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Robinhood allows free trades. With all the new customers loging in and just buying a few stocks, they have to acquire lots of new shares. When this is all ove

Robinhood allows free trades. With all the new customers loging in and just buying a few stocks, they have to acquire lots of new shares. When this is all over, a lot of retail investors are going to be left holding the bag, and will likely not be continuing customers.

pmorici 6y ago
Better to educate instead of ban then. So long as people have the facts, let them make their own decisions. At this point a number of people are probably just in on this because they love the idea of sticking it to a hedge fund or two.
rory 6y ago
Are buyers of these stocks really exposed to more downside risk than the buyers of the way OTM options they sell to retail investors freely?
- IG_Semmelweiss 6y ago
  Only those that got in late and then chose to sell at a lower price than cost. However, and here is the problem - when the price does come down (likely after the shorts capitulate) , it will literally be a stampede to finally get out. It is unknown how sell orders will be processed... if at all at that point. So the later you get in the more likely you are to be burned, in the disordely unwinding scenario. Early adopters will be ok. Holders and latecomers will not.
  - rory 6y ago
    My point is, why is Robinhood still selling options that have a 95% chance to expire worthless, if their actual motivation is to protect their investors from high-risk trades?
ghastmaster 6y ago
The opposite is true: The idea behind these trades is that they will not in fact suffer any losses because they bought in after the naked shorts brought the stock down to a low valuation. If they keep the stock high enough, long enough, the naked shorts will have to buy back the stock at much higher prices than the price was when this short squeeze was started. That's why short squeezes are a thing in the first place. This is no different than what Carl Icahn did to herbalife and Bill Ackman. When companies keep these people from implementing their strategy, they expose these individuals(their own customers) to potential huge losses.
- MrMan 6y ago
  look at GME today, a lot of late arrivals have just lost a lot of money. they are probably not professional traders
  - seabird 6y ago
    That's not how this works. Of course the play is bad if you completely ignore that the key part of the play is that short sellers and call contract writers are contractually obligated to buy pretty much regardless of the price. Whether or not it pans out this way for most retailers is yet to be seen, but the mechanism is sound and the risk is in not having data available to you on what the outstanding short interest is. It's not a loss until you sell, and a key date to sell (tomorrow, when tens of thousands of 1/29 calls expire) hasn't happened yet.
    - unanswered 6y ago
      Once the short positions are covered, shouldn't we expect the price instantly fall to its original level, modulo retail bagholders still buying due to fog of war? And... The price is in freefall in the last minutes of trading today.
      - seabird 6y ago
        Largely correct. The only thing I would add is that I wouldn't be surprised at all if it landed a fair bit above where it started, because there being short interest 140% of the float has a pretty chilling effect on people looking at investing. You would see that and either think the shorters are morons in an insanely risky position, or they know something you don't and are _absolutely certain_ that the company is going to implode. This time the former is true, the vast majority of the time, the latter is. Fog of War is the important bit here. The big difference between this and a pump and dump is that the FOW here is retail investors not having great SI data. In theory, a retail investor could still make this work in a "safe" way (safe used very liberally); it would be a hell of a maneuver for everyone with a short position to somehow close their position in a single day before Joe Retailer is able to get any word on what the outstanding SI is. In a pump and dump, your FOW/missing information is when the party working to pump the price decides the gig is up, which is effectively impossible to know unless you are that party. A lot of retail investors with four days of experience under their belt are going to lose their ass by trying to suss out their exit intuitively, but for those that did their homework, this could work. For many, it already has. The argument that this needs to stop because uneducated retail investors can get burned can be reduced to absurdity -- "retail traders can vaporize their life savings by going long on a company facing imminent bankruptcy, so they shouldn't be allowed to trade with even the most rudimentary of instruments." Price being in freefall doesn't affect the huge number of people that were in well under that, the way this strategy is working, or that people somehow still think that going short on this is anything other than a lottery ticket play because of "muh fundamentals."
iso1631 6y ago
Lots of people saying "you can lose a ton of money" If you buy 10 shares at $200, that's $2k out of your bank acount, and it's gone, just like if you bought a car. How do you lose more than that? I'm not talking about shorting and stuff, just buying shares, hoping it goes up, and selling it later.

pmorici 6y ago

Better to educate instead of ban then. So long as people have the facts, let them make their own decisions. At this point a number of people are probably just in on this because they love the idea of sticking it to a hedge fund or two.

rory 6y ago

Are buyers of these stocks really exposed to more downside risk than the buyers of the way OTM options they sell to retail investors freely?

