K or upscaled. To sounds, the sound and social aspect could do well for such places, but I guess they will be still hold back and add on a lot of cost to improve to become worth it?

[Zodiark1593]

2 hours ago, Kisai said:

Yep.

 

And when it's infinite, it's literately infinite. If you bought a share at $1.00 and then it suddenly blew up to $1000, you're ahead $999, but if you short it at $1000 expecting it to go down to $1, it potentially could keep going up, heck they may even split the stock and it goes even higher, exploding your exposure. Like shorting stocks is risky to begin with, but if you're not playing with your own money, then you're risking other investors money.

 

Short sellers are -ALWAYS- the bad guy in a trade. Always. Ultimately shorts require a lot of research, and you have to be absolutely certain a company is going down the toilet. Like if Gamestop was on the verge of bankruptcy, you wouldn't want to be in it in the first place, because you don't want to be holding the stock when it becomes worthless.

 

 

 

 

Some companies rightly deserved to be shorted due to legitimate fraudulent practices, with some notable examples being Enron and Nikola. I don’t feel the practice of shorting itself to be evil.

However, a hedge (whether the broker or buyer does so) should really be mandatory when taking on Short positions, preferably before another errant firm proceeds to shoot itself in the face. 

[Kisai]

10 hours ago, Zodiark1593 said:

Some companies rightly deserved to be shorted due to legitimate fraudulent practices, with some notable examples being Enron and Nikola. I don’t feel the practice of shorting itself to be evil.

 

That's when I emphasized research. In a market without short selling, people would just sell, period, and if it's going down the toilet, the price would still reflect the remaining equity in the company. Shorts push the value below the book value of the assets, which is quite frankly the problem.

Quote

However, a hedge (whether the broker or buyer does so) should really be mandatory when taking on Short positions, preferably before another errant firm proceeds to shoot itself in the face. 

Anyone taking a short position in a company really should be required to publish it, and the date they closed it, no matter how big the position is. Mandatory reporting is thus far only required for really large, institutional positions, which means the reverse problem exists where a mob of shorts could also destroy a company. Hence again, you should only be able to short what you own assets for, and nothing more. Long purchases can't possibly destroy the company, you just end up holding the bag if the company goes bankrupt. If that company shows earnings that are negative, then the stock is of course going to lose some value. So a smart investor who has done their research might short the stock the day before earnings, and then buy to cover after the drop, and no actual harm has happened.

 

But again, the company or individual doing the short, is always the evil one. Betting for a company to fail? Manipulating the market so that it goes bankrupt or is an easy target to take-over? Evil. Like straight out of the business villain's handbook along side outsourcing customer service.

 

[Blade of Grass]

On 1/29/2021 at 3:31 PM, Kisai said:

Metaphorically, eat the rich.

 

It a perfectly, fraud-free, functioning stock market, the stock price would represent the book value of the physical assets + the revenue (profits - losses - taxes), and people buying into it would want a share of that value, and people selling are getting out for whatever reason (eg retirement). Dividend paying stocks have no reason to even be sold short, they already pay out, and thus people are more likely to just buy the stock to hold forever.

Errr no? What kind of valuation model of this? Future returns have zero value to buyers or sellers?

Quote

Short selling has wrecked many companies, just on the rumors alone, and it results in sucking the value out of a company that it would otherwise could function on.

And long stocks have wrecked many peoples and employees wealth. Ask Enron employees and investors how they feel. 

Quote

High Frequency Trading has made this worse, all the circuit-breakers to prevent a flash crash? That's to prevent HFT from crashing the market every time a stock moves in ways detached from fundamentals. It's something that wouldn't be necessary if short selling was impossible, because nobody in the right mind buys a stock detached from fundamentals right? Until now at least. The power of internet mob mentality.

Yes, those pesky circuit breakers invented in the 80s to curb high frequency trading

No one buys a stock detached from fundamentals? Tesla would like to know your location. 

Quote

At any rate, short selling at best, should be restricted to assets you own only. Not assets owned by the brokerage, or in other brokerages. 

Why?

 

17 hours ago, Kisai said:

Short sellers are -ALWAYS- the bad guy in a trade. Always.

Why?

Quote

Ultimately shorts require a lot of research, and you have to be absolutely certain a company is going down the toilet. Like if Gamestop was on the verge of bankruptcy, you wouldn't want to be in it in the first place, because you don't want to be holding the stock when it becomes worthless.

Hence why you short the stock? Or short it’s bonds? Or sell CDS on its bonds?

