7 ms·

It just doesn't add up to me. If you take Gamestop (GME) today's hot item, it's trading 170M shares back and forth, at say, $70. That's $11B sloshing back a

• curiousllama 6y ago
  It’s not 11B sloshing. It’s probably 1% of that, if that. Market cap > available shares Available shares > traded shares Traded shares > actual $ involved
  • supernova87a 6y ago
    What do you mean? Today's traded volume is 170M shares. The price is $80. $13-14B has to change hands to settle that.
    • intpx 6y ago
      if i give you a dollar and you give it back to me 7 billion times, 14 billion in volume occurred with $1. some percentage of this is tomfoolery that triggers cascades in the HFT space and create a lot of volume without much sound.
    • s1artibartfast 6y ago
      Alternatively, 1 stock could be traded back and forth 170 million times if two parties have each have $80 in capital.
• umvi 6y ago
  > I think it's quant and algorithmic trading. Yeah, I wonder if ML-driven investing is being tricked by reddit into buying stock in failing companies and causing a runaway effect. If so, it makes me nervous that lots of stocks might be massively over-inflated right now.
  • sjg007 6y ago
    Just wait until someone combines this with a GPT-3 bot trained on Wallstreebets... that being said how many bots are on Wallstreetbets?
  • rubatuga 6y ago
    You are assuming that a lot of investing is ML-driven. It's not.
• michael1999 6y ago
  Options generate leverage. Potentially lots of leverage. https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...
  • supernova87a 6y ago
    But who's backing those options with the actual stock to the tune of $13B per day?
    • baq 6y ago
      market makers who write the options but want to hedge the risk by taking a related position in the market itself. they don't want risk, they just want the premium, so they don't care about the price of the underlying most of the time. what they do is continuously adjust the position as the price changes and time to expiration gets shorter. you can imagine the amount needed to hedge gets very nonlinear the closer to expiration and the closer to the money the option is, hence a single short time to expiry near the money contract can cause a lot of volume.
      • socialist_coder 6y ago
        isn't this a serious exploit in the whole market maker system?
        • baq 6y ago
          it is an exploit; not sure if serious, as conditions required to trigger it are quite extraordinary. couple hundred million loss isn't a big deal for them but pricing models will be updated for sure.
    • defen 6y ago
      Market makers delta hedging OTM calls and then unwinding them as the stock comes back down.
    • knowaveragejoe 6y ago
• abrowne2 6y ago
  Member of WSB here, no expert The narrative of GME has been building for weeks before any news coverage happened. This isn't the first stock to blow up from WSB, but there are a few others in past weeks (none that have reached GME levels) such as BB, PLTR, and previously ABNB (whatever new stock that has IPO'd). There are a handful of users that have $1M positions (some smaller ones, like a user that reported $250k into $7M, back down to $4.2M). Collectively, the community appears to drive hype towards different stocks based on flimsy things. Without a doubt there's HFT (High frequency trading) happening, but these social communities are having an impact.
  • throwaway2a02 6y ago
    > but these social communities are having an impact What that means is that people controlling those communities (including mods) have an immense advantage.
    • abrowne2 6y ago
      Yes. The former creator of WSB, jartek, was removed from the subreddit because he masqueraded as 'WSBgod' an anon user with crazy gains, but it was fake. He also sold ad space in the about section for $1500.
    • weird-eye-issue 6y ago
      Of note they recently banned SPACs which directly means there will be less retail interest in SPACs since you can't even discuss them
  • deleted 6y ago
    [deleted]
• leetcrew 6y ago
  yeah it doesn't quite add up to me either. my mostly uneducated guess is that the wsb activity is a spark that triggers a positive feedback loop in some trading algorithms. these algorithms must have some ability to filter out noise from low-information traders, but perhaps no one considered the possibility that a large group of people might make bad trades on purpose?
• hntrader 6y ago
  > You're telling me 10,000 (if even?) guys sitting at home doing retail trading have $1M each in positions driving this? 100,000 people with $100,000 each, during the day? No, it's the same retail people trading in and out. Someone w/ $100 in buying power can generate $2000 in traded value pretty easily just buying & selling 20 times, which some retail people do because they don't know what they're doing. There's also going to be HFT market makers flipping their position and taking the other side, which almost doubles the volume compared to what it would be if there were no MMs. It's not a capital intensive business and they can trade huge volumes with very small capital. Then there's going to be GME options market makers who are getting gamma squeezed and hedging their deltas. That would explain a bit. The hedge funds getting squeezed explain about ~30m of the volume (assumption that 50% of the short float got squeezed), or perhaps more if they covered their position yesterday and decided to put it back on today. Probably also some totally new hedge funds coming in today with a short as well, although that won't explain much volume since the entire float was shorted (and them some, due to naked shorting) and naked shorting is technically not allowed. I'm sure all the prop firms were all over it today, as well, and they're going to be in and out with up to $1m positions.
