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As I understand it, the hedge funds had naked shorts. That's illegal. If they did, what is happening to them serves them right. Even if they didn't, a "short s
by rswail 6y ago
As I understand it, the hedge funds had naked shorts. That's illegal. If they did, what is happening to them serves them right.
Even if they didn't, a "short squeeze" is perfectly legal. If the short sellers think the stock is overpriced, and there's others that think its underpriced, then both sides are placing their bets and will deal with the result, either by making or losing a lot of money.
This is not a "pump and dump", this is an unco-ordinated short squeeze. A bunch of people decided to take the short sellers on.
Whether everyone involved understands the risk of a short squeeze to them by going long is a prime case of "caveat emptor". They're not even buying calls, they're actually buying the stock.
The short sellers are being squeezed mercilessly and will eventually have to bail out. At that point the stock will tank back to a more realistic position and the people that went long too late and didn't exit will also lose lots of money.
Of course, they won't crystalize those losses until they sell.
- sltkr 6y ago> If the short sellers think the stock is overpriced, and there's others that think its underpriced, then both sides are placing their bets and will deal with the result, either by making or losing a lot of money. I don't think it's really a case of people disagreeing on the real value of GameStop stock. Framing it like this ignores important facts. This stock was trading around $4 in August, around $20 in the beginning of January, and is almost at $400 right now. People can have legitimate disagreements about what the true value is: $5 per share? $10? $20? $40? But no way anyone sincerely believes GameStop is worth $400/share. People who are buying right now at (or near) that price point are either doing so because they believe the short squeeze will drive the price up even further (Redditors), or because they have to deliver stock they sold short (investment funds). So all parties agree that the stock is overpriced, and people have been buying knowing this fully well.
- vincentmarle 6y agoYeah, so... what? Which laws dictate that stock needs to be traded at “fair price”?
- sltkr 6y agoI didn't say there is such a law. I'm just saying it's not a case of "two sides disagreed on the true value of the company". It's not so symmetric. One side was selling short because they believed (not unreasonably) that GameStop's core business is in trouble and is likely to go bankrupt (or at least more likely to lose value than gain it). The other side was buying long not because they believed GameStop was likely to reinvent itself, but only because they noticed a lot of funds had sold it short and saw a short squeeze coming. They wouldn't have bought at the current stock price if the other guys hadn't sold short.
- CryptoBanker 6y agoA stock is worth what people are willing to pay for it...
- iso1631 6y agoA stock is worth what people are willing to sell it for
- defen 6y ago> But no way anyone sincerely believes GameStop is worth $400/share. In February 1997 AAPL was worth 15 cents per share. You could have overpaid by 100x at the time and you'd still be up 9.4x after 24 years (not counting dividends), which is an annualized gain of almost 10%. Maybe Ryan Cohen taking a big stake in Gamestop is their Steve Jobs moment, who knows? Disclosure: long GME
- sltkr 6y agoThat's my point. Nobody believed AAPL was worth $15/share in 1997. Nobody believes GameStop is worth $400/share today. The motivations for buying are different.
- defen 6y agoMy point is that if AAPL had shot up to $15/share when Jobs came back, and people bought in then at $15 and held, they'd currently have a YoY gain of 10%
- Ar-Curunir 6y agoSo? Is Tesla worth 10x what it was worth last year? I don't think so. Same for almost any tech stock.
- devoutsalsa 6y agoA stock is worth what people will pay for it. That’s it. Sure, there are models you can use to come up with a seemingly reasonable valuation, but that’s just a tool you use to make a wild ass guess.
- hntrader 6y agoExactly. I think gold is worthless because it's just a lump of metal that doesn't do anything useful. But apparently there's enough people that like shiny metal and therefore it's worth a lot. GME might just be an aesthetic purchase more than anything.
- devoutsalsa 6y agoA trivia snippet I like is that aluminum used to be more valuable than gold for a period of time in the 1800s. https://www.npr.org/2019/12/05/785099705/aluminums-strange-journey-from-precious-metal-to-beer-can https://www.npr.org/2019/12/05/785099705/aluminums-strange-j...
- lukeramsden 6y agoPart of the reason it was trading so low was supposedly because the short sellers were suppressing the price, simply by way of being very publicly short the stock. It was clearly undervalued because of this, which is why people like /u/DFV (the guy who turned $53k in to 10's of millions) bought in about 18 months ago.
- argonaut 6y agoThere is no evidence to indicate they had naked shorts. They were most likely short, but not naked short.
- hntrader 6y agoThe short interest was above 100%, so there was naked shorting going on, although no direct evidence linking it to hedge funds (but they would've been most of the short float, so probably yes).
- wocram 6y agoShort interest being above 100% does not require naked shorting. Edit: A better example @ https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops#footnote-3 https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga...
- hntrader 6y agoGood point. Learned something there.