IG_Semmelweiss 6y ago
Only those that got in late and then chose to sell at a lower price than cost. However, and here is the problem - when the price does come down (likely after the shorts capitulate) , it will literally be a stampede to finally get out. It is unknown how sell orders will be processed... if at all at that point. So the later you get in the more likely you are to be burned, in the disordely unwinding scenario. Early adopters will be ok. Holders and latecomers will not.
- rory 6y ago
  My point is, why is Robinhood still selling options that have a 95% chance to expire worthless, if their actual motivation is to protect their investors from high-risk trades?

ghastmaster 6y ago

The opposite is true: The idea behind these trades is that they will not in fact suffer any losses because they bought in after the naked shorts brought the stock down to a low valuation. If they keep the stock high enough, long enough, the naked shorts will have to buy back the stock at much higher prices than the price was when this short squeeze was started. That's why short squeezes are a thing in the first place. This is no different than what Carl Icahn did to herbalife and Bill Ackman. When companies keep these people from implementing their strategy, they expose these individuals(their own customers) to potential huge losses.

MrMan 6y ago
look at GME today, a lot of late arrivals have just lost a lot of money. they are probably not professional traders
- seabird 6y ago
  That's not how this works. Of course the play is bad if you completely ignore that the key part of the play is that short sellers and call contract writers are contractually obligated to buy pretty much regardless of the price. Whether or not it pans out this way for most retailers is yet to be seen, but the mechanism is sound and the risk is in not having data available to you on what the outstanding short interest is. It's not a loss until you sell, and a key date to sell (tomorrow, when tens of thousands of 1/29 calls expire) hasn't happened yet.
  - unanswered 6y ago
    Once the short positions are covered, shouldn't we expect the price instantly fall to its original level, modulo retail bagholders still buying due to fog of war? And... The price is in freefall in the last minutes of trading today.
    - seabird 6y ago
      Largely correct. The only thing I would add is that I wouldn't be surprised at all if it landed a fair bit above where it started, because there being short interest 140% of the float has a pretty chilling effect on people looking at investing. You would see that and either think the shorters are morons in an insanely risky position, or they know something you don't and are _absolutely certain_ that the company is going to implode. This time the former is true, the vast majority of the time, the latter is. Fog of War is the important bit here. The big difference between this and a pump and dump is that the FOW here is retail investors not having great SI data. In theory, a retail investor could still make this work in a "safe" way (safe used very liberally); it would be a hell of a maneuver for everyone with a short position to somehow close their position in a single day before Joe Retailer is able to get any word on what the outstanding SI is. In a pump and dump, your FOW/missing information is when the party working to pump the price decides the gig is up, which is effectively impossible to know unless you are that party. A lot of retail investors with four days of experience under their belt are going to lose their ass by trying to suss out their exit intuitively, but for those that did their homework, this could work. For many, it already has. The argument that this needs to stop because uneducated retail investors can get burned can be reduced to absurdity -- "retail traders can vaporize their life savings by going long on a company facing imminent bankruptcy, so they shouldn't be allowed to trade with even the most rudimentary of instruments." Price being in freefall doesn't affect the huge number of people that were in well under that, the way this strategy is working, or that people somehow still think that going short on this is anything other than a lottery ticket play because of "muh fundamentals."

iso1631 6y ago

Lots of people saying "you can lose a ton of money" If you buy 10 shares at $200, that's $2k out of your bank acount, and it's gone, just like if you bought a car. How do you lose more than that? I'm not talking about shorting and stuff, just buying shares, hoping it goes up, and selling it later.