'Stop f---ing selling!!!' WallStreetBets Redditors go ballistic over GameStop's sinking share price (1 Viewer)

[W_Heisenberg]

The little guys won this one, and the big guys got squeezed. And smart people had an opportunity to pick up on the momentum and score little wins on the way up and the back way down.

I'm sorry, no disrespect, but this is bullshit.

The moment the "little guys" had the "big guys" over the barrel, they were shut the **** down. The big guys were about to lose billions upon billions of dollars and the little guys were on the cusp of being the beneficiary of the stupid decisions the big guys made, and the moment this was about to blow up and the "little guys" were about to win, they stopped the game. They hit the pause button and changed the rules.

This was a "heads I win, tails you lose" scenario.

And just imagine for a minute what happened.

Let's say you are an individual investor and you make a mistake and you're not adequately capitalized when you make an investment decision that goes bad? Do you get to hit the pause button? Do you get to force the entire market as it relates to the asset you're having trouble with to just ****ing stop so you can find some other way of minimizing your losses? Individual investors don't get do-overs. There is no pause button. You make a mistake. You're ****ed. That's it. Show's over.

If you didn't think the game was rigged before.

Now you know. It's plain for all to see.

Robinhood getting caught with their pants down and having to halt trading almost certainly saved some of their users from terrible investments. Good for them.

It's not Robinhood's choice to make. All of the "unsophisticated" investors-- who were beating the crap out of the "sophisticated" investors -- had put their faith in Robinhood to buy and sell the stock without Robinhood shutting down the trade. Robinhood should have been prepared for it, and to be honest, I am deeply suspicious that some shenanigans happened because one of Robinhood's biggest customers, Citadel, was also on the other side of the GME trade.

 

[AmNat]

Um Democrats are on the other side of this, dude.

Then why are the Democrats in Massachusetts going after the guy who started it?

 

[Visbek]

Robinhood should have done this before the people using its service placed their faith in it and before those people bought stocks with the expectation they could later sell them in a market that wasn't rigged to shut down one side of the trade.

RobinHood met its obligations. It isn't obliged to prepare for something completely unprecedented and unexpected.

I am saying it was immoral, unethical, and a breach of their duties to the people using their service.

That's like saying "when there was a mad, unprecedented, unexpected, sudden rush on toilet paper, it was immoral, unethical and a breach of duty for Costco to limit toilet paper purchases to 1 pack per person."

No, this was the best option for the hedge funds who were about to lose their shirt because they had difficulty covering their short positions.

Most of the hedge funds were already out of their original short positions by the time RH restricted trading.

This was the best option for Robinhood because it allowed them to not go bankrupt.

Yes, and isn't staying in business a good thing, overall, for their customers? Maybe it's a tiny bit more important than indulging their get-rich-quick wishes?

But this was not the best option for the investors who bought GameStop thinking it would go up and also put their faith in Robinhood they would be able to sell the stock at actual market prices because the moment Robinhood rigged the market to shut down the buy-side of the trade the price collapsed.

- RH customers were able to sell. The restrictions were on purchases.
- No one has a right to trade on margin.
- RH customers don't even pay transaction fees. They are bargain basement shoppers. If you shop at Walmart, you should not expect that they will carry genuine Hermes Birkin bags.

Prior to the shutting down of the trade, the only people who needed to be protected from being over-leveraged and from making stupid decisions were the hedge funds, and firms like Melvin Capital -- the firm that went belly-up, Citadel, and Robinhood itself. Period. End of story. Case Closed.

Nope, sorry, wrong.

It seems like you are unclear on how shorts work. The hedge funds weren't over-leveraged or making stupid decisions. They were making very risky decisions, and generally knew the risk -- including that if you hold a short position, and the price goes up too much, there can be almost no limit to your losses. They also had no reason to believe that a bunch of punks on Reddit could actually cause the price of even a small stock to soar to lofty heights.

Again, Melvin exited right before RH started trading. It didn't go "belly up," but it did take huge losses.

More to the point: Prior to the restrictions, suckers were piling into the market. It wasn't just gamblers who were making fun of the whole process, and saying "don't trade what you can't afford to lose." It was the greedy, get-rich-quick-from-no-work, ordinary people who were rushing head first to trade on margin.

That is just how bubbles work. The real meme traders did not have the capacity to keep GME at $350. While part of the price increase was a result of shorts unwinding their positions, it was also ordinary people who saw "Gamestop is on fire?!?" and piled on.

And again, every ordinary trader who bought at $15 and sold at $450? They made bank, but only because some other schmuck bought at $450, thinking that GME was going to the moon... and it wasn't. GME should be no more than $20. Anything above that is the result of either manipulation or a frenzy, and can't last.

