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>I suspect this will be lost in the hysterical clamour... systemic risk... capital obligations. the baseless conspiracy... Baseless?! ...That's it! Prepare fo
by dalbasal 6y ago
>I suspect this will be lost in the hysterical clamour... systemic risk... capital obligations. the baseless conspiracy...
Baseless?! ...That's it! Prepare for hysterical clamouring.
Both the hedge funds who wrote the put contracts and RH took positions nice, high, steady returns and long tail risk. The press is reporting Melvin Capital wrote put options with a face value circa $55m, for example. The long tail risk materialized. Damage is several $bn.
It seems like systemic risk means risk to heads-I-win-tails-you-lose games. This is why the hysteria. This whole thing is a symbol of a rigged system, with the typical patterns of insiders. 9 times out of 10, they win. 1 time out of 10 they pull the fire alarm.
Insiders, from the CEO of the NASDAQ to whoever makes the clearing house rules have come out swiftly and in force to suspend norms and call a literal "all bets are off." Closing buys, but not sells. Liquidating positions. How is this not a rigged game.
It is enraging to hear "be reasonable, we all have to be responsible" from these people.
- sroussey 6y agoI read that the CEO of NASDAQ suggested a trading halt (for everyone, buy and sell) and that articles suggesting otherwise were later corrected from the poor reporting in the rush to get a scoop.
- threedots 6y agoThe fact you're confusing option types is not helping your credibility. Writing put options is a bullish move. Melvin may have been writing CALL options (I doubt it to be honest but maybe).
- dalbasal 6y agoMelvin had $55 million worth of put options on GameStop, which are the opposite of calls. Puts assume the share price of a stock will go down and give their owners the option to sell a stock at a certain price. Melvin assumed GameStop’s stock would fall, and bought puts allowing Melvin to sell GameStop’s stocks above the market price, netting Melvin a profit. https://www.esquire.com/news-politics/a35339535/game-stop-stock-short-squeeze-explained/ https://www.esquire.com/news-politics/a35339535/game-stop-st...
- thefreeman 6y agoowning puts is the opposite of writing puts
- adrr 6y agoThe risk in buying puts is the cost of contract. You can’t lose more than you put in with buying puts.
- dalbasal 6y agoFollowing paragraph, same article: Melvin is that it was also shorting GameStop, meaning it was borrowing shares of GameStop, selling them on the market and using those proceeds to make other investments. Problem is, Melvin eventually has to return those GameStop shares. So now Melvin has to buy GameStop at their new, inflated price, only to give those shares back to the original owner https://www.esquire.com/news-politics/a35339535/game-stop-stock-short-squeeze-explained/ https://www.esquire.com/news-politics/a35339535/game-stop-st... TLDR is getting onerous
- keeganpoppen 6y agoright, they were buying puts, not writing them, like you said they were...
- dalbasal 6y agoyou got me.
- DangitBobby 6y agoWhat does their credibility have to do with the point being made? Are they right or aren't they?