Quote

If you piled into the options, you're basically playing the same game as shorting the market.

wat

 

[Kisai]

4 hours ago, Blade of Grass said:

Errr no? What kind of valuation model of this? Future returns have zero value to buyers or sellers?

 

 

You sell when you want out. You need some quick money? Sell a few stocks. Does the stock pay dividends? No need to ever cash out. A Growth stock will grow, and increase it's dividend.

 

Y'all keep bringing up Enron, like fraud would be discovered by short sellers. It would be discovered either way, but the shorts wouldn't have the opportunity to obliterate the company and all the jobs connected to the company. Maybe a company found to be cooking the books would lose value by itself, and those who were long in it, clearly would lose value, but the shorts will suck all that money out of the company and then some, leaving the company with no means of recovery.

 

Enron was 2001, and impacted wholesale electricity nationwide, but was especially brutal on the West coast.

 

The 2008 Financial crisis threw everyone with a mortgage on a house or a car on a subprime loan under the bus. The bankers and investment firms got off scott free. The short sellers? made off like bandits.

 

The situation now with GME is just the tip of the iceberg of revenge of the retail investor. As I've said in this thread (not financial advice) , I wouldn't have piled into GME, it has never had the valuation it's at. It's completely detached from fundamentals in a way that people who got into "buy and hold" for the short squeeze are going to be very disappointed, and I hope I'm wrong.

 

[Blade of Grass]

1 hour ago, Kisai said:

You sell when you want out. You need some quick money? Sell a few stocks. Does the stock pay dividends? No need to ever cash out. A Growth stock will grow, and increase it's dividend.

None of this validates your pricing model, it’s just far too simplistic, which is why it’s in no way reflective of real world asset pricing. If you want a good example of a simple pricing model, look at a discounted cash flow model. If you want a more complex model, look at the CAPM model. 

Pricing is not easy, let’s not try and pretend it is. 

Quote

Y'all keep bringing up Enron, like fraud would be discovered by short sellers.

Go look at the Wirecard fraud. 

Quote

It would be discovered either way, but the shorts wouldn't have the opportunity to obliterate the company and all the jobs connected to the company. Maybe a company found to be cooking the books would lose value by itself, and those who were long in it, clearly would lose value, but the shorts will suck all that money out of the company and then some, leaving the company with no means of recovery.

Or maybe the company has been doing terrible things and deserves it? Who are we to preconceive every case?

 

Poor BP Oil, their stock might be shorted after they cause an oil spill, won’t anyone think of the corporate execs?!? Their stock based compensation!?! 

Quote

The short sellers? made off like bandits.

Yeah, and people long lost money. This is what happens when you’re on the right vs. wrong side of a trade. People who correctly predicted the financial crisis are somehow the bad guys cause they’re right? 
 

 

[Mark Kaine]

Umm, can someone give me a tldr what this is all about? (the fact that it seems like a store chain like gamestop is traded at Wallstreet is irritating me greatly tbh...) 

 

And also why is Robin Hood (protected by Google inc™) the bad guy...? 

[Quackers101]

12 minutes ago, Mark Kaine said:

And also why is Robin Hood (protected by Google inc™) the bad guy...? 

I guess it's because in some ways they are connected with some of the billionares and gave them money? makes their actions look a bit too sus.

While it might not be fully RH's fault, their statement about allowing people to trade while others can, makes it feel like they are pushing out the lower class of people in trade. While this is not correct, but might show up the statements about RH selling some peoples stock without being allowed, if true or not.

[mariushm]

29 minutes ago, Mark Kaine said:

Umm, can someone give me a tldr what this is all about? (the fact that it seems like a store chain like gamestop is traded at Wallstreet is irritating me greatly tbh...) 

 

And also why is Robin Hood (protected by Google inc™) the bad guy...? 

A big hedge fund shorted the stocks of Gamestop ... 

Basically think of it like this :  you see there's a high demand for RTX 3080 cards but you bet 2 weeks from now there's gonna be cards in stock at retail price, so you borrow 10 RTX 3080 cards from friends valued $800 each and promise to give them back 2 weeks from now, or their value plus some interest.

Your plan is to sell those 10 cards on eBay and 2 weeks from now, buy 10 RTX 3080 cards from retail stores at let's say $600 and return 10 new video cards to your friends, pocketing the profit ... 10 x ($800-$600) = $2000 ).

