Market/Financial Thread

[bigruss]

If anything, I hope this shines a light on the real market manipulation going on.  These hedge funds that are putting out these absolutely ridiculous positions and profitting over them are finally feeling some pain.  What Melvin did should be illegal, and all these folks going on the news and spreading lies about their positions today should be held accountable.  

I really hope the retail investors don't get screwed here though, but I'm sure many will be by the time this thing is over.  

Also, I absolutely love how this has changed many extremely conservative millenials to fight the man more and understand just how little power we have and how these billionaires are stacking the game against us.  I can't wait for The Big Squeeze movie to come out on this.

[Soxbadger]

I split my positions to AMC and Nokia. Its small enough that even if I lose it all it wont matter. I dont have time to defend my AMC position all day so I think that was the safest move. This is not legitimate trading, this is purely speculation built on trying to guess at media manipulation.
 

Do not do this with any amount that you would wake up the next day regretting. 

[ron883]

So who pays for this if the hedge funds (melvin capital, etc) aren't able to? The amount they will owe by Friday is absolutely absurd

 

[bigruss]

Just now, ron883 said:

So who pays for this if the hedge funds (melvin capital, etc) aren't able to? The amount they will owe by Friday is absolutely absurd

 

I believe the brokers are on the hook next, and then banks that support the brokers?  But not totally sure.

[Soxbadger]

1 minute ago, ron883 said:

So who pays for this if the hedge funds (melvin capital, etc) aren't able to? The amount they will owe by Friday is absolutely absurd

 

Mortimer Duke will.

[bmags]

3 minutes ago, ron883 said:

So who pays for this if the hedge funds (melvin capital, etc) aren't able to? The amount they will owe by Friday is absolutely absurd

 

They already settled.

[ron883]

9 minutes ago, bmags said:

They already settled.

So they say.

[southsider2k5]

12 minutes ago, ron883 said:

So who pays for this if the hedge funds (melvin capital, etc) aren't able to? The amount they will owe by Friday is absolutely absurd

 

This is literally my backyard.  If the hedge blows up, whoever is holding the positions is ultimately responsible.  When it comes to shorts, they have to locate the stock to borrow from someone.  No idea who this groups custodian is, but essentially whoever is authorizing the shorts as borrowed would be the person liable if they over extend the hedge fund.  Honestly, it isn't very easy to do, and they are probably pretty well capitalized even with the losses.  Typically it would be a clearing firm though.

[ron883]

3 minutes ago, southsider2k5 said:

This is literally my backyard.  If the hedge blows up, whoever is holding the positions is ultimately responsible.  When it comes to shorts, they have to locate the stock to borrow from someone.  No idea who this groups custodian is, but essentially whoever is authorizing the shorts as borrowed would be the person liable if they over extend the hedge fund.  Honestly, it isn't very easy to do, and they are probably pretty well capitalized even with the losses.  Typically it would be a clearing firm though.

So if I own some stock, can my brokerage authorize my stock to be shorted by a hedge fund, or do I have to authorize it? Or is it more likely the hedge funders came to an agreement with a person/company that owns a lot of GME stock?

[bigruss]

17 minutes ago, bmags said:

They already settled.

From what I saw today, and I'm trying to learn/understand this stuff so bear with me, there's enough evidence just in terms of the amount of shorts out there that this couldn't really be possible.

[southsider2k5]

1 minute ago, ron883 said:

So if I own some stock, can my brokerage authorize my stock to be shorted by a hedge fund, or do I have to authorize it? Or is it more likely the hedge funders came to an agreement with a person/company that owns a lot of GME stock?

To the first part, yes.  Absolutely.  Happens every day.  While you are the "owner" of the stock, whoever clears trades for your brokerage firm is the "custodian" of those holdings and has some leeway in what they do with it.  

My guess as to the second part is that the hedge fund almost certainly not a custodian or clearing firm, so they don't really have the authorization to do those negotiations.  

[southsider2k5]

1 minute ago, bigruss said:

From what I saw today, and I'm trying to learn/understand this stuff so bear with me, there's enough evidence just in terms of the amount of shorts out there that this couldn't really be possible.