Every single investor has the right to value any particular stock at the price they deem acceptable...even though you think it's stupid.

Uhm... What exactly does that mean?

If I value BRK-A at $20 a share, that certainly doesn't mean anyone has to sell it to me at $20 a share.

And if I have an account at a discount broker and trade $10,000 of stock per day without paying a single cent in transaction fees, I should not expect the same kind of treatment as though I was a hedge fund executing dozens of $2 million trades per day.

 

[Visbek]

The moment the "little guys" had the "big guys" over the barrel, they were shut the **** down.

Again, incorrect.

GME started hitting the shorts in early January. It took 2 weeks of killing the shorts before DTCC realized that RobinHood's customers were probably not going to be able to cover margin calls. Melvin was already out.

The big guys were about to lose billions upon billions of dollars and the little guys were on the cusp of being the beneficiary of the stupid decisions the big guys made....

No, they really weren't.

The "little guys" were walking into a bandsaw. The big guys got out early, and probably took short positions again when it was trading north of $300.

Let's say you are an individual investor and you make a mistake and you're not adequately capitalized when you make an investment decision that goes bad? Do you get to hit the pause button?

You don't. Neither do hedge funds.

It's not Robinhood's choice to make.

You're party correct. It was DTCC, their clearinghouse, who told them they didn't have enough collateral.

All of the "unsophisticated" investors-- who were beating the crap out of the "sophisticated" investors -- had put their faith in Robinhood to buy and sell the stock without Robinhood shutting down the trade.

Just because a few mooks get rich, that doesn't mean that they, or the people who ape them, are smart. Or correct.

The original short bets, which started all this, were almost certainly correct. GameStop is a retail business selling video games and consoles, at a time when not only is retail screwed, not only is there a pandemic that's going to accelerate their drop, but the entire business is shifting online. Although Ryan Cohen is a smart guy, it's going to take massive spending to switch to online, and there they will have to compete against companies with nearly a decade head start (like Steam).

The idea that this is "good little guys" and "bad big guys" is just 100% sheer nonsense. RobinHood could not act as a broker if it wasn't already selling customer data to "Big Bad" like Citadel. GME wasn't undervalued by $985 per share. Shorts like Melvin weren't hurting the economy. Sending GME to $1000 wasn't going to hurt hedge funds or investment banks. Those types of beliefs are just pseudo-popularism gone wrong.

 

[Metric Mouse]

I'm sorry, no disrespect, but this is bullshit.

The moment the "little guys" had the "big guys" over the barrel, they were shut the **** down. The big guys were about to lose billions upon billions of dollars and the little guys were on the cusp of being the beneficiary of the stupid decisions the big guys made, and the moment this was about to blow up and the "little guys" were about to win, they stopped the game. They hit the pause button and changed the rules.

This was a "heads I win, tails you lose" scenario.

And just imagine for a minute what happened.

Let's say you are an individual investor and you make a mistake and you're not adequately capitalized when you make an investment decision that goes bad? Do you get to hit the pause button? Do you get to force the entire market as it relates to the asset you're having trouble with to just ****ing stop so you can find some other way of minimizing your losses? Individual investors don't get do-overs. There is no pause button. You make a mistake. You're ****ed. That's it. Show's over.

If you didn't think the game was rigged before.

Now you know. It's plain for all to see.



It's not Robinhood's choice to make. All of the "unsophisticated" investors-- who were beating the crap out of the "sophisticated" investors -- had put their faith in Robinhood to buy and sell the stock without Robinhood shutting down the trade. Robinhood should have been prepared for it, and to be honest, I am deeply suspicious that some shenanigans happened because one of Robinhood's biggest customers, Citadel, was also on the other side of the GME trade.

The hedge funds had to unwind their positions; that's why the stick shot up so much (partially) Not only were retail investors buying small amounts but the hedge funds had to close their multimillion dollar short positions, leading to the large volume of trades, driving the price higher, leading to more closing of short positions, driving the price higher etc. The literal definition of short squeeze. By the time RH restricted trading, all the damage to hedge funds had been done. The only hurt left was for little guys, who could have bought stock on any other number of brokers if they dislike RH. The little guys won this one, they caused a squeeze and the hedge funds lost billions. The pause was hit because small guys lost their minds and thought they'd get rich quick and piled in to the point that RH had to shut them down or risk all the other investors, not just the GME speculators.

