People gathering in Reddit chatrooms have sent the stock price through the roof. Trading platforms, including Robinhood, blocked people from buying any more of the stock this morning, saying they wanted to save people from losing too much money.
Full Answer
How did Reddit and Wall Street bets drive up stocks?
Jan 29, 2021 · One Twitter user, @jaredhoy , explained the mechanics of the gambit in a viral tweet. "A 'short' is when you borrow a stock from a broker and sell it immediately at its current price," he wrote. "Then you hope the stock's price falls such that you can buy the stock back at a lower price and return the shares you borrowed to your broker, but keeping the difference."
Did Reddit-inspired investors beat two major institutional investors?
Jan 28, 2021 · The bet is that the price will go down, so that when they have to return the stocks to the entities from which they were borrowed by buying them back on …
Can the stock market cure what ails you?
Jan 28, 2021 · People gathering in Reddit chatrooms have sent the stock price through the roof. Trading platforms, including Robinhood, blocked people from buying any more of the stock this morning, saying they...
Are retail investors taking over the financial markets?
Jan 27, 2021 · But the stock market was the single biggest news story Wednesday, financial or otherwise, due to a group of Reddit shitlords pumping up …
What happens when Wall Street puts profits before people?
The Toys R Us bankruptcy is what happens when Wall Street puts profits before people
Who took on hedge funds over GameStop and AMC Theatres?
Sam Thielman Redditors took on hedge funds over GameStop and AMC Theatres stock and won. So what now?
Why is GameStop stock going up?
Stock in GameStop and AMC is shooting up because Wall Street hedge funds bet against them — and their customers decided not to take it anymore.
What is short selling in stocks?
Short sales are essentially bets that the price of a share will go down — bets that the average person can't make. Short sellers borrow stocks they don't own from brokers, who act as middlemen, and then sell them on the open market. The bet is that the price will go down, so that when they have to return the stocks to the entities from which they were borrowed by buying them back on the open market, they will pay less than they sold them for and make a profit.
Is Reddit an investment company?
But the Redditors aren't an investment company, and their actions don't appear to be a pump-and-dump scheme that would allow regulators to get involved; they're a motley crew, of course, but some truly appear to believe in GameStop. A year ago, they even joked aboutthe subreddit's formally acquiring the company by purchasing common shares; now some of the users are talking about that possibility a little more seriously.
Did Ronoron buy back GameStop?
U/ronoron and his comrades decided to make all those shares of GameStop that Melvin had borrowed and then sold a lot more expensive to buy back. They bought call options — which is to say they bought the right to buy GameStop stock if the cost rose to a certain price — and then got their friends on the site to do the same thing. With so many people buying calls on GameStop at bizarrely high prices, the stock price started to rise ... and rise, and rise some more.
Does GameStop have predatory short sellers?
But when a business (or, at least, a business's stock) is dying — as GameStop's was — it attracts predatory short sellers. If the business is to remain a going concern, those short sellers have to fail.
What companies are experiencing WSB surges?
You can see this manifest in the stocks WSB chooses to pump. BlackBerry, BlockBuster and GameStop are all relics of the millennial era, and all of those companies are experiencing WSB-induced surges in stock prices.
What is the problem with Melvin?
The real problem for Melvin is that it was also shorting GameStop, meaning it was borrowing shares of GameStop, selling them on the market and using those proceeds to make other investments. Problem is, Melvin eventually has to return those GameStop shares.
When will GameStop stock pump?
The plan to pump GameStop actually goes all the way back to September 2019, when WSB member DeepFuckingValue posted about making call options for GME (GameStop’s ticker symbol) for January 2021. DFV is the “granddaddy” of the GME stock surge, according to Shiv Abrol, an analyst at Roystone Capital who monitors WSB as part of his professional due diligence.
How much did Melvin have on GameStop?
Melvin had $55 million worth of put options on GameStop, which are the opposite of calls. Puts assume the share price of a stock will go down and give their owners the option to sell a stock at a certain price. Melvin assumed GameStop’s stock would fall, and bought puts allowing Melvin to sell GameStop’s stocks above the market price, netting Melvin a profit. The stock obviously went up, instead, rendering those put options worthless.
What is an ETrade call?
ETrade. A call option is a contract that gives the owner the right, but not the obligation, to buy a stock at a future date, at a predetermined price. (Options are popular because you’re not left holding the bag if the market goes against you.)
Did Melvin Capital need a bailout?
Just a month earlier, the stock was hovering near $15. Melvin was shorting the stock, hence the need for a bailout. Reports of Melvin Capital’s financial struggles sent GameStop’s share price soaring even higher, though, to more than $100 a share on Monday, putting the hedge fund in an even more precarious financial decision. As of this writing, the stock was trading for $330 per share—77 times higher than its share price of $4.28 a year ago.
Is the WSB trying to harm ordinary people?
WSB isn’t trying to harm ordinary people —it’s attempting to stick it to the financial establishment that orchestrated the 2008 financial collapse, and prove that the stock market often has no connection to reality. Related Story. The $2 Billion Mall Rats.
Revenge of the little fish
Melvin Capital is a hedge fund (worth $12.5 billion until recently) with a “short position” on GameStop. A short position means Melvin was betting GameStop’s share price would fall (a reasonable bet, as the outlook for brick-and-mortar video game stores is a bit like what happened to Blockbuster and other video rental outlets).
How long can Redditors remain irrational?
How is it possible that small retail investors can drive the value of a company up like this?
How buying creates more buying
This leads to the second factor, which is mechanical. The retail investors driving the price surge are much smaller than the hedge funds they are battling. By buying the stock and call options (which are effectively rights to buy the stock in future at a certain price), retail investors are causing market makers to also buy shares in GameStop.
After the surge
These two factors – short-sellers getting squeezed and market makers hedging their bets – have led to this situation. You need both for what we are witnessing: an investor with an exposed position (Melvin) and a flurry of investors targeting that position (Redditors and others).
What caused GameStop stock to rise?
Scott Galloway, a professor of marketing at the New York University Stern School of Business, said a number of factors fueled the "nitro meets glycerin" reaction that led to GameStop stock's explosive rise.
What is Cameron Bublick's first thing?
Cameron Bublick, 20, a student at New Jersey's Rutgers University, told ABC News that every day after he wakes up, the "first thing I do is go on Robin Hood and check out the app. ". Bublick noted that Robin Hood gets rid of the traditional barriers to entry for people wanting to dabble in the stock market, saying it is "available, basically, ...
