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It's unironically a cargo cult. GameStop was insanely oversold by short sellers and had an astronomical short squeeze because of it, but then it got limited by

It's unironically a cargo cult. GameStop was insanely oversold by short sellers and had an astronomical short squeeze because of it, but then it got limited by the big guys (because it literally had the potential to bankrupt Robinhood) and now it's probably the purest example of an anti-establishment cult, taking legitimate grievances about Wall Street and making them stupid

asfdgionion 3y ago
GameStop's price didn't skyrocket because of a short squeeze. That was the story that kicked off the bubble, but there's little evidence it was true. https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf https://www.sec.gov/files/staff-report-equity-options-market... >Figure 6 shows that the run-up in GME stock price coincided with buying by those with> short positions. However, it also shows that such buying was a small fraction of overall buy volume, and that GME share prices continued to be high after the direct effects of covering short positions would have waned. The underlying motivation of such buy volume cannot be determined; perhaps it was motivated by the desire to maintain a short squeeze. Whether driven by a desire to squeeze short sellers and thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop, it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock. What really happened is that some people on Reddit bought up a bunch of GameStop stock and went around convincing other people to buy it by telling them an appealing but false story. If done deliberately, that's called a pump-and-dump. Dumb money attracts smart money, so there were definitely some wolves among the sheep.
- cmcaleer 3y ago
  > What really happened is that some people on Reddit bought up a bunch of GameStop stock and went around convincing other people to buy it by telling them an appealing but false story. If done deliberately, that's called a pump-and-dump. Disclaimer: only read around figure 6 and the part you quoted I'm willing to buy this as part of the explanation, but reading through the methodology for Figure 6 seems flawed. It doesn't appear to account for positions being managed through derivatives (possible reporting requirements are different here?) as firms might have delta-hedged through these means rather than simply buying spot. Really weird that ctrl+F hedges gets so few results, and the Consolidated Audit Trail sample only beginning on December 24, 2020 seems like a major flaw. Like, really, there's a once-in-a-generation market event and the SEC only bother to get CAT data from a month (and many holiday+half days) before regarding the major event for a listed security that had been brewing for months? For me the most interesting (and imo alarming) part of the whole saga was the coordinated action by Robinhood, Trading212, IBKR and others to turn Gamestop into a sell-only asset. Increasing margin requirements? This seems obviously responsible in the circumstances. But effectively pausing a stock while there is no official trading halt was insane and seemed on the face of it to be coordinated. It's obvious that a retail-heavy stock would tank from such action being taken. If you did it to TSLA or MSFT there would be panic and dumping too. (After watching the video where he addresses this I'm still not super convinced there weren't alternative ways to do this without having outsized impact on specific stocks. He definitely plays down the fact that the 28th close was like -50% relative to 27th close as a direct consequence of the volatility caused by the pause, and doesn't mention that those with cleared funds still couldn't buy the stock with these brokers) Also interesting is how hedge funds have learned to exploit this kind of frenzy. I really hope that it will be possible to do research on BBBY to find out how much of that was astroturfed. Whipping up irrational actors through astroturfing seems like a pretty smart thing to do if you're in in Hudson Bay Capital's position with the agreement they had with BBBY. I'm not accusing Hudson Bay Capital of anything, I'm simply pointing out that the incentives were there. I've not watched the entire video yet, but I really hope it delves into that. The BBBY subreddit was kind of a morbid curiosity for me.
jameshart 3y ago
It's a cargo cult, in the sense that the apes are aware that stock market investors are able to make large amounts of money by coming up with clever theories and using smart derivative plays to make ridiculous profits... and so they follow those patterns, creating elaborate theories, buying stocks, but they miss the critical underlying component of the professional trader's version: those theories and trades are based in an actual understanding of how the market and businesses work. Lacking that understanding, ape theories are untethered and random, their trades are insanely naive, and the ridiculous profits will therefore never arrive. It must be because the theories weren't outlandish enough, right?
reducesuffering 3y ago
> it got limited by the big guys (because it literally had the potential to bankrupt Robinhood) This is usually inaccurately framed by r/wsb superstonk conspiracy drivel, although technically sort-of true if "big guys" == DTCC and "potential to bankrupt Robinhood" only if DTCC didn't do it's job of (always) requiring capital for extreme volatility. The real financial-literate reason is that the trades are going through DTCC, and because of the huge, immediate price fluctuation (volatility), collateral requirements shot up (by necessity of ensuring a brokerage wanting those trades can actually follow through), and Robinhood didn't have the capital to post collateral for those trades and literally couldn't offer them. Many other brokerages also couldn't offer buys because of this.