The people on reddit wallstreetbets saw that you've loaned 10 rtx 3080 cards valued at $800 and that you have to buy 10 cards two weeks from now, so close to the end of two weeks they group together and raid the stores making it impossible to buy those 10 cards... and at the same time, the price on used rtx 3080 goes up, let's say they go on sale used for $1000-1500.

At the end of two weeks, you have to buy 10 cards, so you're forced to lose money by buying back those 10 cards at higher price.

 

So the hedge fund screwed up by "borrowing" more shares than actually exist, they borrowed around 120% of possible shares ... the short was a bet that the value of the shares would go down until a certain date, when they'd pocket the difference.

The price of the shares went down, naturally, and they would have made a big profit but as the end date got closer, the hedge fund had to start buying the shares back and the reddit people started to also buy them before the hedge fund could buy them, and offered to sell the at a high price... high demand, low amount available means the price of shares goes up ... so now the hedge fund is forced to buy shares back at hundreds of dollars a share instead of a few dollars a share.

 

 

[Mark Kaine]

9 minutes ago, mariushm said:

A big hedge fund shorted the stocks of Gamestop ... 

Basically think of it like this :  you see there's a high demand for RTX 3080 cards but you bet 2 weeks from now there's gonna be cards in stock at retail price, so you borrow 10 RTX 3080 cards from friends valued $800 each and promise to give them back 2 weeks from now, or their value plus some interest.

Your plan is to sell those 10 cards on eBay and 2 weeks from now, buy 10 RTX 3080 cards from retail stores at let's say $600 and return 10 new video cards to your friends, pocketing the profit ... 10 x ($800-$600) = $2000 ).

The people on reddit wallstreetbets saw that you've loaned 10 rtx 3080 cards valued at $800 and that you have to buy 10 cards two weeks from now, so close to the end of two weeks they group together and raid the stores making it impossible to buy those 10 cards... and at the same time, the price on used rtx 3080 goes up, let's say they go on sale used for $1000-1500.

At the end of two weeks, you have to buy 10 cards, so you're forced to lose money by buying back those 10 cards at higher price.

 

So the hedge fund screwed up by "borrowing" more shares than actually exist, they borrowed around 120% of possible shares ... the short was a bet that the value of the shares would go down until a certain date, when they'd pocket the difference.

The price of the shares went down, naturally, and they would have made a big profit but as the end date got closer, the hedge fund had to start buying the shares back and the reddit people started to also buy them before the hedge fund could buy them, and offered to sell the at a high price... high demand, low amount available means the price of shares goes up ... so now the hedge fund is forced to buy shares back at hundreds of dollars a share instead of a few dollars a share.

 

 

Oh I see! Thanks for the explanation, I thought gamestop somehow messed up... but this just seems to be, well, a "reddit sticks it to the man" thing?

 

And the hedge fund was... Robin Hood, or run trough them? 

 

I don't understand it entirely, but that's ok, at least I know what this is about now.

[Loki0111]

2 hours ago, Mark Kaine said:

Oh I see! Thanks for the explanation, I thought gamestop somehow messed up... but this just seems to be, well, a "reddit sticks it to the man" thing?

 

And the hedge fund was... Robin Hood, or run trough them? 

 

I don't understand it entirely, but that's ok, at least I know what this is about now.

Its actually a whole bunch of the big hedge funds.

 

Several of the big players who could afford to bail themselves out and cut their future losses have already done so. All of them lost huge amounts of money on this short.

 

Some of the remaining players are probably holding on praying the stock falls at some point so they can minimize the hit they take when they pull out. Others are already so far in the red that even with billions in potential capital they can't actually afford to buy back enough stock to cover their losses right now so those players are locked in for the whole ride or until they tank and go under. The longer this goes on the more the remaining players bleed, total losses for the hedges where somewhere over $20 billion this year so far apparently.

 

Robin Hood is a trading app, though as I understand it they have some level exposure to this.

 

Quote

 

MARKETS

GameStop short sellers are still not surrendering despite nearly $20 billion in losses this month

https://www.cnbc.com/2021/01/29/gamestop-short-sellers-are-still-not-surrendering-despite-nearly-20-billion-in-losses-this-year.html

 

 

[mariushm]

49 minutes ago, Mark Kaine said:

Oh I see! Thanks for the explanation, I thought gamestop somehow messed up... but this just seems to be, well, a "reddit sticks it to the man" thing?

 

And the hedge fund was... Robin Hood, or run trough them? 

 

I don't understand it entirely, but that's ok, at least I know what this is about now.