I can't even see why anyone would be mad, save for the hedge funds who got burned and the speculators who piled in at $350 because some dishonest people on reddit claimed it was going to $1,000. This played out exactly how everyone wanted it to. Hedge funds got burned, hard, little guys got to ride the wave up 20x or whatever, and now balance has been brought back to the stock. Win win win. Of course I imagine anyone who shorted GME this week is also feeling pretty good.

 

[W_Heisenberg]

RobinHood met its obligations. It isn't obliged to prepare for something completely unprecedented and unexpected.

This isn't true. Robinhood has a variety of regulatory and contractual obligations, and many of those obligations are tied to its ability to manage the risks associated with the stocks being traded on its platform. Robinhood also has a moral obligation to deliver the service it promised to deliver to its users.

That's like saying "when there was a mad, unprecedented, unexpected, sudden rush on toilet paper, it was immoral, unethical and a breach of duty for Costco to limit toilet paper purchases to 1 pack per person."

This is more like Costco allowing you to buy a roll of toilet paper, but then not letting you leave the building, or even use the restroom in order to use the toilet paper you just purchased. Another analogy, that I think is more suitable: what Robinhood did is much more like a Casino shutting its operations down at the precise moment before someone hits a jackpot or wins a big bet it doesn't have the cash to handle.

Most of the hedge funds were already out of their original short positions by the time RH restricted trading.

What are you basing this statement on? What information have you acquired that you have based this statement on?

1. The short interest is only officially published every two weeks and at the time Robinhood suspended traded on GME the numbers were not yet available.

2. It took Robinhood a week to stop restricting the stock.

3. The big hedge funds are still derisking themselves from the stock:

Number of GameStop shares shorted falls by over half in week -S3 Partners

The number of GameStop shares that were shorted fell by over half in a week as short sellers covered their bets, analytics firm S3 Partners said on Monday, although the video game retailer remained a highly shorted stock.

www.reuters.com

Yes, and isn't staying in business a good thing, overall, for their customers? Maybe it's a tiny bit more important than indulging their get-rich-quick wishes?

My argument is quite simple. Robinhood shouldn't have put itself in this position, to begin with. And whatever get-rich-quick wishes its users had is irrelevant to its duty to provide the services to its users it promised.

- RH customers were able to sell. The restrictions were on purchases.

It doesn't matter that the restrictions were just on the purchases. Every transaction has two sides, and when you shut down one side of a trade, you are still interfering in the market.

- No one has a right to trade on margin.

This is a strawman. This is not a point I've ever made.

RH customers don't even pay transaction fees. They are bargain basement shoppers. If you shop at Walmart, you should not expect that they will carry genuine Hermes Birkin bags.

1. Most major investing platforms do not charge transaction fees on common stock purchases anymore.

2. It doesn't matter if they are "bargain-basement shoppers" who shop at "Wal-mart", even Wal-Mart has to comply with bait-and-switch laws/regulations and at the very least, as a moral duty to refrain from false advertising.

 

[W_Heisenberg]

Nope, sorry, wrong.

It seems like you are unclear on how shorts work. The hedge funds weren't over-leveraged or making stupid decisions. They were making very risky decisions, and generally knew the risk -- including that if you hold a short position, and the price goes up too much, there can be almost no limit to your losses.

Again, Melvin exited right before RH started trading. It didn't go "belly up," but it did take huge losses.

So why did Melvin have to go begging for money right before RH suspended trading in GME?

Why did Melvin have to get a bailout?

This happened on Jan 25th, this was 3 days before Robinhood restricted trading on GME:

Citadel LLC and Point72 Asset Management are investing $2.75 billion in hedge fund Melvin Capital Management, an emergency influx of cash that is expected to stabilize what has been one of the top performing funds on Wall Street. Melvin has been hard-hit by a series of short bets, starting the year with $12.5 billion in assets and losing almost 30% through Friday, people familiar with the firm said. Among other short positions, Melvin bet against the surging stock of videogame retailer GameStop Corp.

WSJ News Exclusive | Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management

Citadel and Point72 Asset Management are investing $2.75 billion in hedge fund Melvin Capital Management, an influx of cash that is expected to stabilize what has been one of the top performers on Wall Street.

www.wsj.com

Melvin didn't "exit" the trade. They had to get bailed out.

They also had no reason to believe that a bunch of punks on Reddit could actually cause the price of even a small stock to soar to lofty heights.

1. Huh. That's interesting. Why are you describing them as a "bunch of punks"?

2. It doesn't matter why the stock price went up so much, or who did it, what matters is Robinhood was not sufficiently capitalized to handle servicing the users on its platform. That was Robinhood's mistake, not the mistake of a "bunch of punks" on Reddit.

