Hedge Fund Melvin Sustains 53% Loss After Reddit Onslaught (arstechnica.com) 189
An anonymous reader quotes a report from Ars Technica: Melvin Capital, the hedge fund that was wrongfooted by retail traders who drove up shares in GameStop and other companies it had bet against, lost 53 percent in January, according to people familiar with the firm's results. The New York-based hedge fund sustained a $4.5 billion fall in its assets from the end of last year to $8 billion, even after a $2.75 billion cash injection from Steve Cohen's Point72 Asset Management and Ken Griffin's Citadel. Melvin became the target of retail traders who coordinated to drive up the share price of GameStop on online message boards such as Reddit, after the firm disclosed its bet against the company in regulatory filings.
On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. The firm moved to reduce risk in its investments following a turbulent start to January when it lost 30 percent in the first three weeks. Melvin's leverage ratio is at the lowest it has been since the firm's founding in 2014, said a source familiar with the firm. The news of Melvin's January performance was first reported by The Wall Street Journal. The GameStop saga marks a fall from grace for Melvin, which gained 52 percent last year, ranking it among the best performing hedge funds. Founder Gabe Plotkin was one of Mr Cohen's most prominent traders at SAC Capital, until it shut down amid an insider trading scandal.
On Wednesday Melvin said it had exited its bet against GameStop and repositioned its portfolio. The firm moved to reduce risk in its investments following a turbulent start to January when it lost 30 percent in the first three weeks. Melvin's leverage ratio is at the lowest it has been since the firm's founding in 2014, said a source familiar with the firm. The news of Melvin's January performance was first reported by The Wall Street Journal. The GameStop saga marks a fall from grace for Melvin, which gained 52 percent last year, ranking it among the best performing hedge funds. Founder Gabe Plotkin was one of Mr Cohen's most prominent traders at SAC Capital, until it shut down amid an insider trading scandal.
Yeah right they have exited Gamestop (Score:5, Insightful)
There is no way from the trading that has been done so far, that Melvin has yet exited the short position they had in Gamestop. They are desperate to try and drive the price down so they can actually do so.
A lot of the money they have lost to date could easily be from them simply having to fork over cash to maintain current short positions.
The messaging this week from the GME shorts (apart from the fake push into silver) will all be around there being no short interest remaining... which is blatantly false.
Re:Yeah right they have exited Gamestop (Score:4, Informative)
The total amount of short is down from 140% to 50% of the float, so most of the involved hedge fonts have secured their short positions.
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Furthermore you don't have to exit a short position; you can hedge against it with call buying. More expensive (theta on the calls, loan-shark interest on the short position), but it gives you far greater upside, and caps your max potential losses. If the bubble bursts, your call hedge is worthless, but now the stock has gone down to pre-bubble prices, so the short squeeze pain is gone too.
Re:Yeah right they have exited Gamestop (Score:5, Informative)
The options would protect you against the price going higher, but it would not protect you against the price staying at the current levels for an extended period, causing you to keep incurring short fees. If you choose not to exit.
Re:Yeah right they have exited Gamestop (Score:5, Interesting)
Re:Yeah right they have exited Gamestop (Score:4, Insightful)
The current prices are completely unsustainable
Indeed. If the price stays high, then Gamestop can flood the market with new shares. Only an idiot would buy new shares at current prices.
The price will fall and fall far. The only question is when.
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Short it now (provided you can find a broker with a way) and you could be a millionaire.
Re:Yeah right they have exited Gamestop (Score:5, Interesting)
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Unfortunately calls *do* expire.
Re:Yeah right they have exited Gamestop (Score:5, Informative)
Funny that this is being reported by the media and certain sources of financial info on Feb 1 when short positions won't even be officially reported until Feb 2. And Feb 2 is just when those reports are due to the regulators. Those reports won't be made public until Feb 9. Given that the real data isn't even available, the reports of short positions as a percentage of float can only be estimates at best. Given the trade volume over the last several days, the estimate of how much of the short position has been covered appears (to me) to be wildly overstated. The only volume I'm seeing looks to be coming via a short ladder attack. I guess we'll see in a little over a week.