Yeah, sticking it to the big hedge funds...

 

Robin Hood simply made it easy to buy shares without fees and complicated steps ... the thing was that - I think - they're partially owned by one of the hedge fund that lost big time, and I think they also received some funding from one of those hedge funds ... so my guess is they got pressured into blocking regular people from buying stocks while letting people only sell the stocks (making people scared and pushing them to sell the stocks, lowering the price of shares and helping hedge funds lose less money)

 

I'm afraid though that at the end they're gonna get bailed out somehow... because some of those big hedge funds use money from New York teachers and firemen and others  pensions and retirement accounts to gamble and if they lose that money or go bankrupt... lots of people's retirement will suffer.

 

 

 

[Loki0111]

1 hour ago, mariushm said:

Yeah, sticking it to the big hedge funds...

 

Robin Hood simply made it easy to buy shares without fees and complicated steps ... the thing was that - I think - they're partially owned by one of the hedge fund that lost big time, and I think they also received some funding from one of those hedge funds ... so my guess is they got pressured into blocking regular people from buying stocks while letting people only sell the stocks (making people scared and pushing them to sell the stocks, lowering the price of shares and helping hedge funds lose less money)

 

I'm afraid though that at the end they're gonna get bailed out somehow... because some of those big hedge funds use money from New York teachers and firemen and others  pensions and retirement accounts to gamble and if they lose that money or go bankrupt... lots of people's retirement will suffer.

 

 

 

 

You should see the random guy (Keith Gill) on reddit who started all of this. 

 

At the beginning he bought $50k worth of stock on GameStop (part of that was he noticed the short positions on GME) months back and people on reddit were telling him he was nuts and an idiot.

 

He was sitting on $46 million in stock and climbing as of yesterday.

 

 

[Mark Kaine]

38 minutes ago, Loki0111 said:

He was sitting on $46 million in stock and climbing as of yesterday.

I was going to ask if gs is even worth this much... seriously... but I see now... 

 

 

Quote

What’s the $23 Billion GameStop Really Worth? Maybe $2 Billion

... I honestly thought they should be near bankruptcy by now... 

 

(Bloomberg says similar in this article)

"This is a company that some analysts essentially wrote off a year ago, that has been shuttering hundreds of stores, that has struggled for years..." 

 

https://www.bloomberg.com/news/articles/2021-01-27/what-s-the-23-billion-gamestop-really-worth-maybe-2-billion

 

but looks the stock market saved them, for whatever reason? 

 

I get it, it's all fun and games... until the funds and pensions from the working class are gambled away... not sure why this stuff isn't better regulated by now (seems to keep happening) 

[Loki0111]

38 minutes ago, Mark Kaine said:

I was going to ask if gs is even worth this much... seriously... but I see now... 

 

 

... I honestly thought they should be near bankruptcy by now... 

 

(Bloomberg says similar in this article)

"This is a company that some analysts essentially wrote off a year ago, that has been shuttering hundreds of stores, that has struggled for years..." 

 

https://www.bloomberg.com/news/articles/2021-01-27/what-s-the-23-billion-gamestop-really-worth-maybe-2-billion

 

but looks the stock market saved them, for whatever reason? 

 

I get it, it's all fun and games... until the funds from the working class are gambled away... not sure why this stuff isn't better regulated by now (seems to keep happening) 

That is the core point.

 

The hedge funds should never have been gambling other peoples money on shorts like this, its literally fucking insane. Even if they insisted on shorting there are ways to cover yourself with options to minimize any potential losses. To do it the way some of them did was just utterly reckless. Its essentially a small scale version of what happened in 2008.

 

Odds are the government will bail them out but this can't be allowed to continue like this. They literally just got taken down by a random novice investor with 50k, the guy has a mullet and wears shirts and hats with cat pictures on them.

 

You should see his Youtube channel.

 

 

[Heliian]

So what is going to happen next?  Gamestop is still on its way out, propping up the corpse can only last so long.  When does the price plummet again?  Can the shorters just hold on until it inevitably fails? 

[Shreyas1]

38 minutes ago, Heliian said:

So what is going to happen next?  Gamestop is still on its way out, propping up the corpse can only last so long.  When does the price plummet again?  Can the shorters just hold on until it inevitably fails? 

Well, it certainly won't stay at around 300.

 

but keep in mind that good news for GameStop was what started this. They got a new board member, who was very successful against Amazon in the past, had some really good holiday sales, a partnership with Microsoft, and are planning a major restructuring