 

[W_Heisenberg]

More to the point: Prior to the restrictions, suckers were piling into the market. It wasn't just gamblers who were making fun of the whole process, and saying "don't trade what you can't afford to lose." It was the greedy, get-rich-quick-from-no-work, ordinary people who were rushing head first to trade on margin.

It flat-out doesn't matter that you think people were "suckers" for buying GME. It's not your concern. It's not Robinhood's concern. And that's not why Robinhood restricted trading on GME. Robinhood restricted trading on GME because they became insolvent because they were not adequately capitalized.

That is just how bubbles work. The real meme traders did not have the capacity to keep GME at $350. While part of the price increase was a result of shorts unwinding their positions, it was also ordinary people who saw "Gamestop is on fire?!?" and piled on.

Again, this doesn't matter. It doesn't matter that you think a "bunch of punks" had stupid reasons for investing in GME.

And again, every ordinary trader who bought at $15 and sold at $450? They made bank, but only because some other schmuck bought at $450, thinking that GME was going to the moon... and it wasn't. GME should be no more than $20. Anything above that is the result of either manipulation or a frenzy, and can't last.

Again, this doesn't matter. It's none of your business, nor Robinhood's that you think a "bunch of punks" made stupid investing decisions. The users of Robinhood signed up on that platform so they could make their own decisions as to how to invest in the stock market, not so Robinhood could make those decisions for them.

Uhm... What exactly does that mean?

It's none of your business that you think some other individual is making a stupid investing decision. If someone wants to value a stock based solely on one variable, the anticipation the stock price will continue to rise in the short term, that is entirely their business, not yours.

If I value BRK-A at $20 a share, that certainly doesn't mean anyone has to sell it to me at $20 a share.

It's not my argument that someone else has to sell you anything at any particular price.

And, on the other hand, hypocritically I might add, you are suggesting to everyone else that people who valued GME above $400 per share are stupid, "punks" actually, and shouldn't be allowed to buy it at $400 per share.

And if I have an account at a discount broker and trade $10,000 of stock per day without paying a single cent in transaction fees, I should not expect the same kind of treatment as though I was a hedge fund executing dozens of $2 million trades per day.

This wasn't a case of Robinhood providing poor customer service to its users. This was a case of Robinhood directly interfering in the market -- at the expense of its users -- because Robinhood was insolvent because it lacked the ability to adequately manage the risk associated with allowing its users to trade stocks on its platform. It was a fundamental breach of the obligations it had to its users.

 

[W_Heisenberg]

Again, incorrect. GME started hitting the shorts in early January. It took 2 weeks of killing the shorts before DTCC realized that RobinHood's customers were probably not going to be able to cover margin calls.

I understand and I'm going further in my argument than the information allows. I am just flat-out saying that I am suspicious that it was just a matter of solvency for Robinhood. I suspect there were ulterior motives behind raising the requirements on Robinhood.

Melvin was already out.

Let's be precise. Melvin got bailed out.

No, they really weren't. The "little guys" were walking into a bandsaw. The big guys got out early, and probably took short positions again when it was trading north of $300.

I know there is no publicly available information that you have access to that would allow you to arrive at such a conclusion. The official short interest is published every two weeks.

So what exactly are you basing this statement on?

You don't. Neither do hedge funds.

I think they just did.

Just because a few mooks get rich, that doesn't mean that they, or the people who ape them, are smart. Or correct.

It doesn't matter if you think they are a "bunch of punks" or if you think they are "mooks" or if you think they are "unsophisticated." Robinhood had an obligation to not interfere.

 

[Allan]

Did they, though? Seems to me like a small number of Reddit kids built essentially a Ponzi scheme, using hatred of Wall Street to make a bunch of money by buying bad stock, convincing others to create a short bubble on the guise of “sticking it to the man”, cashing out at its peak, and leaving their useful idiot followers with way worse losses (practically) than these Wall Street firms will suffer.

This is exactly what happened.

 

[Surrealistik]

Yeah, about that.

The hedge funds play almost entirely with other people's money, and lots of them started shorting again when the price was high.

This week's events won't stop them from other dubious or illegal tactics like high-frequency trades, pumping, or insider trades. Meaning they will be just fine -- and will carefully watch spots like WSB for future attempts at squeezing out shorts.

Meanwhile, most of the the small-fry speculators who wanted to "stick it to The Man" will be the ones who get stuck, losing their own money, or (worse yet) losing money they borrowed on margin, hoping to get rich with no effort teach Wall Street a "lesson."

