So can someone give me like, a quick primer on what the fuck is going on with this? Cause I'm a complete and utter dumbass. I've got two brain cells, but they speak different languages and can't communicate with each other.
I understand that WSB is basically manipulating these stocks, but what the fuck is going on and what's the end goal/original end goal for everyone involved, anyway?
short selling is a method of selling a stock at price X per share, with the condition that they will buy it back at some time in the future. The seller chooses a stock value Y, such that Y < X. If the stock reaches that value, the seller buys back all the stock immediately at value Y per share. However, the short position also has an expiration date. If it reaches that date and the stock price hasn't hit Y, then the seller immediately buys back all the stock at whatever value it is currently at, even if Y > X.
Looking at how it works, you can see that there is potential for both a big payoff as well as catastrophic failure. If the short seller has good instincts and hits their buyout, they get all their stock back plus whatever money they earned from the earlier stock price, basically free money. On the other hand, if the stock price climbs, the potential losses before the expiration of the short position are essentially infinite, one bad short against a stock that outperforms the market and you could get taken for every cent of capital you control.
So. Melvin Capital Management, a Hedge Fund that started the year with $12.5bn on hand, came into control of a large quantity of Gamestop stock, which has been trading somewhere around $3/share for a couple years. They shorted it to zero, expecting the company to go bankrupt in the next year. /r/WallStreetBets caught wind, and started buying Gamestop stock, driving the price up. It started trending, partly because the market is prone to bandwagoning on stock that shouldn't be performing as well as it is for some odd reason like "Nostalgia" or "Trolling", also partly because regular people love to see a hedge fund eat shit. Now Gamestop is trading around $70 bucks. This represents a loss of around 30% of that 12.5 billion that Melvin started with this year. If Gamestop stays up this high (or higher) until Melvin's short positions run out, they'll have to pony up.
That's pretty fantastic thank you for the explanation, I didn't realise MCM had a due date to where they HAD to buy. That was part of why the whole thing didn't make complete sense to me.
It also seems like an easy thing to manipulate in the long term, if this is the future of the stock exchange late stage capitalism just got a lot funnier
So can someone give me like, a quick primer on what the fuck is going on with this? Cause I'm a complete and utter dumbass. I've got two brain cells, but they speak different languages and can't communicate with each other.
I understand that WSB is basically manipulating these stocks, but what the fuck is going on and what's the end goal/original end goal for everyone involved, anyway?
I made an info post earlier, but it was at three in the morning so it’s not in the front page anymore feelsbadman
deleted by crreaetor
short selling is a method of selling a stock at price X per share, with the condition that they will buy it back at some time in the future. The seller chooses a stock value Y, such that Y < X. If the stock reaches that value, the seller buys back all the stock immediately at value Y per share. However, the short position also has an expiration date. If it reaches that date and the stock price hasn't hit Y, then the seller immediately buys back all the stock at whatever value it is currently at, even if Y > X.
Looking at how it works, you can see that there is potential for both a big payoff as well as catastrophic failure. If the short seller has good instincts and hits their buyout, they get all their stock back plus whatever money they earned from the earlier stock price, basically free money. On the other hand, if the stock price climbs, the potential losses before the expiration of the short position are essentially infinite, one bad short against a stock that outperforms the market and you could get taken for every cent of capital you control.
So. Melvin Capital Management, a Hedge Fund that started the year with $12.5bn on hand, came into control of a large quantity of Gamestop stock, which has been trading somewhere around $3/share for a couple years. They shorted it to zero, expecting the company to go bankrupt in the next year. /r/WallStreetBets caught wind, and started buying Gamestop stock, driving the price up. It started trending, partly because the market is prone to bandwagoning on stock that shouldn't be performing as well as it is for some odd reason like "Nostalgia" or "Trolling", also partly because regular people love to see a hedge fund eat shit. Now Gamestop is trading around $70 bucks. This represents a loss of around 30% of that 12.5 billion that Melvin started with this year. If Gamestop stays up this high (or higher) until Melvin's short positions run out, they'll have to pony up.
That's pretty fantastic thank you for the explanation, I didn't realise MCM had a due date to where they HAD to buy. That was part of why the whole thing didn't make complete sense to me.
It also seems like an easy thing to manipulate in the long term, if this is the future of the stock exchange late stage capitalism just got a lot funnier
:party-sicko: :party-sicko: :party-sicko: :party-sicko: :party-sicko: :party-sicko: :party-sicko: :party-sicko: