What should you do? (not financial advice)
Yeah, this is about it. Time to fuck Melvin Capital in the ass right now.
What some people don’t seem to understand is that they HAVE to close those positions, because the interest rate hurts them even more than the share prices and that because the short float is at 120%+, it is GUARANTEED that every share available will have to be bought eventually. And you don’t cover all your shorts in 1 day, imagine 1 hour. The squeeze will probably last a few days, and will hit price peak at the last day.
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Oh. Thanks for this post, now I understand at least something about what's going on.
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Bought in late GME and AMC just to let the HedgeFonds bleed for '08 ... and because I like the stocks.
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I would check the sub out every now and then and I could never figure out how much of it was trolls vs peeps who yolo'ed their cash with naked options.
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I was watching The Good Lord Bird while this all started unfolding, I won't compare the two situations, but there are a few similarities which make you feel sorry for some of the participants.
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Ape, can you add another Ape on steam, because the ape here quer perguntar a você sobre o Avenue
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I'm just sitting and watching, and listening to Tim Pool cheer them on. If I'd have known about this early on I might have joined in.
I do have to say though, I feel really bad for the people who's pensions and such are tied up in these hedge funds due to company investments and are going to lose it all.
And it's absolutely fucking hilarious how google deleted all the 1 star reviews for robinhood over how they blocked buying. I mean there's still a lot of 1* reviews but those are mostly about their bad customer service and not this.
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They leave buying active, they get sued, they deactivate buying, they get sued. There is always someone ready to sue in the US :P
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i like what happened, finally the people are abusing the wallstreet like the wallstreet was abusing us the whole time!
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Few things can top ending the first month of 2021 by fucking over Wall Street the same way its been fucking over the "filthy pleb" since its inception.
(⌐■_■) 🔥 Burn,baby,burn! 🔥
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Nope, only in Crypto atm, just wanted to share this: https://www.youtube.com/watch?v=cJd3LO6u1vY
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This is time to buy. Sale price for GME.
They are ladder attacking.
Go to any website where you can look at volume. They sell like 5x100 shares, each cheaper than the one before, which brings the market down. Then they buy it back with one purchase.
That drives the price down and makes some paperhanded folks panic sell. They can't cover their shorts if those people didn't sell tho. The ladder attacks they are doing are with shorted stocks, so if this doesn't work and we just hold the line, they are digging themselves deeper into the pit.
Not financial advice
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you know what will happen? some rich kids who bought a lot will soon sell their shares and make a butt load of profit and all the idiots who will hold onto it will realize after the crash that they were just used and will loose money. thats how it goes and thats how it will always go. if you are holding it for the meme. well it must be fun to pay money for a meme.
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Ah yes, the bored middle-class, playing chicken with millionaires :)
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I got out before the fall today thankfully, knew at least one of the big investment banks would sell big early this week and take their profits while its incredibly overvalued
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Yesterday’s fall wasn’t big. And it was clearly ladder attacks. Last week we went from 480$ to 120$ in a single day.
I’m no paperhands. And the ladder atacks are the hedge funds doubling down on their positions.
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Hi. So a lot of this financial stuff is over my head (I have a head for many things, but not financial stuff). My question for you is why is it possible to "borrow" shares, especially if it can lead to crap like this? What is the legitimate reason to borrow shares? Why don't people just have to buy shares, or borrow money to buy shares? Thanks for the interesting discussion.
PS: If possible, please answer like you're talking to a five-year-old. ;-)
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Based ELI5: because that's another way for the Big Money to manipulate prices to where they want and make cash on other's behalf.
Actual ELI5:
What happens when you sell short is you actually borrow the shares from your BROKER, and they are immediately sold into the market. They are effectively giving you a loan in the form of shares of stock which you then immediately sell to convert to cash, and you owe your broker those shares at some point in the future. It is "equivalent" to borrowing money.
Then, when the stock drops, you use that same cash to buy back the shares at a cheaper price. So let's say you short 2,000 shares at $10/share. You immediately have $20,000 cash in your account (you can't withdraw it, it will show a position of -2000 shares worth -$20,000), but you owe your broker 2,000 shares of that stock.