If you object to manipulating stocks, then you should be outraged at the "Diamond Hands" types who hyped these stocks to the moon. Or does it not count as manipulation, when someone gets rich while convincing you that you're hurting a hedge fund?

The idea that "shorting is evil" is patently ludicrous. If someone wants to bet that a stock is overvalued, and they're willing to take on the significant risks involved, that's their business. They have no more motivation to lie about the stock than someone who buys with the expectations it will go up.

If you really want to stick it to hedge funds? Increase transparency requirements, kill the carried interest tax loophole, increase capital gains taxes, and fully fund the SEC.

Shorting may not be evil, but I don't think it's a contributor to healthy markets overall (yes, it can incentivize critical review/research of stocks, but it also strongly incentivizes disinformation and hyperbole/exaggeration, and there is plenty of incentive already for said critical eyes), and its existence has a depressive effect on stock prices overall and can set off cascading collapses of share value, which in turn impedes the ability of companies, particularly distressed companies that are darlings of short-sellers for obvious reasons, to recapitalize through share offerings; all this so that speculators can have the freedom to directly bet against a company's success.

For these reasons I feel there should be stringent limits on short-selling as a % of the float; at a bare minimum banning naked short sells and synthetic short positions, and otherwise bans on shorting 100% of the float should almost certainly be done.

In this case specifically, Melvin Captial took up a grotesquely irresponsible and excessive short position that should have never been permissible or legal.

 

[Surrealistik]

At the time I didn’t know Jobs was a genius. All I knew was my Sony Discman worked fine

edit: and Elon? All I know is he’s a genius and his stock is good for a couple quick day trades a month. It goes up and down like a bass drum in a hip-hop song.

Elon is one of the most overrated modern personalities, and perhaps one of the most overrated personalities ever; calling him a 'genius' is a bit much. The dude is born on third, gets his one big break with Paypal predicated on his parent's blood emerald money, and then implicitly claims credit for the innovation of the actual geniuses he throws the resulting wads of money at, and pretends to have hit a home run.

 

[W_Heisenberg]

The original short bets, which started all this, were almost certainly correct.

No, they weren't correct. The true price of the stock is what the market says it is, and not only were they incorrect, they were incorrect by several orders of magnitude. That's the reason why we are talking about this.

GameStop is a retail business selling video games and consoles, at a time when not only is retail screwed, not only is there a pandemic that's going to accelerate their drop, but the entire business is shifting online. Although Ryan Cohen is a smart guy, it's going to take massive spending to switch to online, and there they will have to compete against companies with nearly a decade head start (like Steam).

Don't buy it then. Nobody is forcing you to buy it, but don't think for one second you or anyone else has the right to force someone else not to buy it.

The idea that this is "good little guys" and "bad big guys" is just 100% sheer nonsense.

1. It's no more nonsensical than you describing people who bought GME with the anticipation it would go up as a "bunch of punks", "mooks", "unsophisticated", etc.

2. It's not that far from the truth because the retail investors weren't the ones who halted the trading. Nor was it the regulators. It was everyone else on the other side of the trade.

RobinHood could not act as a broker if it wasn't already selling customer data to "Big Bad" like Citadel.

It doesn't matter that Robinhood sold user data to Citadel. Robinhood had a relationship with its users wherein its users anticipated and were promised, the ability to buy and sell stocks on the free market, not a rigged market.

Sending GME to $1000 wasn't going to hurt hedge funds or investment banks.

This is false. They collectively -- albeit temporarily -- lost upwards of $70 billion dollars the day trading was restricted on Robinhood and other brokers.

One firm, in particular, Melvin, had to be bailed out.

 

[W_Heisenberg]

By the time RH restricted trading, all the damage to hedge funds had been done

I understand this is your argument. You don't need to repeat it.

I am just asking you to back up your argument with actual data/information.

The pause was hit because small guys lost their minds and thought they'd get rich quick and piled in to the point that RH had to shut them down or risk all the other investors, not just the GME speculators.

Robinhood should not have put itself in this position.

I can't even see why anyone would be mad, save for the hedge funds who got burned and the speculators who piled in at $350

It's quite simple: the people who executed their trades on Robinhood did so with the expectation they were trading in a free market where they could easily buy or sell the stock. This is the promise Robinhood made with them.

And, nevermind the gains these people missed out on -- because remember, all of these people were on the other side of a trade that was costing the big firms billions of dollars when GME reached its peak -- from their perspective they lost, not because they made a bad bet, but because Robinhood artificially lowered the price by eliminating the buy-side of the transactions. From their perspective, these potential gains were STOLEN from them and I hope all these "punks", as Visbek refers to them, win all their lawsuits.

because some dishonest people on reddit claimed it was going to $1,000. This played out exactly how everyone wanted it to. Hedge funds got burned, hard, little guys got to ride the wave up 20x or whatever, and now balance has been brought back to the stock. Win win win. Of course I imagine anyone who shorted GME this week is also feeling pretty good.

