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It isn't just retail that is going to get destroyed -- the option-sellers may not have enough capital to hedge effectively. A lot of parties are going to be har
by ISL 6y ago
It isn't just retail that is going to get destroyed -- the option-sellers may not have enough capital to hedge effectively. A lot of parties are going to be harmed by this; it is an expensive tuition payment to the school of hard knocks.
The most interesting technical thing about this fracas is the fact that WSB has managed to play the options-sellers off against the shorts to set this off. The kids have temporarily played the adults off against one another and caused an explosion.
In the end, the savvy and the lucky will have more capital than in the beginning, and the un-trained and unlucky are going to be very sad. In the meantime, food-fights are fun while the food is flying.
- elliekelly 6y agoAnd (no one seems to be talking about this) but there's definitely a systemic cost. Going forward, how do you effectively manage the risk of one of your positions becoming a meme? This happening once is an interesting situation and I've certainly enjoyed watching it play out. If it happens repeatedly it will definitely start to undermine the investing public & market participant confidence in the market. That's certainly not something anyone should be rooting for.
- stonecraftwolf 6y agoI don’t think dismissing this phenomenon as a stock turning into a meme is right. WSB is...something, but there is actually a rationale behind going long GME. If you think that the new CEO, known for turning dead retail into profitable online content and e-commerce businesses (as I understand it), is going to turn GME around, then buying $12 Apr 21 calls for thirteen cents or whatever it was makes sense absent any notion of a short squeeze or market manipulation. That it was one of the most shorted stocks and there was an obvious opportunity for a short squeeze, and that this seems to all be multiplied by HFT, is quite the force multiplier. It’s not like this is some random event that could happen to any position. There seem to be a number of factors in play, but it’s not random, and it’s not because a meme got popular.
- eastbayjake 6y agoTo clarify: not a new CEO (current one has been in place since April 2019) but rather an activist shareholder who bought a large stake and got seats on the board as a result, and that guy has the e-commerce turnaround story
- stonecraftwolf 6y agoThat’s what I get for skimming! Thanks for the correction. :)
- chii 6y ago> but there is actually a rationale behind going long GME. not at this price. There's a rationale for doing so at sub $10 a share.
- FabHK 6y ago> dismissing this phenomenon as a stock turning into a meme GP is not dismissing it. They're saying that a stock play turning into a meme is becoming a serious additional risk factor.
- btbuildem 6y agoMeh. It's about time this rotten house of cards started coming down.
- mdoms 6y ago> Going forward, how do you effectively manage the risk of one of your positions becoming a meme? Don't take short positions. They add nothing of value to anyone. They are just fancy gambling.
- ISL 6y agoOne way to counter the risk is broadening the diversification of your positions. Half the time, meme-status will make you a lot of money, too. A more-sophisticated investor than I could also hedge against undesirable long-tail events. To me, with a long-term/value perspective, these transients are a bummer because they distract from efficient price discovery. But, with a long-term perspective, these transients are mostly irrelevant. If a quality company's price drops precipitously, it is then on sale and worth buying. If it becomes quickly inflated, I can either hold with a smile or, if it is just too insane, sell with the expectation of buying in again later. The only real risk is of a meme-driven fluctuation shorting an otherwise-okay company into bankruptcy.
- Marazan 6y agoDon't play derivates, options or shorts. Buy things, hold things, sell things.
- onion2k 6y agoGoing forward, how do you effectively manage the risk of one of your positions becoming a meme? Hide your position better. Put out fewer signals. Lobby to make trades secret.
- blhack 6y agoReading through the comments on WSB, I actually don't think the losers care. They just want to see the short sellers suffer. They're just mad, and while I think they hope they make money, I think most of them just want to see the people they feel like control their lives suffer. It's past clever trading at this point.
- tonfa 6y agoI think it largely spilled over at this point, it's been mentioned in every mainstream media around the globe, and I'd assume there's a lot of FOMO going on. While it's likely that some of the wsb crowd plays it yolo style and doesn't care (it's for the lulz), I don't think the people who invest because they saw it on mainstream media will see it that way.
- trianglem 6y agoThat’s what I was wondering. Who is selling Jan 29th calls right now? They can’t all be covered. Is it the DMM?