Fancy some GameStop stock?

[Oz]

https://www.bbc.co.uk/news/business-55817918

 

Imma get me some of this stock. 

[Harsin]

I've tried my best to follow the shares discussion in the Off Topic thread and 

 

[Oz]

12 hours ago, Harsin said:

I've tried my best to follow the shares discussion in the Off Topic thread and 

 

 

 

Someone or a group of people in reddit found an exploit in the market.

It does not seem they were organised in any way other than through a reddit board. They were all small investors using investing apps. 

 

They found a way to take advantage of a flaw in a strategy being used by a few big hadge funds. They bought shares of GameStop and held them at a time when they knew they will be needed by these hedge funds in large volumes to close deals they had set up.

 

The funds then ate each other up buying the remaining shares so they could close the deals they had planned. This forced the price way up and loss the hedge funds billions (with a b). They were beaten at their own game.  Some reddit users would have made a shit ton. 

 

It is the same concept of PS5 scalping.   Just taking advantage of knowing when something is going to be short supply.

Here it affects hedge fund managers mainly and not innocent folks trying to play miles morales.  

 

[Mr. Gerbik]

I still don't understand but then I didn't understand the ending of Trading Places either. Is it like that?

[sbrandon111]

My Brother in Law does shares and investing, makes a decent amount doing it as a hobby. About a year ago he asked me about games companies as it was an area he was interested in investing in, particularly eastern European companies. I told him about CD Project Red and this massive game that was about to come out...

[Uncle Mike]

Trading Places involves people producing false information in order to screw over the big guy. This just involves actual information and no deception.

[Waggo]

They have something that billionaire hedge funds need, but are refusing to sell it so the price is absolutely skyrocketing.

[Marlew]

Can we all get rich quick now if we buy some

[jon_cybernet]

16 minutes ago, Marlew said:

Can we all get rich quick now if we buy some

 

As I understand it, it's sort of a legal pyramid scheme, which generally means that by the time you hear about it, it's already too late to jump in without being in severe danger of getting your fingers burnt. 

[Transient Curse]

25 minutes ago, Waggo said:

They have something that billionaire hedge funds need, but are refusing to sell it so the price is absolutely skyrocketing.

Why do they need that specific stock? 

[Waggo]

Probably too late for that as the price is insanely high, and so is bound to crash at some point.  It is basically a pyramid scheme now those who piled on early will make a killing at the expense of those who follow.  
 

The beauty of it is those who follow are by necessity the hedge fund managers who must buy the stock, but if ordinary Joes get sucked into it they are going to get badly burned.

[Waggo]

13 minutes ago, Wahwah* said:

Why do they need that specific stock? 

The Hedge Fund investors short sold the stock, which is a legal but nasty tactic where they pay a fee to borrow shares from long term holders like pension funds etc who have no interest in selling at the present time.  They then are gambling they can sell those borrowed shares and buy them back again at a cheaper price thus locking in a profit.  In other words they are actively working to undermine the value of the business they are targeting.
 

They have to buy that specific stock back in order to give it back to the funds they borrowed it from.

 

In this case the Reddit group identified their interest in undermining Gamstop and bought up the shares the short traders had offloaded and refused to sell them back, meaning prices went through the roof instead of falling as the short traders need them to do.

[Oz]

32 minutes ago, Marlew said:

Can we all get rich quick now if we buy some

defo not at this point for gamestop. but there might be other similar opportunities out there. you may loose a bit of money though. it's a bet. 

 

 

[Nick R]

Someone linked to this explanation in the Off Topic thread:

 

 

 

In the replies someone posted an even more concise (and videogame-themed!) explanation:

 

 

 

[Transient Curse]

24 minutes ago, Waggo said:

The Hedge Fund investors short sold the stock, which is a legal but nasty tactic where they pay a fee to borrow shares from long term holders like pension funds etc who have no interest in selling at the present time.  They then are gambling they can sell those borrowed shares and buy them back again at a cheaper price thus locking in a profit.  In other words they are actively working to undermine the value of the business they are targeting.
 

They have to buy that specific stock back in order to give it back to the funds they borrowed it from.

 

In this case the Reddit group identified their interest in undermining Gamstop and bought up the shares the short traders had offloaded and refused to sell them back, meaning prices went through the roof instead of falling as the short traders need them to do.

Thank-you very much! I understand a few comments I've seen on this story now.

 

The amount of ads I see for hobbyist trading apps, headlines like this story and influencers saying they make money on the stock market easily just makes me think that the danger of getting screwed if you don't at least have a good grasp on things must be getting higher and higher at the moment. 

[Mr. Gerbik]

The FIFA explanation finally did it for me! Thanks

 

[Spoonman]

3 minutes ago, Wahwah* said:

Do you know how they identified which stock was being shorted? I'm not interested in attempting to emulate it, just interested. 

 

You can openly see such info all around the net. https://financhill.com/most-heavily-shorted-stocks-today

 

Here you can see that GME has 7 days left (6.9) to cover, with a huge percentage of shares shorted. They have to buy them back...

 

51 minutes ago, Marlew said:

Can we all get rich quick now if we buy some

 

There might be a little to be made, but the ship has possibly sailed a bit. They still need to buy back some shares though, so it's likely the price will still increase. They have like a week to do so on their loan. It's going to be an interesting week.

[Gigga]

The other stock seeing attention is AMC - it went from $5 to $20 yesterday.

Blackberry and Nokia were also seeing activity but not to the same level.

[Transient Curse]

Cheers for that, looking at this graph you can see how far it's come.