Well there are two kinds of shorts.  Legitimate borrowed stock, and synthetics through options trading.  

[ron883]

3 minutes ago, southsider2k5 said:

To the first part, yes.  Absolutely.  Happens every day.  While you are the "owner" of the stock, whoever clears trades for your brokerage firm is the "custodian" of those holdings and has some leeway in what they do with it.  

My guess as to the second part is that the hedge fund almost certainly not a custodian or clearing firm, so they don't really have the authorization to do those negotiations.  

Interesting, thanks for the knowledge. So I'm assuming the brokerage is on the hook, not just the random people who own the stocks, since the brokerage authorized it?

[bigruss]

Nokia's been halted for over 30 minutes now, curious to see what's going on there.  

[southsider2k5]

2 minutes ago, ron883 said:

Interesting, thanks for the knowledge. So I'm assuming the brokerage is on the hook, not just the random people who own the stocks, since the brokerage authorized it?

Ultimately, yes.  They owe you your stock, no matter what.  If they over-extend someone on the other side of a transaction, and they can't pay, they are ultimately response for those funds as well as the stock.

You are only responsible for your gains and losses, and margin if you trade on it.

[StrangeSox]

 

[Chisoxfn]

1 hour ago, southsider2k5 said:

Well there are two kinds of shorts.  Legitimate borrowed stock, and synthetics through options trading.  

Southsider can correct me if I am wrong - but both are legitimate - while one has more downside risk then the other. The first scenario - where you are borrowing stock - you actually are at risk of having to put up more capital - to cover your losses, while on the option trade is a synthetic way - you are just at risk for what you investmed.

My overly simplistic views of the first scenario (someone can correct me if I'm simplifying too much), which is presume is the bigger driver of this as I think most hedge fund in a short position are using this version vs. the synthetic version - although I'm sure the reddit day traders may be doing a lot more of both.   

Scenario 1 - you borrow $100 worth of stock and pay a price for it - great - you borrow it on margin and don't pay full price....but you are going to owe the stock back to who you borrowed it from at full price. If stock goes down, I borrowed $100 worth of stock and give it back to them at $90 and make $10. Depending your margin limit - you still need to put up collateral to short the stock (meaning you don't jus get the $100 for free - you need to put up real cash / collateral to borrow it).   If the stock instead goes up - than you are going to have to continue to increase your collateral to cover the short position (thus you are putting more and more money in).  There are limits to how much you can borrow (since ultimately you are getting credit).

History lesson - but 1929's stock market crash that fueled the great depression was heavily driven by excess margins (and governors and limits were implemented post the 1929 crash).   

 

[bigruss]

2 minutes ago, Chisoxfn said:

Southsider can correct me if I am wrong - but both are legitimate - while one has more downside risk then the other. The first scenario - where you are borrowing stock - you actually are at risk of having to put up more capital - to cover your losses, while on the option trade is a synthetic way - you are just at risk for what you investmed.

My overly simplistic views of the first scenario (someone can correct me if I'm simplifying too much), which is presume is the bigger driver of this as I think most hedge fund in a short position are using this version vs. the synthetic version - although I'm sure the reddit day traders may be doing a lot more of both.   

Scenario 1 - you borrow $100 worth of stock and pay a price for it - great - you borrow it on margin and don't pay full price....but you are going to owe the stock back to who you borrowed it from at full price. If stock goes down, I borrowed $100 worth of stock and give it back to them at $90 and make $10. Depending your margin limit - you still need to put up collateral to short the stock (meaning you don't jus get the $100 for free - you need to put up real cash / collateral to borrow it).   If the stock instead goes up - than you are going to have to continue to increase your collateral to cover the short position (thus you are putting more and more money in).  There are limits to how much you can borrow (since ultimately you are getting credit).

History lesson - but 1929's stock market crash that fueled the great depression was heavily driven by excess margins (and governors and limits were implemented post the 1929 crash).   

 

Yea that's my read on it, this isn't about propping up GME because of the longterm play, it's all about the squeeze on the short.  WSB is all about taking advantage of the position that the hedge funds that have put themselves in, a forced buy is finally a leveraged position for retail.

