GAMESTOP -- WTF? Explain it to me

[MarieDavisRPs]

Please explain this GAMESTOP thing to me...

I know what shorting stock is, so you can skip that. (Don't bother doing a "copy and paste" from wikipedia.)

What I don't understand and can't seem to find on the internet or even see on the news is:

• How is this harming big time investors and hedge funds who have stock in the company and are now seeing their stock valued rise?
• And how is this helping small time investors? if the stick is going up, up, up but will eventually tank when all these Reddit guys bail, how does that help the Reddit guys? I mean, isn't it all their money to begin with? Aren't they just stealing from their buddy Peter to pay off their buddy Paul? (Or was it Paul to Peter, I don't remember.)

 

[islandman]

Please explain this GAMESTOP thing to me...

I know what shorting stock is, so you can skip that. (Don't bother doing a "copy and paste" from wikipedia.)

What I don't understand and can't seem to find on the internet or even see on the news is:

• How is this harming big time investors and hedge funds who have stock in the company and are now seeing their stock valued rise?
• And how is this helping small time investors? if the stick is going up, up, up but will eventually tank when all these Reddit guys bail, how does that help the Reddit guys? I mean, isn't it all their money to begin with? Aren't they just stealing from their buddy Peter to pay off their buddy Paul? (Or was it Paul to Peter, I don't remember.)

1) If they're long, there's no harm (assuming they adhere to their price discipline);

2) For retail, it's a ponzi scheme. If you're in early or day-trading (wsb), you can make gains. If you're in near the top, odds are good you end up a bagholder because, invariably, there's no one buying behind you.

 

[Sean]

Because some of the big hedge funds shorted the fuck out of it. They're contracted to sell hundreds of thousands of shares at $25 or whatever, shares that they don't have, so they need to buy hundreds of thousands of shares at $200 or whatever the price is right now then sell them at $25.

 

[islandman]

Because some of the big hedge funds shorted the fuck out of it. They're contracted to sell hundreds of thousands of shares at $25 or whatever, shares that they don't have, so they need to buy hundreds of thousands of shares at $200 or whatever the price is right now then sell them at $25.

It's more accurate to state that by creating a short position at $25 and then having to step into the market at $200 (leaving margin calls aside for the purpose of this post), they then delivered those shares to close said short position. "then sell them at $25"implies a sale - and the receipt of funds - that does not exist when closing a short position. The closing mechanism in any short position - open or naked - is the delivery.

 

[Sean]

It's more accurate to state that by creating a short position at $25 and then having to step into the market at $200 (leaving margin calls aside for the purpose of this post), they then delivered those shares to close said short position. "then sell them at $25"implies a sale - and the receipt of funds - that does not exist when closing a short position. The closing mechanism in any short position - open or naked - is the delivery.

I bow to your superior knowledge. I was trying to explain why the hedge funds are getting fucked as simply as possible.

 

[islandman]

I bow to your superior knowledge. I was trying to explain why the hedge funds are getting fucked as simply as possible.

The funniest part is that said hedge funds are clamoring for a bailout.

The saddest part is that I bought GameStop last August in the mid-$7s ahead of the launch of the new Nvidia GPUs and well ahead of the AMD GPUs on the assumption that gamers are idiots who will risk their health to line up at a store to pick up cards on launch day rather than wait 2/3 days for e-commerce site deliveries.

I sold in early November in the $12s when manufacturing bottlenecks on the RTX 3000 cards became evident.

Who's the fucking idiot now??????

 

[Sean]

I see Robinhood and other online trading apps have suspended trading in Gamestop. Got to protect those hedge funds from actual real people!

 

[Sean]

The funniest part is that said hedge funds are clamoring for a bailout.

The saddest part is that I bought GameStop last August in the mid-$7s ahead of the launch of the new Nvidia GPUs and well ahead of the AMD GPUs on the assumption that gamers are idiots who will risk their health to line up at a store to pick up cards on launch day rather than wait 2/3 days for e-commerce site deliveries.

I sold in early November in the $12s when manufacturing bottlenecks on the RTX 3000 cards became evident.

Who's the fucking idiot now??????

Gamestop's business model is fundamentally untenable in the long run, I think. They're facing the same problems as most bricks and mortar stores with the added complication that their core demographic is particularly internet comfortable.

 

[islandman]

Gamestop's business model is fundamentally untenable in the long run, I think. They're facing the same problems as most bricks and mortar stores with the added complication that their core demographic is particularly internet comfortable.

Bingo.

I can't remember the last time I bought a game on a physical disk.

 

[Liar]

Shorts are weird. Isn't it literally selling stuff you don't own?

 

[Conager]

It's the "greater fool" theory of investing. It's like playing hot potato with shares of or options to buy or sell stock. You buy, not on the fundamentals like the price to earnings ratio or anticipated growth or the book value a company's assets if sold off. You buy in a known frenzy with the idea that someone else will pay even more to get in on the (hooefully) continued upswing of the well-understood over-valuation of a stock.