If the stock drops to $9 you can buy the same 2000 shares back for only $18,000, profiting $2,000 as you return them to your broker.
If the stock goes up to $11, you still have to buy back the shares only now it costs you $22,000, so you lose $2000.
While you have that 2k shares shorted, you will be paying interest on the loan, so that's an additional cost on top of your commission fees for trading. The interest depends on how high the demand is for the stock. GME's interest was reportedly higher than 220% yesterday.
While you're holding the stock there may be an overnight borrowing fee, per share. So for example it might cost you an additional .003 per share (in this case of 2000 shares for $10, .003 = $60) for every night you hold short. This is how the broker, clearing firm, etc make money on the deal, and explains what's in it for them for people who might ask "why would the broker just give you $20k for no reason?" ... the answer is: they wouldn't. They're gonna get paid one way or another ;)
So the reason it is possible is because it is very rentable for the brokers, since they WILL get payed, and it is a way for the funds to also cash some in. It is a tool made by the system, for the system. Shorting for retail investor is way riskier than for the funds, since the implications of behind-the-scenes movements and financial help from the govt are not there for the individual trader.
I think that was good? If not, plz say
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Thank you very much for the response. I think you summed up the answer to my question right here: "It is a tool made by the system, for the system."
Brokers lend shares because they can make money in interest and borrowing fees. Why would brokers let banks collect the interest if they can collect it (and fees) instead? Couple that with what tevemadar said below, and it also results in more transactions, which is good for the stock exchange due to transaction fees.
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just to clarify, it's not brokers that are lending, it's entities that own a lot of shares. Brokers are just the middle-men I'm ignoring broker-dealer, which is a bit more complex
For example, an index fund may by their terms be required to own every share in the S&P 500. By lending the shares, they're making a little extra profit while still complying with their requirements.
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Why is it possible to "borrow" shares, especially if it can lead to crap like this?
It's not about some objective necessity, it's about transaction fees, so making money. As the stock exchange charges for every transaction, the more kinds of transactions it supports, the more income it gets. And then it becomes a necessity after all, as if you don't support shorting, you will lose users to other stock exchanges supporting it.
What is the legitimate reason to borrow shares?
It doesn't differ from borrowing a hammer: you want to use it. Just with a hammer you probably want to hammer something, while with shares you probably want to sell them. And at the end, you will have to give them back.
Why don't people just have to buy shares, or borrow money to buy shares?
They do, that's a long, buy first, sell next. short is just the other way around, sell first, buy next. May seem strange, but mathematically 0+5-5 and 0-5+5 are not that different.
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Thanks for the response. Between you and the OP above, I understand why brokers lend shares. It makes sense that something exists for the sole purpose of making money, since it's made by people who presumably know how to use it for that purpose. And the money's not coming from thin air-- it's coming from people who are losing money. The difference between it and a hammer is that almost anybody can benefit from it and use it for its intended purpose. Although I guess anybody can borrow shares and short them to make money...if they have some initial capital and a broker.
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Once upon a time, the stock market was very simple - you could buy shares, hold on to them until you decided to sell, and be done with it - and that's how most people use the stock market. The worst that can happen is you lose the money you invested, and that's it.
But there are various layers of complexity, which generally increase the risk significantly, but also possibly the rewards.
Shorting stock is a way to bet it's going to lose value, but there's a lot more.
For example, a future contract: if you buy a share that's worth $48, you can agree to sell it at the end of the month for $50. You collect a small premium, maybe $1. No matter where the price ends up, you guarantee a $3 profit. The person on the other side of the contract bet $1 that the share price will end higher than $51. If the price goes to $55, that $1 turned into $5 quickly. On the other hand, if the price drops, he/she sells the shares at a loss. That's a future contract.