Link to the short interest reporting schedule if anyone wants to verify: https://www.finra.org/filing-r... [finra.org]
Re:Yeah right they have exited Gamestop (Score:5, Insightful)
Yes they did, they pretty much exited last week. The 'we have a narrative we want to push' crowd is going to get themselves wholloped financially.
1) Melvin was not the only hedge fund shorting so you can't tell what percentage of all shorts are Melvin's.
2) You can't tell what the distribution of shorts are in terms of price. A lot of the short action is not shorting at 20 it's shorting at 300.
3) The short interest appears to be around 39% currently
I 100% applaud the 'stick it to the hedge funds' and 'win one for the little guys' mentality. The problem is folks like you or others either out of exuberance, ignorance or greed convinced a lot of little guys to keep buying GME to 'stick it to the man' except they were just buying shorts. Once there's no more people dumb enough to buy at 300 it's going to crater.
It was down to 225 at close to today, it's down to 185 in after hours and it's headed to 20.
The problem here is there are always winners and losers and the uninformed are *always* the losers. Sure Melvin got jacked but the bulk of the money they lost did not end up in WSB enthusiasts diamond hands. Those folks had paper wealth for a few days but once the drop finishes that paper wealth will be very real wealth ending up in a different set of hedge funds and other investors who shorted at 300.
But maybe I'm wrong. If you think the short squeeze is still just getting started knock yourself out.
Re:Yeah right they have exited Gamestop (Score:5, Insightful)
Sometimes I pay $3 to a Twitch streamer because I enjoy the show. Sometimes I pay $12 to a movie theater because I enjoy the show. I bet a lot of these Redditors spent $20 to buy GME stock because they wanted to enjoy a show, and I'll bet they got a huge rush out of it. Even if they lost everything, they are happy they did it.
Re:Yeah right they have exited Gamestop (Score:4, Interesting)
Yeah for some that was it, but there's a lot on there still buying at 300 who clearly have hopes of it going to 600.
I get dropping a $100 or even $300 on one stock with an understanding you'll lose it to be part of history or possibly to cost a hedge fund a ton of money. That makes a great deal of sense to me. But the party is over now, if they buy a share at $300 now they're just giving $300 to a different hedge fund. That I don't get.
Re:Yeah right they have exited Gamestop (Score:4, Informative)
Some of these trading platforms allow you to buy fractional shares, so just because it's at $300 doesn't mean they are putting $300 into it. If they are dropping hundreds or thousands of dollars into it, I'll just say I wouldn't.
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I bought at 270 because I enjoy the show. Not everyone on reddit is a jobless basement dweller who only has pennies to burn. Mind you I do hope it goes to 600. My bottle of Scotch is nearly empty and that stuff ain't cheap :)
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I don't mind people sticking to Melvin, but the winners will be those shorting at prices much higher than 20, and all the little guys who followed the WSB hysteria like lemmings are going to get the short end of the stick through their wallets and into their butt holes.
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and other investors who shorted at 300
You know you can't just magically short stock whenever you want right? There was no trading volume available for anyone to short for most of the past few days. No one is getting rich shorting at 300 because no one is giving them the option to.
Anyway that's the main point that shows you're misinformed so why not address the other one too:
3) The short interest appears to be around 39% currently
Based on what? Official numbers haven't been reported. If you're basing this on rumours then I'd ask you who stands to gain from the number being low? The correct answer: th
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There was plenty of volume. The whole reason the price is going to go up in a short squeeze is there are two sets of buyers. The folks shorted who have received a margin call and the people hoping to either screw them (WSB) or make a quick buck (everybody else). There are two sets of sellers, those wanting to cash out and those wanting to short. So you'd expect to see a high volume as it goes up and then stops once those pressures balance out.
There are roughly 105M shares total so the shorts needed
The Redditors worker their own scam (Score:2)
Or at least some of them did. If you can convince a website full of losers to buy a stock, you can then sell off the stock that you bought before the price increase once the stock peaks.
That way, you become a millionaire and all of the other monkeys get broke from their greedy desire to "stick it to the man."
The h
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Re:Yeah right they have exited Gamestop (Score:5, Insightful)
Re: Yeah right they have exited Gamestop (Score:2)
Especially if most of your buddies are now running the SEC and treasury department. Welcome to the swamp, refilled and ready to take care of our Washington, DC overlords.