 

[SteveH]

 That FIFA explanation was indeed great  Up until then it all just sounded like "Darmok and Jalad at Tanagra. Shaka, when the walls fell"

[Mr. Gerbik]

Can someone use FIFA to explain Trading Places now?

[Dig Dug]

[Oz]

1 hour ago, sbrandon111 said:

My Brother in Law does shares and investing, makes a decent amount doing it as a hobby. About a year ago he asked me about games companies as it was an area he was interested in investing in, particularly eastern European companies. I told him about CD Project Red and this massive game that was about to come out...

 

give yourself a bit of credit. if he sold in September or December your tip was actually quite good. if he still has them maybe that class action lawsuit is the ticket. give him some legal advice.  Stevie > Michael Pachter

 

 

[Ste Pickford]

This is the best explanation I've come across:
 

 

[sbrandon111]

3 minutes ago, Oz said:

 

give yourself a bit of credit. if he sold in September or December your tip was actually quite good. if he still has them maybe that class action lawsuit is the ticket. give him some legal advice.  Stevie > Michael Pachter

 

 

To be honest he was pretty happy, he sold some when they went up and retained some. He's pretty confident they will go back up after i explained that thier last game (Witcher) has a similar launch, although not as high profile. I know nothing about finance

[Alan Stock]

Thanks for all the explanations, it helped me get my head around it too. Question: when the short sellers borrow shares, how long are the borrowing contracts typically? And I take it that short sellers to borrow shares will suddenly appear when a company looks like its on a downturn so the contracts aren't usually that long?

[Alan Stock]

Also, why are the Reddit trader folks so against the hedge funds etc, is short selling and such damaging to the little guy in the stock market? 

[Ste Pickford]

Once a big hedge fund shorts a stock, it puts pressure on the stock to go down.  Partly because lots of investors also short the stock, copying the big investors, presuming they are right, but also because the big hedge funds are influential, and it's in their interests that the stock price goes down, so they will work to undermine the stock price, with negative stories about the company, etc., regardless of whether the company is actually doing badly or not.

Basically shorting does nothing positive for the companies who's shares are shorted, does nothing positive for the economy or the world in general.  At best it's just some rich people getting richer by betting, but at worse (and in reality) it's rich people manipulating companies they have no interest in for the worse, just to get richer.

[LaveDisco]

This is really going to be a big deal. Rich, important people banding together to influencing the market for their own gain is fine. We'll even bail them out if it goes wrong. But poor people doing it? Shit's going to get real.

[dumpster]

In Trading Places they short the stock in Orange Juice. 

 

The orange juice forecast in the crop report is very strong. There's loads of orange juice to go about. Supply and demand will cause the value of orange juice to fall.  The Duke Brothers are crooks and they pay for an advanced copy of the crop report and hire Clarence Beeks to get it. Armed with the knowledge of what the report says they can make the right investment and make a killing.

 

Dan Akroyd and Jamie Lee Curtis and Eddie Murphy use silly costumes and pretend to be Swedish. This allows them to switch the crop report for a fake one with false information in it.  So when the Dukes get their stolen report it says the price of orange juice will go up and up because the crop was poor. This is not true and so the Dukes are set to invest wrongly.

 

The Dukes are influential.  They tell their broker to buy, buy, buy and when people see this they try to get in on the act.  Everyone is buying Orange Juice futures and the price goes up and up. The Dukes are happy because when the crop report is made public they think the price will only go higher. 

 

Then Dan Akroyd yells out "Sell Orange in April at 140" or something. It's barely intelligible with all the noise.  Everyone knows the prices are going up so they mob Akroyd and take advantage of such an amazing deal.  In the future, in April, Dan will sell you the orange juice shares at 1.40. bargain. They are already going through the roof. Why, Akyroyd must be crazy! 

 

Then the silence falls on the sales floor as the real crop report is read out to the public for the first time.   It says that there's loads of orange juice to go around, a real bumper year.  This means the value of orange juice falls and falls, from the high position to a very low position. This is compounded by all the traders on the shop floor who were desperate to buy a moment ago, all selling as quick as they can before the price drops further. 

 

Dan has made tonnes of agreements to sell in April at 1.40. but the price tumbles and tumbles down to 0.20.  No-one wants it any more.

 

At this super low point, they tell out that they are buying orange juice.  Everyone dumps their shares on Dan at 0.20.  Now he has enough to honour the previous deal at 1.40.  He's bought low and will sell very very high in April.

 

Meanwhile the Dukes originally told their broker to buy buy buy, and not stop, no matter how crazy it may have seemed because they thought they knew what the crop report said.  When they realise the crop report was fake, all pandemonium is breaking loose on the sales floor and they can't get to their broker to tell him to sell sell sell. The Dukes can't stop their broker from wasting all their money on stock that no-one wants to buy. 

 

The market closes and for the first time The Dukes see Dan and Eddie are there, making a fortune.  The Dukes have been duped.  In April Dan will sell all their Orange Juice futures at a massive profit and Clarence Beeks will get anally raped by a gorilla on a train. 

 

Meanwhile the Dukes spent a fortune on orange futures that went on to plummet. 

 

In summary, Dan and Eddie bought at a low price and sold at a high price. But because its 'futures' they agreed to sell before they agreed to buy.  They made deals to sell at 1.40 before the report came out, then after they agreed to buy at 0.20.

 

It's a great film but that last scene is gibberish to most people watching and it doesn't really explain it.  I only know because I looked it up.  It's especially difficult to understand as a man because  it all happens within an hour of seeing Jamie Lee Curtis' tits and it's very difficult to clear your mind and focus on the movie.