Trolling Wall Street

[cellio]

This is oddly fascinating, even though I don't understand all of it. If I understand correctly:

A "short" is a bet that a stock price will fall: you promise to sell it on a certain date at a certain price, but you don't actually own the shares. On that day, the idea goes, you'll buy the shares at the lower price you expect and then turn around and fulfill your contract, pocketing the difference. I don't know if regular folks like you and me can do that, or if only investment funds and professional stock-market people can. There are some rules that are different for the big players and the little folks; I don't know if this is one of them.

So... some big Wall Street hedge funds (one often mentioned is Melvin Capital) placed vast quantities of shorts on a gaming-gear company that isn't doing well (GameStop). A bunch of people on Reddit observed this and said to Wall Street: hold my beer.

They bought the stock. Hundreds of thousands of people on Reddit bought the stock. At that scale, any individual participant doesn't have to buy a lot; you could play this game for $20 back when it started. And it's not like you can spend that $20 going out to a movie right now, so there was probably an untapped market of bored people looking for fun.

Did I mention that this subreddit bills itself as "like 4Chan for investers"? And did I mention that Elon Musk tweeted about it to his 42 million followers? That subreddit has way more than "hundreds of thousands" of subscribers now.

What happens when lots of shares of a stock start getting bought? The price goes up. The price for GameStop shot up from less than $20 to, at one point, $347. And I think it was higher; I was only able to find daily closing prices, and the hour-by-hour swings have reportedly been wild. There's some background information on CNet.

The stock price, of course, won't stay high. It's a ridiculous price for that company, and eventually the market will bring it back down. But in the meantime, those hedge funds holding shorts have lost billions of dollars -- remember, they still have to buy the stock on "short day", at whatever price is then current, and then sell it for $10 or whatever the bet was.

The Redditors and crew, meanwhile, have turned their sights to other stocks; Blackberry and AMC have been mentioned as other companies in trouble that investors have considered prime candidates for shorts. Stock exchanges and Robinhood have stopped trading at times or restricted purchases.

By the way, the people rallying against Wall Street have a song -- a sea shanty:

Watch on YouTube

I don't know what a "tendieman" is (Google has been unhelpful), though I assume it has to do with tendering, in this case selling at the right time. Ryan Cohen is a major investor in GameStop who's recently been investing more and trying to change the company's business strategy, though I can't tell if he has an actual position there. (The song implies he's on the board.)

As far as I know, the people organizing on Reddit and wherever else aren't doing anything illegal. They're not insider traders with privileged information -- quite the opposite. They're just...massively trolling big investors who traditionally make a lot of money with these kinds of bets. Some of them seem to be in it for the laughs; some are trying to make money riding this (but a lot of them will probably lose money, including anybody who tries to join in now). The line between a movement and a mob can be fuzzy; I'm not sure which this is. I wonder what the other damages are going to be. They're pitching this as little people versus big investors, but will little people with modest retirement funds end up taking some of that damage in those funds too? Or are hedge funds more esoteric and not usually part of IRAs and suchlike?

Bizarre, fascinating, and unsettling.

Comments

It may have started that way

[ng_moonmoth]

It's not nearly as much that way now. One of the other dangerous characteristics of today's stock market legally sanctioned casino is that there are a lot of people with a lot of money, and a lot of people whose job it is to take care of other people's money, who run quite sophisticated computer programs that look for opportunities to make lots of money. When those programs detect a "short squeeze", which is the technical term for what's happening with Game Stop right now, they signal this to the people running the programs, who can work out what level of risk they want to pursue in search of making lots of money. Which they will get when the hedge funds must buy. (Except that the hedge funds have other tools weapons by which they can cap their losses once they decide they've had enough. Which they are using.)

What this works out to is that even though it started with small investors, the "whales" are now playing, too, and with numbers swamping that of the "little guys". And, no surprise, will reap most of the profits. So, once again, the rich get richer, and the less rich get the shaft.

[fauxklore]

Tendies refers to things people buy with their quick profits. It is, apparently, derived from someone posting a picture on Reddit of chicken tenders bought after some stock deal.

One of my friends is really wrapped up in this, based on a tip from her son. She plans to sell tomorrow and will have made about $60K in about a week if I nderstsnd it correctly.

[conuly]

Short-selling is how the tables are turned on the Dukes in Trading Places.

https://en.wikipedia.org/wiki/Trading_Places#Analysis

Presumably any average Joe could do it. What any average Joe could not do is find a way to weasel out of losing billions if they bet wrong.

[siderea]

I have been following this intensely. Full disclosure: I am on a side here, and while I am as of yet not financially biased, it is not for want of trying.