Iâ(TM)ll take a short on any new House rep or Senator not being a millionaire within the next decade.
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Of course a new House Rep/Sen will be a millionaire after a decade. Their compensation package assures that after 5 years they will have saved enough money to be a millionaire.
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That implies it was drained
Weird isn't it, how quickly Biden is being blamed for what happened over the last four years? Look out for the republican party to be ever so concerned about the deficit now too.
Rules require enforcers (Score:2)
We can write rules and regulations all day long, but someone must notice violations and then bring a case.
If someone notices? Leave a giant packet of money on their desk. Most bureaucrats can be bought for $10k in untraceable cash.
If someone brings a case? Point out that their kid will graduate from college soon and needs an internship.
More laws, rules, and regulations are rarely the answer.
Lawsuits in civil court, where "preponderance of the evidence" rules? Much better, but now displaced by regulations in
heh (Score:2)
This whole thing has been bizarre. Obviously no sympathy for hedge funds, but I can completely understand shorting a brick and mortar game store when everything is going online, and big box stores tend to have larger inventories.
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This whole thing has been bizarre. Obviously no sympathy for hedge funds, but I can completely understand shorting a brick and mortar game store when everything is going online, and big box stores tend to have larger inventories.
While you claim to "understand" it, you have no idea of the impact. Not that Greed would ever give a shit.
It made no sense from real world observation (Score:5, Informative)
Obviously no sympathy for hedge funds, but I can completely understand shorting a brick and mortar game store when everything is going online
GameStop is *also* online!!
And in fact, during 2020 Gamestop had a massive boost in online sales [thewrap.com].
Yes they still had some losses from physical store closures but they have been pretty successful in ramping up online sales, so there is no reason to think they are in that much danger from places like Amazon when you can order from GameStop just as easily - and speaking as someone who buys games, often GameStop has exclusives that make it worthwhile purchasing from GameStop.
I'm not saying it's worth anywhere near the current stock price but I do not think there was any time where it made that much sense to short the company either, there was clearly an effort to drive GameStop into bankruptcy where it would not have gone otherwise, so that some could profit from GameStop being destroyed.
Gamestop also had a family large pool of cash on hand, and comparatively little debt (debt was the aspect that destroyed Toys-R-Us).
Add to that the factor that places like Gamestop benefit mightily by transitions to new generations of consoles, not only can they easily sell as many new consoles as they aquire for quite some time to come, but also lots of people tun in games from older systems which GameStop can resell for a large profit margin.
Re:It made no sense from real world observation (Score:5, Informative)
The motive to short GameStop was almost the same as the motive to bid it up: trying to game the stock market. People saw weakness in the stock and shorted it, trying to drive it to zero. They didn't care whether the business could survive profitably -- they cared whether they could profit by driving GameStop out of business by cratering the stock. The Reddit crowd saw an opportunity to make those people lose a lot of money by boosting the stock.
Given that GameStop is a useful player in the video game market, and that the company provides decent (although admittedly not great) employment for a lot of people, I think the Reddit crowd was more morally justified.
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The price of a company's stock has nothing to do with it being bankrupt or not. What effort was there to drive GameStop into bankruptcy, and by whom?
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I mean, I won't get into the reason it's not as stupid on the fundamentals, but this has nothing to do with fundamentals. It's a short squeeze play.
And Loving It! (Time to Get Smart!) (Score:3)
So far I'm loving this story, though it I don't think it is going to end well. Yeah, it seems to be an obvious game for the situation where the stock prices can be driven up or down by just a few sales while most of the stock just sits there, and yeah, I would especially love seeing another hedge fund go bust... But (with apologies to Damon Runyon?) in the end it usually comes down to, "The race is not always to the swift, nor the battle to the strong, but" you should always bet on the guy with the more expensive lawyers.
"Just sitting there" is the plan (Score:5, Interesting)
Yeah, it seems to be an obvious game for the situation where the stock prices can be driven up or down by just a few sales while most of the stock just sits there
That is the hope of the Redditors: that the majority of the shares "just sit there." See, the hedge funds sold more than 100% of shares short.... and they will eventually need to cover those positions. There are ~70M shares of GME outstanding.