• DavidPeiffer 6y ago
  >You're telling me 10,000 (if even?) guys sitting at home doing retail trading have $1M each in positions driving this? 100,000 people with $100,000 each, during the day? Matt Levine wrote about this in his Money Stuff newsletter today. I highly recommend the newsletter. In summary, the options have an amplifying effect on the total volume because of the hedging by market makers. Pair it up with a meme stock, and you have a lot of weird stuff happening all at once. Primarily explained in the 2nd paragraph, but setup in the 1st paragraph. "Second, a lot of people (on Reddit) who like GameStop don’t buy stock; they buy call options. If you are a retail trader looking to gamble on a stock, you can buy call options to get leveraged exposure to the stock. For instance, last Tuesday (Jan. 19), you could have bought a $50-strike call option on 100 shares of GameStop stock expiring this coming Friday (Jan. 29). Bloomberg tells me this option would have cost you about $3.35 per share, or about $335 for a 100-share option contract; the stock closed that day at $39.36. If you sold the options on Friday (Jan. 22), when the stock closed at $65.01, they were worth $18.16 per share. 4 You put in $335 and got back $1,816; you made a 442% return in four days. If you had just bought 100 shares of stock instead, you would have had to put in $3,936 to get back $6,501, a 65% return. Of course if the stock had stayed flat instead of going up to $65.01, you’d have lost 0% by buying shares and 100% by buying the options. So options are great if you have a relatively small amount of money and want to take a lot of risk with it. If, for instance, you are a retail trader on WallStreetBets." "Meanwhile the market maker who sold you the options would have hedged its option exposure by buying about 40 shares of GameStop stock, for about $1,575. (This—the fraction of the underlying shares that the market maker buys to hedge the option—is called “delta.” 5 ) Your $335 of option premium caused $1,575 of stock buying. More important, as the stock goes up, the market maker will adjust its hedge by buying more stock—by the end of the day on Friday, the market maker would have owned about 80 shares. (The change in delta as the stock price changes is called “gamma,” and people who like this sort of technical explanation love talking about “gamma.” 6 ) You haven’t done anything else—you bought the options on Tuesday, and then stopped trading—but the market maker kept buying hundreds of dollars more stock as the stock went up to keep the option hedged. 7 Multiply that by the extreme popularity of GameStop options, and you get a lot of stock being bought as the price goes up—which, of course, pushes the price up more." [1] https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...
• dfraser992 6y ago
  I have been paying attention to r/wallstreetbets for the past few weeks - I don't have the source handy (it was on WallStreetBets), but there are reputable big name funds / companies who are long on GME. Other big name companies are short, of course, and the WSB community has picked a side in this battle. So the idea that WallStreetBets is a significant player in all this is nonsense and actually might be propaganda flak coming from the "responsible" people in the media, etc - journalists in the financial sector love rumors and such things and it is a nice cover story as "fog" to hide the fact Wall Street is so manipulated by the big players.
  • in3d 6y ago
    I’m very sure you’re wrong. If you’ve ever traded a larger position, you quickly realize that it doesn’t take a ton of volume to move the price of a stock like GME. Take a look at how quickly the GME threads on WSB get 100k posts and take a look at how many posters there are on the WSB Discord and note that the ratio of lurkers to posters is high on most forums.
• baq 6y ago
  a bunch of dudes bought a bunch of contracts $50 or $500 or whatever cheap price a piece for 100 shares so far out of the money they'd be worth $6000 if price got there. market makers bought anywhere between 1 and 10 shares to hedge the risk of the price getting there. turns out there were so many of them the market makers got the price in the money just by hedging via a chain reaction of sorts, called 'gamma squeeze'. see also https://www.swfinstitute.org/news/83341/what-is-a-gamma-squeeze-in-the-context-of-stock-trading https://www.swfinstitute.org/news/83341/what-is-a-gamma-sque... you could say the market was broken for a couple hours this friday. funds not used to losing money (market makers like citadel) lost money. eyebrows were raised.
  • socialist_coder 6y ago
    I understand technically what a gamma squeeze is and how it happens, but I don't understand why the banks/brokers are on the other side of you buying a call option. It seems totally exploitable. Are banks/brokers selling you the call because they think they will make money from it? Or are they doing it because they are acting as a market maker role and just wanting to have liquidity in the market? Edit: read some other comments here and I think I understand now.
    • rjbwork 6y ago
      They are generally acting in a market maker role. That doesn't mean they don't think they'll make money from it though. Hedging even large delta and gamma heavy positions doesn't tend to move the market much. Something like 70-80% of options expire OTM, so they do consistently make money from collecting premiums. But a situation like the one on GME where there is MASSIVE and sudden interest in the stock to the tune of billions of dollars worth of buy orders for both stock and options being placed in a short amount of time along with tens of thousands of people encouraging each other not to sell combined with the insane short interest and shares held by institutions that reallocate infrequently...you can end up with a disaster like the GME gamma squeeze that leaves MM's in somewhat of a prisoner's dilemma. They're more or less obligated to cover because the others are more or less obligated to cover. Meaning that they're ultimately all going to have to cover, driving the price up. So usually they do make good money from selling options since they ultimately keep the premium of most options. Sometimes they don't though.
• ZitchDog 6y ago
  They definitely do move markets. What you need to know is that they are buying short-dated call options. These options expire in less than 2 weeks, and are usually far out of the money. They require "dealer hedging" as the market makers providing these options do not want to be exposed to the massive amount of risk implied with the movement of price. The market makers are then required to buy massive amounts of the stock in order to hedge against any movement in the underlying stock, which can cause a "gamma squeeze" when market makers are unable to purchase enough of the underlying asset.
  • acjohnson55 6y ago
    IIRC, a huge part of the discount brokerage business model is lending shares out of peoples' portfolios to meet this temporary demand. Is that right?
  • blackrock 6y ago
    Lottery tickets. Did anyone make money on GME calls? More often than not, the calls will expire worthless.
    • chillacy 6y ago
      They say selling call options is "picking up pennies in front of a steamroller": most of the time you collect premium, and then occasionally you get run over by a steamroller. This is the steamroller.
      • blackrock 6y ago
        I think you misunderstood. It was meant for those who bought the GME calls, not for those who wrote the calls.
        • chillacy 6y ago
          I was more pointing out that even though "More often than not, the calls will expire worthless." is true, the quote refers to the fact that buyers of calls have limited defined risk while sellers of naked call options have unlimited and undefined risk. That's the steamroller.