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In this case people buying stock weren't hoping on a greater fool to sell it to later. By a large margin, more shares were sold short by a handful of hedge fund

by dahdum 6y ago

In this case people buying stock weren't hoping on a greater fool to sell it to later. By a large margin, more shares were sold short by a handful of hedge funds than even exist. As the price rises the expectation was/is they are forced to buy back to cover at any price. It's entirely possible a majority of retail investors make a killing and a few large funds get liquidated. At least it was until the coordinated action to protect those hedge funds today.

snowwrestler 6y ago
These two thoughts are incompatible: - “We’re going to put these hedge funds into bankruptcy” - “These hedge funds will buy all our stocks at inflated prices” If the hedge funds can buy all the stock, they’re not at risk of going bankrupt. And if they are at risk of going bankrupt, they can’t buy all the stock at inflated prices. A lot of retail investors are going to lose money when this bubble pops. /r/wsb has not invented a new way for everyone to get free money.
- tomp 6y ago
  The hedge fund(s) have billions of dollars of assets/investments. So they can buy a lot of stock and “shut down” (i.e. make -90% returns for their unfortunate investors) without actually going “bankrupt”.
- bvirb 6y ago
  Interestingly I think they're not entirely incompatible. If the funds can't cover their positions they will attempt to get money from somewhere. This could be loans or selling ownership of the fund, probably to other funds as it looks like has already happened with some. Effectively being forced to put more money in. Fundamentally the funds made an extremely risky bet and the market is (or was at one point) seemingly reasonably and expectedly betting against it with a short squeeze. The new part is the social hype driving the squeeze via an army of retail investors. Agree some retail investors are inevitably going to be left with a net loss here, which will suck. But it was (and may still be) a reasonable play when viewing the market as a gambling platform (which the funds were doing by over-shorting). My hope is that the people claiming to be cashing out their 401k on GME are partaking in anonymous internet hyperbole to fuel the hype and the vast majority are gambling with a few bucks they can afford to gamble with because they can't do anything else right now.

by dahdum 6y ago

snowwrestler 6y ago

These two thoughts are incompatible: - “We’re going to put these hedge funds into bankruptcy” - “These hedge funds will buy all our stocks at inflated prices” If the hedge funds can buy all the stock, they’re not at risk of going bankrupt. And if they are at risk of going bankrupt, they can’t buy all the stock at inflated prices. A lot of retail investors are going to lose money when this bubble pops. /r/wsb has not invented a new way for everyone to get free money.

tomp 6y ago
The hedge fund(s) have billions of dollars of assets/investments. So they can buy a lot of stock and “shut down” (i.e. make -90% returns for their unfortunate investors) without actually going “bankrupt”.
bvirb 6y ago
Interestingly I think they're not entirely incompatible. If the funds can't cover their positions they will attempt to get money from somewhere. This could be loans or selling ownership of the fund, probably to other funds as it looks like has already happened with some. Effectively being forced to put more money in. Fundamentally the funds made an extremely risky bet and the market is (or was at one point) seemingly reasonably and expectedly betting against it with a short squeeze. The new part is the social hype driving the squeeze via an army of retail investors. Agree some retail investors are inevitably going to be left with a net loss here, which will suck. But it was (and may still be) a reasonable play when viewing the market as a gambling platform (which the funds were doing by over-shorting). My hope is that the people claiming to be cashing out their 401k on GME are partaking in anonymous internet hyperbole to fuel the hype and the vast majority are gambling with a few bucks they can afford to gamble with because they can't do anything else right now.