If the current holders (Redditors) refuse to sell, the price will increase, with the hedge funds' short positions will remain uncovered. In the meantime, while those short positions remain open, the hedge funds are bleeding out borrow fees [iborrowdesk.com].
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I can't decide if I'm loving it even more, or if this is even more insane than I thought the stock market already was. You make it sound like the shorting hedge funds are trying to divide by zero, and that is right up there on the list of tricks that never works.
Can you remember the days when stock prices were related to the goods and services produced by the companies? Me neither.
Re:"Just sitting there" is the plan (Score:5, Interesting)
The stock prices have always been related to the goods and service produced by the companies. Don't mistake the 1/10th of 1 percent of stocks that make the news due to a group playing silly buggers for the rest of the market.
The vast majority of stock wealth has been from picking long term gainers not from finding some weird edge and striking it rich.
(admittedly the entire market is likely overvalued due to an excess of investable cash within the economy)
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Are you sure about that? Most of the market fluctuations seem to be speculations about future values that can't possibly be known that precisely. I think these days most of the price changes are driven by computers. If the computer "decides" that a stock can be sold at a higher price, then the computer tries to buy that stock. If the computer "decides" that the stock's price is about to fall, then the computer tries to sell it, more or less "desperately". Double quotes because there is no actual thinking an
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The hedge funds broke the law by borrowing and selling more stocks than exist. People noticed, suggested it was a good opportunity to catch some hedge funds with their pants around their ankles, and some redditors decided to give it a shot.
Stock prices measure the future estimated value of a company. They're primarily set by investors. There are also some gamblers who like to bet on the noise in the system; noise that is normally pretty minor. Someone on here the other day insisted that real companies like
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By refusing to sell the redditors are merely ensuring they lose. It's not required for the WSB brigade to sell for the original shorts to cover, they can also cover by somebody willling to sell short at 250 or 300. They take a loss but it beats buying at 500 or 1000.
So for the past 3 days (Thu, Fri, Mon) about 50% of the stock has been locked up either by folks can't sell due SEC rules (CEO etc) or the WSB brigade. The other 50% has traded hands quite a few times as the original shorts bought, sold, reb
Another short seller thinks otherwise. (Score:2)
Basically he thinks that some hedge funds worked to together to put the squeeze on other hedge funds. Taking advantage of the very public situation on reddit to quietly drive other funds out of their market.
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So whats left are...
(a) the people that stuck it to the shorters...
(b) the shorters who failed to stick it to the people that already sold their shares
(c) the shorters that are now seeking to stick it to both (a) and (b)
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Yep there are only two sets of people who made bank. Those that sold already (or can still sell tomorrow if they bought before it past 50) and those that shorted it at its current level.
Anybody long on GME at a price over 30 is going to lose whatever they paid over 20 to 30 a share.
I just hopped on WSB and those sad sacks are still convincing themselves that if they win they're causing pain to a hedge fund. The sad truth is every minute they hold on is more profit to whatever hedge fund decided to play '
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Anybody still holding GameStop that is NOT trying to stick it to someone is a fool.
Yep, all their shares and $1 will maybe buy them a cup of coffee.
(shrug) (Score:5, Interesting)
Who gives a shit?
Incautious capitalists who play fast and loose with their funds, and fail something as simple as a a buy-limit order then they're too stupid / risk-taking to be trusted with other people's money.
And the people investing should be a little more cautious where they invest their funds, shouldn't they?
Caveat fucking emptor.
Now if we could just finally see some heads on pikes for the the 2007-2008 crash, and the elimination of government winner-picking, maybe capitalism could fix this shitty mess. It wouldn't be pretty, it would be fairly painful, but evolution only works when things die off.
Re:(shrug) (Score:5, Insightful)
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The 2007-2008 crisis was born the product of two confluent government trends:
- since the early 20thC, the US government has identified 3 private companies for bond rating. These companies are not beholden to taxpayers, yet they - IN LAW - bear the faith of the US government in the idea that their ratings are objective, rational, and unbiased. They failed UTTERLY in the simple fact that they bundled shitty derivative investment products KNOWN to be shitty as AAA safe.\
- in the very late 1990s, there was a
Instability in the stock market (Score:3, Insightful)
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It's not even just a matter of being incautious. On fundamentals betting on Gamestop's death is pretty sound, although the trick is getting the timing right.