Those aren't common for shares anymore, having generally been replaced by Options. Options work the same way, but the 'contract' is only fulfilled if the price moves in the right direction. For example, if a share is $48, you can buy a 'call' option for $50, which guarantees you the right to buy the shares if the price is higher than $50, but if the price is below $50, the option expires worthless. So the person buying the option bets $1, and wins if the price goes over $50, but if the price is lower than $50, only loses that $1. Likewise, the person who sold the option will sell the shares if the price is over $50, but holds on to the shares if the price is lower than $50. From the share-owner's perspective, if you want to hold the stock long-term, but don't think the price will rise that fast, it's a great way to make extra money. Call Options can also be "in the money", meaning that the option price is lower than the price of the shares. You're still making the same bet, but it's a lot more likely to happen. For example, I can buy a $45 call on an $48 share for $3.50. In this case, I don't need the price to go over $50, I just need it to increase by enough to make a profit ($45+$3.50 = $48.50). For the share-owner, if they were planning on selling anyway, it boosts the price by a smidge (sold for $45 + $3.50 = $48.50 instead of $48).
There's also put options, which are the exact opposite - it's the guarantee to sell shares at a certain price. It's a lot more risky.
Combining all these things allow for some really 'weird' strategies, whereby you can for example place bets that the stock price won't move at all, or you could bet that there will be a big change,but you don't know if it'll be up or down.
And that's just the tip of the iceberg.
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for someone who knows what they're doing, and if you pay close attention, you can place hedged bets that almost guarantee a profit, which is where the term "hedge fund" originally comes from.
As an easy example, you could buy a share on February 1st for $25, and sell a call option for March 1st at $20 for $5.50 - as long as the share doesn't drop more than 20%, you're guaranteed a profit of 2% - in a month. Do that every month, and your hedge fund has a gross return of 26% per year. Knock off transaction costs and management fees, and you're still doing pretty good.
These days "hedge funds" don't only place hedged bets, but can be into all kinds of stuff.
Like arbitration. That's where you take advantage of a price difference. For example, companies can be listed in different stock exchanges. So if a share is selling for $1 in New York, and for €1 in Frankfurt, you buy it in New York and sell it in Frankfurt at the same time - instant profit. Of course with modern communication systems, the price difference is rarely worth the effort, only if one market is closed when big news breaks. But arbitration gets a lot more complicated. The classic example, which is no longer accurate, was the Japan/Iceland trade in the '90s. The interest rate in Japan was very low and in Iceland very high. In 1990, the interest rates were 0.5% and 16%, respectively. You'd borrow ¥1,000,000,000 in Japan at 1%, convert it to 620,155 IKR, and invest it at a guaranteed 15%. It's guaranteed to grow to 713,178 IKR. At the same time, you bought a future contract to convert Krona back to Yen at the same price December 31st, at a cost of 1%, or 7,132 IKR. So you're guaranteed to get back ¥1,138,852,198. A nice guaranteed 13.88% profit, all you need to do is set up the 3 contracts (borrow yen at 1% for 1 year; lend krona at 15% for 1 year, future contract to convert the krona back to yen at the right price) and wait a year for the money to come in. these are real numbers, by the way
Arbitrage can be applied to any price mismatch, and computers can scan the entire world to take advantage of even the smallest differences.
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You meant: "sell a CALL option for March 1st at $20 for $5.50..."
BTW, who did you lend that krona to for a year? Did you get paid back a year later as promised or no? If so, was that guaranteed to happen?
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thank you, that's right.
As for the arbitrage, yes, those were guaranteed contracts. It was a no-lose situation
not me personally, it was before my time. When I did finance, I was involved in life expectancy arbitrage; basically playing longevity rates and actuarial tables against each other
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To the moon 🚀
I am 7 shares in at good profit. I am NOT selling.
Make them bleed. Make them pay for 2008. For everyone who got hurt by their actions. For every retail investor who got fucked by their market manipulation. It is not for me or you. It is for all of us, against a corrupt system. Fighting for what is right and for justice.
This is not about the money. It is about sending a message. To the higher ups and to everyone else that want to hear us.
Do you hear the people sing?
Singing a song of angry men?
It is the music of a people
Who will not be slaves again!
When the beating of your heart
Echoes the beating of the drums
There is a life about to start
When tomorrow comes!
I am all in the 💎🙌
WE LIKE THE STOCK, WE LOVE THE STOCK
Not financial advice, I'm stupid.
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