Speculative bubbles are common. This one was just cartoonishly gigantic.

Read up 0n the Dutch tulip bubble. Essentially, the market for bulbs in England was hot amd people started buying contracts for future delivery for bulbs they had no interest in. They were going to sell the contracts to the next speculator and he to the next. . .

 

[Liar]

Yes. You borrow money and buy stock when it's low then sell when it's high. Once you sell you pay back your loan and keep the profits.

Ok that makes more sense than the other explanation I saw, that said that you literally borrow the stocks.

 

[Conager]

Ok that makes more sense than the other explanation I saw, that said that you literally borrow the stocks.

If you sell short, you do "borrow" stocks. A brokerage house "loans" you shares under their control. You sell them now and promise to buy the stock on the open market later to "cover" the short. I don't think any of it is actually done like that anymore. It's just all accounting these days with virtual shares. I'm not sure how antiquated the SEC rules are. . . it could be though that you have to have control of some actual shares in order to be able to assist an investor in selling short.

 

[islandman]

Ok that makes more sense than the other explanation I saw, that said that you literally borrow the stocks.

A short is when you borrow shares from someone who owns it outright, then turn around and sell those borrowed shares to someone else.

So, yes, you do borrow shares. And, no, you don't have to borrow money to short. You can buy on margin or off of your cash position in whatever platform you trade on.

ETA: most platforms will require you to maintain a cash position against your short, and if it goes the wrong way on you, you'll get a margin call that you have 24 hours to satisfy, whether by an infusion of cash into the position or by closing the position (buying actual shares and delivering them to the person/institutions you "borrowed" from initially.

 

[MarieDavisRPs]

Hi, original poster of the question here...

I guess where I'm lost is this:

If the big hedge funds that are now crying foul bought shares to sell, then rebuy later when the value tanked, my question is:

• When did the buy Gamestop shares and at how much? I read that the shares were at $4-5 when all this began, so how much lower had they expected them to go in order to make a fortune by buying low and selling high?
• And if the big hedge fund guys have millions of shares, isn't all of this helping them, not hurting them? I mean, whether you bought them at $4, $10, or $20, if they are word $100s now, isn't that a gain?

Obviously, I missing something (which was the reason for this thread).

Thanks for your replies everyone.

 

[bellisarius]

A "Trading Places" reality drama.

 

[Sean]

Hi, original poster of the question here...

I guess where I'm lost is this:

If the big hedge funds that are now crying foul bought shares to sell, then rebuy later when the value tanked, my question is:

• When did the buy Gamestop shares and at how much? I read that the shares were at $4-5 when all this began, so how much lower had they expected them to go in order to make a fortune by buying low and selling high?
• And if the big hedge fund guys have millions of shares, isn't all of this helping them, not hurting them? I mean, whether you bought them at $4, $10, or $20, if they are word $100s now, isn't that a gain?

Obviously, I missing something (which was the reason for this thread).

Thanks for your replies everyone.

They didn't buy the shares, that's the point. They contracted to sell shares they don't own at a certain price.

 

[Adre]

Stick with Islandman’s explanations on this topic. He’s spot on.

 

[doowdniw]

The funniest part is that said hedge funds are clamoring for a bailout.

The saddest part is that I bought GameStop last August in the mid-$7s ahead of the launch of the new Nvidia GPUs and well ahead of the AMD GPUs on the assumption that gamers are idiots who will risk their health to line up at a store to pick up cards on launch day rather than wait 2/3 days for e-commerce site deliveries.

I sold in early November in the $12s when manufacturing bottlenecks on the RTX 3000 cards became evident.

Who's the fucking idiot now??????

Meh, ifs and buts - candy and nuts. To paraphrase the Buffet, you'll never go broke making a profit. Better to stick with the fundamentals.

 

[Sean]

Billionaire hedge fund managers on TV crying about how it isn't fair is peak late stage capitalism at its finest.

 

[MartinHeidegger]

Billionaire hedge fund managers on TV crying about how it isn't fair is peak late stage capitalism at its finest.

That's exactly why I'm watching this shit show.

 

[Sean]

At least two class action suits filed against Robinhood for market manipulation.

 

[Sean]

Iman will know, isn't Friday call day for options?

 

[islandman]

Meh, ifs and buts - candy and nuts. To paraphrase the Buffet, you'll never go broke making a profit. Better to stick with the fundamentals.

Sure. I've got a few stories like that every year.

Fundamentals are great, but game changers don't have the fundamentals that a Buffet would want to see. Hence, SPACs are back in vogue as opposed to the traditional IPO route.

 

[Sean]

Sure. I've got a few stories like that every year.

Fundamentals are great, but game changers don't have the fundamentals that a Buffet would want to see. Hence, SPACs are back in vogue as opposed to the traditional IPO route.

Aren't SPACs the most susceptible to fraud stock there is?