What the hell is going on?
In this write-up, I’ll be telling about the whole fiasco of a Subreddit taking down a multi-billion dollar hedge fund.
I’ll show how the shift from a ‘funny thing to do’ affected the whole of America and the consequences that it bears and this hopefully shall keep you up to date.
A user named Deep****ingValue, a part of the subreddit r/WallStreetBets bought $50k off call options in Gamestop ($GME) that has turned into a $13M+ win in ~3 months.
Gamestop (GME). The Company sells video game hardware, physical and digital video game software, video game accessories, as well as mobile and consumer electronics products and other merchandise through its GameStop, EB Games, and Micromania stores.
So some Hedge Funds are shorting the stock.
A 'short' is betting against the stock. Generally, an investor profits if the value rises of the stock they have invested in. In ‘short’ the person will profit if the value goes down.
Melvin Capital Management - a multi-billion dollar hedge fund had been mounting up a big short position in Gamestop.
Melvin had a $55M+ short against GME.
So now, Redditors started buying the stock against Melvin Capital.
The Redditors convinced everyone on their thread to join their hands and buy as much Gamestop stock as possible. This made the price rise and the hedge funds' short position started to lose billions. Their losses even exceeded the 13.1 billion that the hedge fund was worth. Now the hedge fund is declaring bankruptcy.
The rally posted this on r/wallstreet bets:
"We can remain retarded for longer than they can stay solvent!"
Melvin lost 2 Billion Dollars+ in a period of 2 weeks and had to get bailed out by 2 other funds just to cover its losses from the shorts.
The traders of Reddit just broke a multi-billion dollar hedge fund.
This fiasco has gotten so out of hand that the US Govt is monitoring the system.
People went berzerk and everyone thought this is stock manipulation. It’s not.
It’s not manipulation when people are investing money into a stock. It’s only a concern because a hedge fund got greedy and overexposed itself on a short position. Retail is merely buying and holding. That’s the Stock Market.
Shorts help to stabilize the volatility in a market. Because with each price drop, the shorts will cover (thus bringing it back up a bit) and with each price rise, the shorts will open a position (thus bringing the price back down a bit).
The consequences of this are big. Hilarious to some but it is only hilarious if you aren’t a mom and a pop investor who jumps on the bandwagon without understanding what is happening and lose your retirement. Wall Street MBA’s are getting massacred with this.
Shorting is a hype game. It’s common that many people who do short, sell a stock short and then use public forums to talk the stock down. This just goes to show that Hype is a two-way street.
With this, ‘Robinhood’, a regulated broker-dealer blocked transactions, AMC and GameStop shares fell 50% on Thursday.
Robinhood users filed a class-action lawsuit against the company on Thursday.
On Thursday, Robinhood announced that on Friday it would allow limited trading of the stocks it had previously blocked, and then Gamestop stock jumps back after hours.For now at 1st Feb, the stock is 325.00 USD (+131.40 i.e 67.87% growth).
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