The whole *moral* justification for capitalist profit is that that capitalist deserves to be paid because he undertakes risk. Any kind of investment they make that is *entirely* without risk lies outside their social utility -- such an investment shouldn't even exist. So even prudent, responsible, discerning capitalists are going to lose money occasion
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Although they're supposed to be big boys who can take their lumps, they were clerely victims of a stock manipulation scheme, as absurd as that *sounds*.
Not victims, no. If you tell me you need to buy all of a commodity tomorrow, it's your problem if I buy it up in order to sell it to you at a higher price. How is that a scheme?
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However someone deliberately *interfered* with that in order to cause them *harm*. In the universe of harms done it's far from the most significant, but it's still malice.
Re:(shrug) (Score:4, Interesting)
Malice and avarice are effectively indistinguishable... If someone pushed the stock up in order to make money off their foolishness versus for the lulz, what's the difference? How can you tell who did it for the money?
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...[the big boys were] victims of a stock manipulation scheme
...
Yes, but not an illegal one. Perfectly legal stock manipulation schemes exist, including
I don't think anyone (important) is really claiming that this particular meme-based scheme is illegal or even "bad", by which I mean that those claiming/assuming hedge fund managers are squealing seem to be fairly low-quality posters.
There are many folks who think laws & regulations have been broken such as short sale rules, exchange trading rule
Re:(shrug) (Score:5, Informative)
It's not even just a matter of being incautious.
They held a short position on the stock at 140% of the outstanding shares of the company. They owed more shares than existed by a large margin. That is pretty reckless. Without that, there is no way any volume of retail investors would have triggered this.
The fact that the aim of that scheme is spite, not making profit, actually makes that worse.
While the whole 'stick it to those hedge funds' is the angle played up, I guarantee you that the vast majority of the money involved is seeking big profits.
Shorting is an inherently riskier strategy to try, and it is madness to have overextended that position so much. It's probably good for this one fund to take such a bloody nose, and inject some caution into the market in a controlled way without destabilizing the broader market.
Re:(shrug) (Score:5, Interesting)
What needs to happen is the follow-through.
This was a ridiculous position to hold, but once Robinhood's funds are exhausted, they might just slam their doors.
I'm a corporate officer in a major global multinational (a trivial one, but still an officer), so believe I'm in earnest when I say that if a company takes on exposure, and then goes bankrupt to curtail that exposure, creditors should be allowed to fully wring that money (or whatever droplets can be had) from the corporate officers. They're the ones who are making those decisions, they are ABSOLUTELY the ones who should suffer - personally - ruin if they drive the company into the dirt.
I guarantee you the management of Robinhood has been well-compensated up to now. It's the risk you take for having those jobs, it shouldn't be all upside.
THAT is where capitalism is broken - that the people who create these situations are firewalled legally from suffering the consequences.
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They are doing capitalism wrong?
Or maybe the fundamental problem is that people can short stocks at all. All these schemes are just a form of gambling but using other people's businesses and livelihoods to do it. They provide no value to anyone but themselves, and many countries simply do not allow that kind of thing.
It's funny how when capitalism goes wrong the solution is always more capitalism. Capitalism harder. If only it was pure and unadulterated it would work! Now where have I heard that before?
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Maybe we shouldn't ban all shorts, but naked shorts should definitely be restricted, in my (admittedly amateur) opinion.
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Naked shorts are illegal. Have been in the US since 2009. Yes, that 2009.
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They were replaced by Never Nude shorts.
There are dozens of us! DOZENS!
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In some sense yes, they're doing capitalism wrong. Shorting more shares than exist is the problem. And I'm pretty sure that is the kind of thing that can be prevented with market rules. (There are tons of rules NYSE etc enforce that nobody talks about as killing capitalism.)
Having more shares shorted than exist means that someone is loaning a stock out to be shorted when they only bought it from someone who borrowed it to short it. I don't think this is too different from the unregulated credit default
Re:(shrug) (Score:5, Interesting)
Who gives a shit? Incautious capitalists who play fast and loose with their funds, and fail something as simple as a a buy-limit order then they're too stupid / risk-taking to be trusted with other people's money.
