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That's the idea, but there will also be a bunch of retail traders who get caught up in the frenzy and end up losing too much when the bubble pops. Maybe it's t

That's the idea, but there will also be a bunch of retail traders who get caught up in the frenzy and end up losing too much when the bubble pops. Maybe it's their own fault for being greedy, but they do still exist. It won't only be hedge funds left holding the bag. Also, there is a worry about multiple hedge funds going bankrupt and causing a cascading effect when they are forced to close out other positions which would hurt average people. I'm not blaming WSB for this, the hedge funds got caught being greedy and deserve everything they're getting, but we do need to try to prevent their failures from affecting the market as a whole.

GordonS 6y ago
> Also, there is a worry about multiple hedge funds going bankrupt Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...
- caddemon 6y ago
  Isn't this complicated a bit by the way shorts work? Like when you buy $n of stock, it is impossible to lose more than $n. But with shorting you could lose unpredictable amounts if shit hits the fan. I agree it's not a good look for a hedge fund to have put themselves in this position, but I think it was more about believing they couldn't lose so extraordinarily badly, not that they couldn't lose at all.
  - nrmitchi 6y ago
    I know this has been discussed elsewhere, and it's kind of against the narrative, but my understanding is that typically if you're shorting like this, you would hedge your potential losses by buying calls. Ie, if you short at $20/share, and want to limit to 100% losses (excluding premium), you could buy calls at $40. If the price skyrocketed past here, you have the calls. There is obviously much more complex math to optimize this. I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them). It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).
  - GordonS 6y ago
    To me, that just says they shouldn't be betting money against potentially unlimited losses, especially without the kind of fallbacks that @nrmitchi describes.
donmcronald 6y ago
Unfortunately I think preventing it in the future will end up being something that prevents retail investors from impacting the market rather than reigning in Wall Street.

GordonS 6y ago

> Also, there is a worry about multiple hedge funds going bankrupt Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...

caddemon 6y ago
Isn't this complicated a bit by the way shorts work? Like when you buy $n of stock, it is impossible to lose more than $n. But with shorting you could lose unpredictable amounts if shit hits the fan. I agree it's not a good look for a hedge fund to have put themselves in this position, but I think it was more about believing they couldn't lose so extraordinarily badly, not that they couldn't lose at all.
- nrmitchi 6y ago
  I know this has been discussed elsewhere, and it's kind of against the narrative, but my understanding is that typically if you're shorting like this, you would hedge your potential losses by buying calls. Ie, if you short at $20/share, and want to limit to 100% losses (excluding premium), you could buy calls at $40. If the price skyrocketed past here, you have the calls. There is obviously much more complex math to optimize this. I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them). It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).
- GordonS 6y ago
  To me, that just says they shouldn't be betting money against potentially unlimited losses, especially without the kind of fallbacks that @nrmitchi describes.

donmcronald 6y ago

Unfortunately I think preventing it in the future will end up being something that prevents retail investors from impacting the market rather than reigning in Wall Street.