asfdgionion 3y ago

GameStop's price didn't skyrocket because of a short squeeze. That was the story that kicked off the bubble, but there's little evidence it was true. https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf https://www.sec.gov/files/staff-report-equity-options-market... >Figure 6 shows that the run-up in GME stock price coincided with buying by those with> short positions. However, it also shows that such buying was a small fraction of overall buy volume, and that GME share prices continued to be high after the direct effects of covering short positions would have waned. The underlying motivation of such buy volume cannot be determined; perhaps it was motivated by the desire to maintain a short squeeze. Whether driven by a desire to squeeze short sellers and thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop, it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock. What really happened is that some people on Reddit bought up a bunch of GameStop stock and went around convincing other people to buy it by telling them an appealing but false story. If done deliberately, that's called a pump-and-dump. Dumb money attracts smart money, so there were definitely some wolves among the sheep.

cmcaleer 3y ago
> What really happened is that some people on Reddit bought up a bunch of GameStop stock and went around convincing other people to buy it by telling them an appealing but false story. If done deliberately, that's called a pump-and-dump. Disclaimer: only read around figure 6 and the part you quoted I'm willing to buy this as part of the explanation, but reading through the methodology for Figure 6 seems flawed. It doesn't appear to account for positions being managed through derivatives (possible reporting requirements are different here?) as firms might have delta-hedged through these means rather than simply buying spot. Really weird that ctrl+F hedges gets so few results, and the Consolidated Audit Trail sample only beginning on December 24, 2020 seems like a major flaw. Like, really, there's a once-in-a-generation market event and the SEC only bother to get CAT data from a month (and many holiday+half days) before regarding the major event for a listed security that had been brewing for months? For me the most interesting (and imo alarming) part of the whole saga was the coordinated action by Robinhood, Trading212, IBKR and others to turn Gamestop into a sell-only asset. Increasing margin requirements? This seems obviously responsible in the circumstances. But effectively pausing a stock while there is no official trading halt was insane and seemed on the face of it to be coordinated. It's obvious that a retail-heavy stock would tank from such action being taken. If you did it to TSLA or MSFT there would be panic and dumping too. (After watching the video where he addresses this I'm still not super convinced there weren't alternative ways to do this without having outsized impact on specific stocks. He definitely plays down the fact that the 28th close was like -50% relative to 27th close as a direct consequence of the volatility caused by the pause, and doesn't mention that those with cleared funds still couldn't buy the stock with these brokers) Also interesting is how hedge funds have learned to exploit this kind of frenzy. I really hope that it will be possible to do research on BBBY to find out how much of that was astroturfed. Whipping up irrational actors through astroturfing seems like a pretty smart thing to do if you're in in Hudson Bay Capital's position with the agreement they had with BBBY. I'm not accusing Hudson Bay Capital of anything, I'm simply pointing out that the incentives were there. I've not watched the entire video yet, but I really hope it delves into that. The BBBY subreddit was kind of a morbid curiosity for me.

jameshart 3y ago

It's a cargo cult, in the sense that the apes are aware that stock market investors are able to make large amounts of money by coming up with clever theories and using smart derivative plays to make ridiculous profits... and so they follow those patterns, creating elaborate theories, buying stocks, but they miss the critical underlying component of the professional trader's version: those theories and trades are based in an actual understanding of how the market and businesses work. Lacking that understanding, ape theories are untethered and random, their trades are insanely naive, and the ridiculous profits will therefore never arrive. It must be because the theories weren't outlandish enough, right?

reducesuffering 3y ago

> it got limited by the big guys (because it literally had the potential to bankrupt Robinhood) This is usually inaccurately framed by r/wsb superstonk conspiracy drivel, although technically sort-of true if "big guys" == DTCC and "potential to bankrupt Robinhood" only if DTCC didn't do it's job of (always) requiring capital for extreme volatility. The real financial-literate reason is that the trades are going through DTCC, and because of the huge, immediate price fluctuation (volatility), collateral requirements shot up (by necessity of ensuring a brokerage wanting those trades can actually follow through), and Robinhood didn't have the capital to post collateral for those trades and literally couldn't offer them. Many other brokerages also couldn't offer buys because of this.