Yesterday i knew absolutely nothing about any of this shit, now I'm aimlessly looking for stuff on youtube to explain as much as possible, not necesarily in order to take part in it, although I'm definitively considering
People are acting like they've discovered fire and there is going to be the ”next sure thing” that'll redistribute money to average Joe on reddit after this, but is being a retail day trader actually a reliable thing to make money?
One of my friends was really hyped about this shit after college. He read a bunch of books, followed some finance gurus online, set up an account and played with like $3,000 worth of blue chips for year to get experience. Ended up with about the same amount of money despite sinking a lot of time into this and concluded it wasn't worth the hussle.
I definitely know that I’ve missed the boat on this whole thing in terms of making any money, but I would enjoy knowing wtf everyone is actually talking about haha
Prefacing this with I am not an advisor, this is not financial advice.
A hedge fund, Melvin Capital, has shorted the stock for GameStop. Shorting a stock is when you borrow shares from someone to sell at the current price, intending to repurchase later at a lower price and return to the owner. The profit comes from the difference between the price when the stock was borrowed, and the price when the stock is supposed to be returned. This means that it's something used on companies who look like they're going to go bankrupt soon. But if the opposite happens, and the stock goes up in price, the losses for the people who have shorted the stock can be huge.
Melvin Capital really fucked up by shorting more shares of the stock than are proven to exist, meaning that they:
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have to pay out more than the entire value of GameStop to rebuy the shares to return to their owners
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are at the mercy of whoever is holding the stock when the time to return the shares comes because they are obligated to return the shares. As more have been borrowed than exist, the demand will necessarily be larger than the supply, and it's anyone's guess how high the stock price could go.
Melvin Capital has been doing a lot to at least soften the blow. r/WSB mods are claiming that a big part of new recent users have been recently made bot accounts pushing other stocks to divert users from betting on GameStop, or have been saying derogatory things about the stock's prospects. CNBC also put out a news story saying that the borrowed stocks had already been rebought and returned to dissuade people from holding or buying GameStop stock. Users of r/WSB checked, and found it to not be true. Positions were still open for 140% of shares when they looked.
Has the ship sailed on making money off of Melvin Capital's mistake? I can't tell you. I'm in for a little bit that I'm not afraid if I lose, because the stock market is all gambling.
what I got from reading wsb is that Melvin has to sell the stocks they borrowed, and they haven't done it yet, and this is what is going to drive the price even higher, and that's what is gonna happen Friday. Is that correct ?
The other way around, Melvin has already sold the shares they borrowed, and has to buy shares to return to who they borrowed them from.
My brain keeps getting stuck on the “borrowing shares” part.
As I understand it in simplified terms, Melvin “borrowed” GameStop stock from investor A, with the proviso that they sell it back (after a certain time has passed?) at the same value. Almost like getting a loan like any normal person would.
Then Melvin sells that stock to investor B. They then borrowed the stock back from investor B to resell again. So they’re on the hook multiple times for each share.
It’s almost like a regular person taking out a big loan and buying a bunch of Iraqi dinar or something expecting it to go up in value and then watching it plummet, but still being on the hook for the initial loan. Except in reverse, lol.
Is that a somewhat correct summary?
Mostly, the loan analogy is really close- In a short, you agree to borrow a stock in exchange for paying interest to the owner for the time you've borrowed it. You sell the stock you've borrowed for the current price, thinking it will go down in value later, you can rebuy it to return, and pocket the difference (minus the interest).
They don't need to return the exact share that they borrowed, just an amount of shares equal to the amount that they borrowed. It's more like, Melvin said "Hey, we want to borrow shares of GameStop, does anyone have some we could borrow?" and Investor A says "Yes, we do, here." Then Melvin goes, sells the shares to Investor B, and says again "Hey, we want to borrow shares of GameStop, does anyone have some shares we could borrow?" and another investor, it could be Investor B, or it could be a different one, offers their shares to Melvin. With the number of shares that they have shorted though, they have definitely shorted some shares more than once.
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Do you want to know about investing in general, or the specific tactic that we are using right now? The latter is easier to explain.
Primarily the latter. I understand what a short is, why people shorting can lose money, but that's about it.
I also want to know more about investing in general, but it can wait, especially if this comunity sticks around after the dust settles
Okay, so what we are doing right now is called a "short squeeze." But to understand the squeeze, you need to understand the short option first.
There are more options for trading on the stock market than just buying & selling. One of these options is called a short. A short is when you sell a stock, and enter into a contract to buy the stock back at a given date. This option is a good idea when you expect the value of a stock to go down.
Here's an example:
Let's say I enter into a short option on Blackberry today. I sell the stock at the market price of $25. I also enter into a contract to buy that stock back at the market price when the contract expires.
Let's say that market price is at $20 when the contract expires. I have to buy back that stock for $20. I sold for $25 and bought it back for $20. That made me $5 in profit. That profit was made because the value of the stock went down.
And if that stock goes up in price, I would lose money. If Blackberry was worth $30 when the contract expires, I would lose $5.
The interesting thing about shorts is that there's no limit on the money one can lose on the option. If I just buy a stock, and the stock goes to $0, I only lose the money I spent on the stock. However, if enter into a short option at $25, and the stock goes up to $100,000 by the time the contract expires, I'm on the hook for the $100,000. That's where the short squeeze comes in.
I'll explain the specifics of the GameStop short squeeze in a bit, I gotta go do dishes. Also, it seems comrades have dropped links with explanations. But feel free to ask me any questions while I'm gone!
in the case of gme, they haven't bought the stocks they need to buy yet, right ? And this is what is going to happen friday, which is going to drive the stock even further, is that corrrect?
e: very good explanation btw, i think it's perfectly clear for me now
I'm glad the explanation helped.
The GameStop situation is nuts. There are 1.4x more short options on GameStop than there are stocks. Conventional wisdom means these short sellers have to buy up every stock on the market, and then some. I literally have no idea how that happened, or how that will be resolved.
But that means there will be a huge demand for GameStop stocks when those contracts expire, and that's why we are driving up the price.
But the bourgeoisie are playing rough. I have no idea what they are capable of doing. So, if you choose to invest, only invest what you are willing to lose. This is a gamble.
simple version
https://www.reddit.com/r/wallstreetbets/comments/l54jy8/short_squeeze_explained_for_dummies_us/
normal version
https://www.investopedia.com/terms/s/shortinterest.asp#:~:text=Stocks%20with%20an%20extreme%20level%20of%20short%20interest%2C,Stock%20exchanges%20measure%20and%20report%20on%20short%20interest
First link is removed for me -
https://www.removeddit.com/r/wallstreetbets/comments/l54jy8
If you insist on starting, start by considering it gambling and any money you put into it as gone. No matter what happens to that number, it's not real money if it isn't in your bank account, so don't get attached.
After you're in the right mindset, I use TD Ameritrade and found their videos pretty educational from the POV of an absolute beginner. Their app is pretty good too, though I honestly haven't shopped around (my mom set me up with an account with them when I was a teenager so I just kind of defaulted to using them).
This is the correct attitude. May be worth trolling through whatever resources are sidebar’d on WSB.