I nominate this as the worst hot take of the day.

 

[brianpatrick]

Elon is one of the most overrated modern personalities, and perhaps one of the most overrated personalities ever; calling him a 'genius' is a bit much. The dude is born on third, gets his one big break with Paypal predicated on his parent's blood emerald money, and then implicitly claims credit for the innovation of the actual geniuses he throws the resulting wads of money at, and pretends to have hit a home run.

could be. Never looked into him really. Are you saying he inherited his money and only pretends to be super smart?

 

[Surrealistik]

could be. Never looked into him really. Are you saying he inherited his money and only pretends to be super smart?

More or less; his initial wealth, or rather his parent's wealth, (again, sourced from African blood emeralds) made much of what came after possible.

I wouldn't deny he's smart, but he's no genius.

 

[Allan]

"remember those steering wheels they used to put on car seats so the kid felt like they were driving? Wsb is that kid." -Reddit member on wallstreetbets a few minutes ago

The party seems to be over.

 

[Allan]

It looks like Reddit has sorted out the Mods civil war:

The trouble started Wednesday night, according to The New York Times, as some r/WallStreetBets moderators talked with each other about trying to get a movie deal. On Thursday morning, “the WallStreetBets moderators who were considering the film deal began booting out other moderators who had questioned them for secretly trying to profit from the forum’s success,” reports The New York Times. A highly upvoted r/WallStreetBets post called the situation “a coup,” saying the moderators the community “know and love” were being tossed out.

At some point, Reddit stepped in to stop the takeover, and the company confirmed to The Verge that it had removed some r/WallStreetBets mods.

Link

 

[Visbek]

This isn't true. Robinhood has a variety of regulatory and contractual obligations, and many of those obligations are tied to its ability to manage the risks associated with the stocks being traded on its platform. Robinhood also has a moral obligation to deliver the service it promised to deliver to its users.

Those obligations weren't predicated on millions of people signing up, and throwing money at a handful of stocks.

This is more like Costco allowing you to buy a roll of toilet paper, but then not letting you leave the building....

No, it really isn't. Again, the restrictions were on buying, not selling. If you bought at 12 and wanted to sell at $400, RobinHood didn't stop you. Nor have I heard of any indications that people were unable to sell.

So yes. This is very much like Costco not predicting a run on TP. No amount of preparation would have saved them, because people were doing so much panic buying that even if Coscto had two, three, or four times as much TP on hand, they still would have run out. It's uneconomical for Costco to double, triple or quadruple its inventory of products, on the off chance there will be a run on a handful of items.

What are you basing this statement on? What information have you acquired that you have based this statement on?

On Melvin already getting slaughtered, and how it would have been all but impossible for anyone with a major early short position surviving any price above $300.

Plus, at the risk of sounding totally crazy.... GME is vastly overvalued anywhere above $20. And hey, guess what? You can take new short positions when a stock price goes high. Or are you surprised that people shorted the stock when it hit $300 or $400? Or when it dropped from $450 to $300 to $150? Or that they're still shorting the stock, when it is still so incredibly overvalued?

My argument is quite simple. Robinhood shouldn't have put itself in this position, to begin with. And whatever get-rich-quick wishes its users had is irrelevant to its duty to provide the services to its users it promised.

My argument is quite simple. RobinHood had no idea that millions of people would sign up all at once, and all want to start trading on margin using an inflated stock as collateral. It's unreasonable to expect it too, which is why more established brokerages like TD also got hit. Its get-rich-quick users did not care that they were pushing RH beyond its limits, because they are clueless and (at least temporarily) greedy.

I think you're underestimating how many people piled on at the last minute. Wall Street Bets added around 6 million users in less than a week. The total NYSE volume was roughly 30% above normal on 1/27.

It doesn't matter that the restrictions were just on the purchases. Every transaction has two sides, and when you shut down one side of a trade, you are still interfering in the market.

Y'know, it's funny how that didn't occur to you when I mentioned how the restrictions were going to limit the hedge funds....

At any rate, I haven't seen any reports of anyone being incapable of selling. All the upset is over the inability to buy, i.e. fuel the mini-bubble.

It doesn't matter if they are "bargain-basement shoppers" who shop at "Wal-mart"....

Yes, it does. You can't complain about the lack of table service, fine china and Dom Perignon at Taco Bell.

And no, there was no "false advertising." RH was hit with a tornado.

 

[Visbek]

So why did Melvin have to go begging for money right before RH suspended trading in GME?

Do you not know how short selling works?

When you short a stock, and the price keeps going up, your exposure increases. They didn't take out a massive loan, that they were unable to meet. In any other circumstances, betting that "GME was overvalued at $16/share" wasn't an irrational bet. They simply weren't expecting the Internet to lose its mind over a dying retailer.

Melvin didn't "exit" the trade. They had to get bailed out.

Hello? "Exiting the trade" means that they had to terminate their short position, at a massive loss.

1. Huh. That's interesting. Why are you describing them as a "bunch of punks"?

Because that's what they are, and proud of it. Apparently, you've never checked out WSB.

2. It doesn't matter why the stock price went up so much, or who did it, what matters is Robinhood was not sufficiently capitalized to handle servicing the users on its platform. That was Robinhood's mistake, not the mistake of a "bunch of punks" on Reddit.

It does matter why the stock went up -- because it was an unprecedented event, that no sane person could have predicted more than a few days in advance.

I mean, really. How do you think this works? Do you think it's easy for a small brokerage to raise $4 billion in capital? To go 10 times higher than their normal obligated reserves? Even if they wanted to do it, they almost certainly couldn't afford it. They might have to... wait for it... charge users a transaction fee!!!

 

[Visbek]

It flat-out doesn't matter that you think people were "suckers" for buying GME.

Well, it does, because the suckers were the ones sending GME to the moon.

Again, this doesn't matter. It doesn't matter that you think a "bunch of punks" had stupid reasons for investing in GME.

Except it does, because it's important for you to understand that none of this was even remotely normal.

This was undoubtedly a "black swan event," which fortunately was contained before it caused serious problems for the entire market.

The users of Robinhood signed up on that platform so they could make their own decisions as to how to invest in the stock market, not so Robinhood could make those decisions for them.

Yes, and some of them got screwed, because they were greedy low-information speculators who thought they could get rich quick, by trading on margin during a mini-bubble.

It didn't even occur to them that this was completely unprecedented, or that brokerages don't have unlimited funds to loan to customers who joined their service 3 days prior.

I have very little sympathy for these people. If you're old enough to trade, you should be old enough to know that gambling on stocks almost always ends badly for the "little guy." No one guaranteed them that they could borrow so much on margin that they threatened to capsize their brokerage firm, or the entire stock market. No one guaranteed them that they could pour an unlimited amount of fuel on a burning house.

 

[Visbek]

Shorting may not be evil, but I don't think it's a contributor to healthy markets overall....

You may be surprised to hear that I disagree.

All that shorts are doing is betting that a stock is overvalued. There's no reason to say that "your only option is to bet that stocks will go up!" And again, they have the same motivation to inform or mislead the public as those who engage in normal stock transactions.

They don't cause stock prices to fall, or a cascade of failures. Hedge funds aren't federally insured, there isn't a single dime of taxpayer dollars on the line. They risk their own shirts.

Short positions didn't kill LTCM, or Lehman, or cause the 2007-8 recession. The SEC halting short trading in September 2008, and stock prices continued to fall off a cliff for another 4-5 months.

For these reasons I feel there should be stringent limits on short-selling as a % of the float; at a bare minimum banning naked short sells and synthetic short positions, and otherwise bans on shorting 100% of the float should almost certainly be done.

You may be surprised to hear that I disagree.

Naked shorts are already illegal, and rarely happen.

Synthetic short positions have the same risks as any other type of short (i.e. unlimited gain, unlimited loss).

There is no reason whatsoever to restrict the amount of a short. If so many people are utterly convinced that a stock is overvalued that they're willing to take that risk, that's their business.

If someone -- hedge fund, investment bank, individual speculator -- wants to risk enormous financial damage by shorting a stock, that's their business. Caveat emptor.

In this case specifically, Melvin Captial took up a grotesquely irresponsible and excessive short position that should have never been permissible or legal.

Their initial bet was entirely rational and 100% legal. They got blindsided by people acting in an incredibly unpredictable, unprecedented, irrational, emotional and vindictive manner.

Even so, they knew that the risks were unlimited, and they paid dearly for taking that risk. They didn't get a government bailout, they didn't get a single taxpayer dollar. Instead, they got taken over by an insanely wealthy firm.

 

[TomFitz]

I'm sorry, no disrespect, but this is bullshit.