And the people investing should be a little more cautious where they invest their funds, shouldn't they?
Caveat fucking emptor.
This really should not have 5 points. The problem involved was shorting stocks. You can't short stocks with any kind of limits. A buy-limit order isn't possible on a short. The price goes up or down and you take your chances. As far as it goes for people should be more cautious where they invest their funds, yes sure, but nobody can read the future and realize that the guy who is making you 20% or more gains a year also has a cut off his nose to spite his face personality and he'll risk your money to do so. This is not always apparent. I'm not going to name him lest I get in trouble for saying anything not exactly right, but there is a well known money manager who is estimated to have lost up to half a billion dollars of clients investments in the past maintaining a losing short position against one stock for many years. As best I can tell, he got into a business dispute with the major backer of that company on something unrelated in the past, so he maintained an active (money losing) short position for years against the stock to try to stick it to the money guy. The only thing that made him stop was he lost os much money when clients pulled their funds away that he had to face reality and give it up. Money managers will do crazy, vindictive things sometimes and it can be hard to know that, say, 2 years from now your manager is going to get into a losing dispute due to stubborness.
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> You can't short stocks with any kind of limits.
I'm just a retard, but if you buy a put option you're shorting but your loss is limited to the price of the option. Am I right?
If you make risky trades (Score:2)
You can make a lot of money, but you can lose a lot of money. Usually you find out what your worst case scenario risk is and don't put all your eggs in one basket. Your account should hold up if the worst case scenario hits or at least buy you some time to unload. What Melvin did was stupid.
This May Be Bad Form... (Score:2)
...but theLeopards Ate My Face [reddit.com] subreddit was having an absolute field day with this for a while there.
___
"I never thought the leopards would eat MY face?!" - Woman who voted for the Leopards Eating People's Faces Party.
What was lost (Score:2)
And nothing of value was lost. Except by Melvin. They lost heaps. And the Redditors who didn't quite understand WTH they were doing.
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So here's the thing. While the people at Melvin have skin in the game, it's the people who give them money to invest who are the real losers here, and they have absolutely nothing to do with the GameStop shenanigans. The people at Reddit are acting all high and mighty except they have deprived lots of people of their hard-earned savings, people who trusted Melvin (and others) to make good decisions. They haven't just caused huge losses for one company, they've caused losses for all of the investors in th
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Re: What was lost (Score:2)
I completely disagree, you're trying to blame the house for collecting when somebody managing somebody else's money ran to the casino and illegally gambled it all on black.
The redittors are the house, Melvin capital was the one doing the bad faith illegal gambling. They had a fiduciary duty to not do such stupid things.
The redittors had no such legally binding fiduciary duty thus the actual bad actor was Melvin, legally AND morally.
Don't gamble other people's money.
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Lol. If you don't like the risk, don't give con men your money. This argument is just silly. All those people with their "hard-earned savings" are happy to take the upside. The ones who were dumb enough to give Melvin their money are now experiencing the downside.
Karma (Score:2)
Had they bet on GameStop working rather than failing, they might have helped the company get afloat and would have earned money in the medium-long term while saving a business.
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I heard AMC used the crazy high stock price to eliminate it's outstanding debt (over a half billion dollars, as I recall). That won't fix the movie theater industry, or prevent their still fairly-likely ultimate failure, but it must be nice to be debt free for them.
https://www.marketwatch.com/st... [marketwatch.com]
They werenâ(TM)t wrongfooted (Score:3)
All stock trades are gambles that carry the risk of loss. Short selling is especially dangerous - thereâ(TM)s no limit to the losses. I donâ(TM)t have any sympathy for professional gamblers who get burned at the casino. Words matter. If this was someone who cleaned out their retirement account to buy mega millions tickets everyone would roll their eyes and call them fools. This hedge fund deserves the same
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to cause someone to be in a difficult situation by doing something unexpected:
The term is properly used
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If this was someone who cleaned out their retirement account to buy mega millions tickets everyone would roll their eyes and call them fools
Well, many of the people who late-jumped into the WSB wagon pretty much did that. WSB seems to be driving the worst out of people who have a problem with gambling or compulsive habits. There was a story of some people taking STUDENT loans to buy stock (never mind the legality of that, that's just fucking bonkers.)