I am given to understand that mere mortals don't have access to the hedge funds. Nobody's 401k is involved, this is strictly rich people's money. I don't know this for certain, and would certainly like to hear to the contrary if anybody knows better.

This isn't just trolling, this is turned into big-game hunting. For a whole lot of participants, this is some flavor of personal. Grudges at stake are:

• The sorts of folks who hang out in the relevant forum on Reddit are generally "little guys", and as a class they feel (and probably legitimately are) hard done by by the "big guys", particularly in differential rules and differential enforcement of the rules. They started out that way, and the Robinhood dickery and initial hostile press coverage has converted a lot of other people to their possition.

• Some people have posted basically manifestos in the relevant forum about the poverty they grew up in and the devastation to their family because of the financial crisis of '08, and watching the hedge funds get bailed out. This is apparently for some people, revenge. They don't care if their money burns, if it burns down a hedge fund, too. Apparently huge numbers of people are buying GME in solidarity with this position: tiny amounts, comparatively, but the forum is up to 5 million members.

• This is being compared to Occupy Wall Street: open class war, fought in the stock market. It's being described as "the biggest redistribution of wealth you'll see in our lifetime", and "preserving jobs" (by saving GameStop).

• Quite a lot of the relevant forum on Reddit is gamers, and many are personally nostalgic about GameStop. Little appreciated detail of all of this: shorting a company's stock can bankrupt it. There are Redditors who bought stock in GameStop because they had fond memories of the company, particularly from childhood, and were pissed about it being targeted for liquidation.

• I have no idea if anybody else out there finds this sort of predation on struggling
companies by short-sellers odious, but I remember the 80s, and I just wish somebody would move aside long enough for me to stick my spear in, too.

On top of the above, one of the little discussed positive drivers of the Redditors is that this really all because of one guy, who did amazing due diligence. He figured out back in 2019 that GameStop was undervalued, and would probably go up, not down – if the shorters didn't kill it. So he put his money where his mouth was: $55k on it. And he told the forum; the members laughed him out of it. But he kept talking it up, and when six months later, he lost money on it, and they mocked him, he doubled down. Over the last year, other Redditors became convinced of his analysis – and, hell, it was trading at, what, $9/share? – and bought in. That guy? His stock in GME was worth 50 million dollars on Wednesday.

He is, obviously, being hailed as the greatest hero the Reddit traders have ever seen. And while he's liquidated a little – 13 million – he's holding the rest. So buying in and holding to "ride the rocket" with him, is sort of like cheering on a sports team, and getting to be a part of what he and other early investors are doing.

And people have done things like posting screen shots of themselves paying off their student loans, and leaving tearful grateful messages about being able to pay off their medical debt.

But mostly the Redditors are not selling. The whole point is to hold hostage the stock that the short sellers so desperately need to close their positions. People are speculating aloud that it might break $1000/share. Or more. There's no theoretical limit. All the market will bear, right?

As of right now, at just about 5am, after-hours trading has brought it up to over $400 a share. It was close to $500 on Thursday, then fell when Robinhood.com, a self-serve no-commission no-minimum brokerage cut off buying GME and some of the other "meme stocks". It's been rallying since, and Robinhood just announced it's allowing some buying of GME now. A lot of people seem to think that squeeze day – the day many of the shorts have to close – might be today (Friday). When the squeeze happens, that's when the price truly goes beserk.

Should be interesting today.

P.S. "Tendies" refers to chicken tenders, and means profits, specifically the profits from trades, in the slang of the relevant forum.

Backgrounder...

[https://login.ubuntu.com/+id/hsFMttp]

A year or two ago we watched "The Big Short" (film). Without that experience, I would have no clue at all about the current "short" new item(s). An enjoyable watch, even if I finished the film as baffled by "shorting" as before.

There's an interesting read from an extract of a book (related to the film):

https://www.vanityfair.com/news/2010/04/wall-street-excerpt-201004

That's by way of background, of course. Michael Burry's newsletters can still be found online if that's of any interest. Meanwhile, it seems the tables are being turned....

David (Edinburgh, UK) (hope you're keeping well, Monica!)

[minoanmiss]

Yeah, that was an adventure to read about.

[fauxklore]

One other point:

Anybody (sort of) can short a stock. It generally requires having a margin account and respectable brokerages make you fill out an application so they don’t give margin accounts to people who they don’t think understand the risks. And, typically, there isn’t a pre-set deadline, but they can call the short (I.e. make you cover your position) whenever the brokerage wants to. You can limit your risk by setting limits so you automatically buy the shares if thebptice goes up a certain amount, but, in these days of automated trading that may not work completely.