The moment the "little guys" had the "big guys" over the barrel, they were shut the **** down. The big guys were about to lose billions upon billions of dollars and the little guys were on the cusp of being the beneficiary of the stupid decisions the big guys made, and the moment this was about to blow up and the "little guys" were about to win, they stopped the game. They hit the pause button and changed the rules.

This was a "heads I win, tails you lose" scenario.

And just imagine for a minute what happened.

Let's say you are an individual investor and you make a mistake and you're not adequately capitalized when you make an investment decision that goes bad? Do you get to hit the pause button? Do you get to force the entire market as it relates to the asset you're having trouble with to just ****ing stop so you can find some other way of minimizing your losses? Individual investors don't get do-overs. There is no pause button. You make a mistake. You're ****ed. That's it. Show's over.

If you didn't think the game was rigged before.

Now you know. It's plain for all to see.



It's not Robinhood's choice to make. All of the "unsophisticated" investors-- who were beating the crap out of the "sophisticated" investors -- had put their faith in Robinhood to buy and sell the stock without Robinhood shutting down the trade. Robinhood should have been prepared for it, and to be honest, I am deeply suspicious that some shenanigans happened because one of Robinhood's biggest customers, Citadel, was also on the other side of the GME trade.

No,

A digital mob chased a phantom.

Thousands of people who ought to know better bet their money on an internet meme.

Just a few days after another internet mob who should have known better were incited to stage an insurrection.

It’s the same dynamic.

And the same results.

 

[Hamish Howl]

Sounds to me like one group of market manipulators owned the **** out of another group of market manipulators, then the second group turned around and owned the first one right back.

 

[Surrealistik]

All that shorts are doing is betting that a stock is overvalued. There's no reason to say that "your only option is to bet that stocks will go up!" And again, they have the same motivation to inform or mislead the public as those who engage in normal stock transactions.

They don't cause stock prices to fall, or a cascade of failures. Hedge funds aren't federally insured, there isn't a single dime of taxpayer dollars on the line. They risk their own shirts.

Short positions didn't kill LTCM, or Lehman, or cause the 2007-8 recession. The SEC halting short trading in September 2008, and stock prices continued to fall off a cliff for another 4-5 months.

Regulators would beg to differ about the potential (not certitude) of short selling to cause cascading declines in stock prices and I'm rather inclined to agree with them. What is undeniable is that they exasperate existing trends in stock prices by definition, and magnify sell-offs.

Moreover, no, shorts do more than make bets; they also routinely publish hyperbole, disinformation and exaggerated adverse analysis in order to move the market towards their position, and they most certainly harm and have a depressive impact on stock prices by definition which in turn hurts the ability of stocks to raise capital through share offerings; this is especially harmful in the case of struggling companies that need to recapitalize as I've pointed out.

Naked shorts are already illegal, and rarely happen.

Synthetic short positions have the same risks as any other type of short (i.e. unlimited gain, unlimited loss).

There is no reason whatsoever to restrict the amount of a short. If so many people are utterly convinced that a stock is overvalued that they're willing to take that risk, that's their business.

If someone -- hedge fund, investment bank, individual speculator -- wants to risk enormous financial damage by shorting a stock, that's their business. Caveat emptor.

Well it's their business up until it causes systemic risk and run-on effects, which are certainly possible when risk multiplying synthetics and derivatives get involved.

And of course, as we've seen in 2007-8, when we have systemic and institutional levels of irrational exuberance multiplied dangerously by derivatives, the people who are responsible don't actually end up paying when push comes to shove and things actually get to that point; everyone else does, and they go scott free or worse, get golden parachutes. Any form of excess and dangerous risk is bad and should be categorically removed from the market.

Their initial bet was entirely rational and 100% legal. They got blindsided by people acting in an incredibly unpredictable, unprecedented, irrational, emotional and vindictive manner.

Even so, they knew that the risks were unlimited, and they paid dearly for taking that risk. They didn't get a government bailout, they didn't get a single taxpayer dollar. Instead, they got taken over by an insanely wealthy firm.

Sure it was legal, though I'm not so sure I would call it rational, especially with other hedge funds that might seek to exploit their over-extended and reckless short position; if it weren't GME then it just as easily could have been someone else. Moreover, my point is that it *should* be illegal to short excessively as they did in light of the risk involved, particularly risk that has the potential for run on effects and loss of market confidence.

Further, that's an egregiously one-sided, dishonest and downright demonizing mischaracterization of the WSB crowd; first of all, it is completely rational to make money off of someone else's unforced error and reckless behaviour per Melvin Capital. Second, those who legitimately sought to punish Melvin for its self-fulling vulture short that helped to undermine the prospects of a GME recovery through undermining its recapitalization prospects are perfectly righteous.