A Group or Redditors Just Blew Up Two Hedge Funds Over GameStop.

[just444]

How an army of traders on the Reddit forum r/WallStreetBets helped drive a meteoric rise in GameStop’s stock price, forcing it to halt trading multiple times and causing a major headache for the short sellers betting against it: https://t.co/QNNo8s7GkZ
- Vox (@voxdotcom) January 26, 2021
so i don't really understand the whole thing, but the gist

Comments

[evett]

stocks are such a foreign language to me no matter how many movies or shows I watch on it.

i get how they screwed over a hedge fund who were betting against game stop but you can only make real life money if you sell the expensive stock right so who is gonna buy game stop stock from these people knowing its a failing business in reality?

[babs]

tbh it is banked on the hope that someone might not think it's a failing business and then buy

like this company is not worth this much money lmao so idk

[co_lo]

This is me. I always think about the stock market in terms of real money, and that's probably not the right approach, so I understand nothing. 🙃

[maryhurt]

I think the hedge funds HAVE to buy them now at the new high price? I also understand nothing about this

[draconifers]

Correct - they're obligated to buy them back since they shorted.

[vaels]

yes. they are being bought-in, aka the outlet that they borrowed the stock from originally is calling back the shares so they have to buy the position in the market at current pricing in order to do that, because they never actually owned the shares on their own books to begin with.

[zeysech]

As far as I can tell... they "borrowed" stock, and sold it when the prices were high, and the expectation the stock was gonna fall and when it did they could buy it back and return the stock they were loaned at a lower price and keep the difference as a profit. There's a time limit however, they have to buy back and return the stock within a certain period, so this price hike interfered with that, they HAVE to buy back the stock now when it's at the really high price, meaning they lose money instead of profiting.

I guess it's a way to game the system and make money off of the stock even when it tanks.

[januarysix]

What I want to know is are these shorts public? how do the redditors know who has the shorts and when they are due?

[vaels]

I don't work in the US so I don't exactly know how it works there, but in my jurisdiction, a consolidated short report is prepared and distributed by the regulator twice a month and brokers can pass it along to their clients. it tabulates how many shares are short as of the report date. it's not real-time info obviously but if you track it over a period of time, you can see patterns/movements. it doesn't specify who exactly is short, though. there might be a similar report in the US that does indicate who holds short positions, but here, you can only really see that info if you work in the industry or otherwise have access to certain programs or data. for example, some of the redditors are likely using a Bloomberg terminal which is a specific piece of hardware & software that shows in-depth info such as current short positions. so they most likely didn't know in advance which specific hedge fund or institutional investors were short GME, but they would be able to see the ratio of shorts to shares issued, and then infer that the total

[vaels]

very few people will be buying it right now but enough will thinking that there's still time to make money, but this valuation of the stock is entirely false so the climb isn't going to last forever. eventually the stock will correct itself and the price will drop as these holders of GME start selling & realising their profits. if you are holding GME, you need to be selling now while the price is high - the risk comes in thinking you could hold it for another few weeks or a month and make even more money. chances are the legs will have been kicked out from under the inflated price by then and it will be harder to sell at this level.

[januarysix]

I mean you have to time it to when they are due. So you need to know when the short sells are due and how many. after that date who's going to buy your shares?

[misscrystal]

The way a short squeeze works, the people who buy at the top won't be regular investors, but the hedge funds and market makers who have been forced to buy to cover their shorts.