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If you buy or sell stock to try to make money off the fluctuations in the market, you are gambling. If you buy stock in order to own part of a company because you believe in the company, that action still carries risk, but it's not gambling. That's what buying stock should be about.
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The actual stock market should only allow buying and selling stock, and maybe tax the transactions so you're incentivized to buy and hold most of the time. Proponents of trading will point out that this kind of arrangement is "less liquid", but the worst consequence of that is that the market's price estimate might not be as quick to react. That could be easily handled by having a separate betting market where the traders do their thing, unhampered by the need to actually own stock at all.
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Why would you cover a short sale? Doesn't make sense. Covering a short sale is essentially holding a short and long position in a stock i.e. the equivalent of just not having the stock, except you have to maintain a margin account which costs you money.
Covered puts and calls make sense. Covered shorts don't.
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I thought a short sale and selling a call option were the same thing.
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> I thought a short sale and selling a call option were the same thing.
Both strategies are bets on a stock price going down. A basic short sale doesn't involve options. As long as you have a margin account and some equity. For example, you have $50k in your brokerage and want to short 100 shares of XYZ at $10/share. You're borrowing $1000 and paying the margin rate. The most you can make is $1000 if the stock goes to zero. The losses are unlimited.
I find Investopedia to be a good resource for describing
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uncovered short selling is dangerous
I do not understand what you mean by uncovered. A short sell must be covered when the contract ends. Some short sellers can cover earlier than necessary but all short sells must be covered eventually.
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The jargon is just to confuse people and convince them investing is too complicated and they should give their money to hedge funds anyway.
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Wouldn't that be selling a covered call, not a short? Short selling, by definition, means you cannot own the stock.
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How do you know if the Jan 29 calls were naked or covered? Is there really data available for that?
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Reddit gives Melvin an Atomic Wedgie (Score:2)
Manipulation (Score:2)
Let's hope it sticks... (Score:2)
My concern is that their buddies prop them up and they crawl back to where they were and nobody will actually lose anything. Honestly, they should go bankrupt. Not that's "need to restructure debt" kind, but "lose everything, seize personal and company assets and sell them" kind.
But no, they will cry unfair and wriggle out of it. The only thing we might get out of this is funds might think twice about drowning a company in shorts because the crowd is watching and they will make you pay.
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A 50% loss isn't really that big a deal for a hedge fund. These guys were up 50% last year, they're down 50% this year.
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If they started last year at $100, then increased it 50% (as you allege) that would put them at $150 at the end of the year.
At the end of January they report being down 50%, meaning they lost $75, leaving them $75.
That's a real loss of 25% over their starting position Jan 1 2020.
That hurts, and it won't be easy to recoup under the new tax regulations the new administration is discussing.
So sad... (Score:2)
Would anyone be saying anything if the Reddit folks hadn't stepped in and "schooled" the Hedge Fund operators? Lets not forget the Hedge Funds were hoping and expecting the stock to tank, securing obscene profits off the back of retail investors - would anyone have noticed those losses? No.
Well, Boo F'ing Hoo - you (Hedge Funds) thought you were investing when you were actually gambling, I bet you (Hedge Funds) won't soon make that mistake again.
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What nonsense is this. The entities long in GME pre-crash weren't retail. Two very wealthy people bought 20% (between them) of GME back in 2020, and just two other funds bought another 20% between them. The CFO owned about 1%. So that's at least 41% that wasn't retail. And a hell of a lot of other firms had giant positions too. This is a war between giants, where retail
Of course, if people consider Melvin overpriced (Score:2)
Time for the hedge funds to short Melvin. Just sayin ...
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Yeah, here's the thing. Hedge funds trade with other people's money. And they charge fees regardless of whether they're up or down. So if you gave Melvin money you've now lost half of it, *and* you get to pay for the privilege. The Melvin dudes get their payday regardless. Their biggest problem is that they may not be able to attract as much of other people's money in the future to play games with. Hopefully.