[southsider2k5]

13 minutes ago, Chisoxfn said:

Southsider can correct me if I am wrong - but both are legitimate - while one has more downside risk then the other. The first scenario - where you are borrowing stock - you actually are at risk of having to put up more capital - to cover your losses, while on the option trade is a synthetic way - you are just at risk for what you investmed.

My overly simplistic views of the first scenario (someone can correct me if I'm simplifying too much), which is presume is the bigger driver of this as I think most hedge fund in a short position are using this version vs. the synthetic version - although I'm sure the reddit day traders may be doing a lot more of both.   

Scenario 1 - you borrow $100 worth of stock and pay a price for it - great - you borrow it on margin and don't pay full price....but you are going to owe the stock back to who you borrowed it from at full price. If stock goes down, I borrowed $100 worth of stock and give it back to them at $90 and make $10. Depending your margin limit - you still need to put up collateral to short the stock (meaning you don't jus get the $100 for free - you need to put up real cash / collateral to borrow it).   If the stock instead goes up - than you are going to have to continue to increase your collateral to cover the short position (thus you are putting more and more money in).  There are limits to how much you can borrow (since ultimately you are getting credit).

History lesson - but 1929's stock market crash that fueled the great depression was heavily driven by excess margins (and governors and limits were implemented post the 1929 crash).   

 

Yeah, unless you are short calls, you don't see the unlimited risk scenarios like you do with stock.  Stocks can only go to zero, so if you are long risk side your risk is either stock goes to zero, or you have to fill an option and your lose the difference between what you sold the option for minus the difference between strike and zero.  Short side risk is a whole other story.  Theoretically your risk is infinite.  In a case like GME if you were short at $15, and it is now sitting at $350, you are liable for the whole difference.  If you had borrowed on margin to finance the trade, they would have let you go as long as you were properly leveraged with enough cash to cover losses, but odds are you wouldn't have had enough to cover a loss like that and would have been blown out.  Hedge funds like this are probably loaded with enough cash to crush most short squeezes, though this one is something else.

If you sold a 20 call for $5, you have to sell someone the stock at $20, but collected $500 for the right to do so.  Long puts are better down side scenarios because you own the option to force someone to sell you stock at a fixed price, with the idea that it would go down.  If these guys loaded up on 15 Puts instead of shorting stock, the Puts just go out worthless as no one wants to sell stock at $15 when they can just go the market and sell at $350.  The risk there is just what you paid for the option.

Missed the 1929 part, but that was kind of two fold.  #1, there were no limits to short selling.  You didn't have to borrow the stock, or any of the other more recent innovations to limit short selling, such as the uptick rule.  Margin was also WAY more allowable.  The leverage they gave out then was in multiples.  Today is basically 50% leverage with Reg T.  People in 1929 were trading 10:1

[bigruss]

9 minutes ago, southsider2k5 said:

Yeah, unless you are short calls, you don't see the unlimited risk scenarios like you do with stock.  Stocks can only go to zero, so if you are long risk side your risk is either stock goes to zero, or you have to fill an option and your lose the difference between what you sold the option for minus the difference between strike and zero.  Short side risk is a whole other story.  Theoretically your risk is infinite.  In a case like GME if you were short at $15, and it is now sitting at $350, you are liable for the whole difference.  If you had borrowed on margin to finance the trade, they would have let you go as long as you were properly leveraged with enough cash to cover losses, but odds are you wouldn't have had enough to cover a loss like that and would have been blown out.  Hedge funds like this are probably loaded with enough cash to crush most short squeezes, though this one is something else.

If you sold a 20 call for $5, you have to sell someone the stock at $20, but collected $500 for the right to do so.  Long puts are better down side scenarios because you own the option to force someone to sell you stock at a fixed price, with the idea that it would go down.  If these guys loaded up on 15 Puts instead of shorting stock, the Puts just go out worthless as no one wants to sell stock at $15 when they can just go the market and sell at $350.  The risk there is just what you paid for the option.

The Melvin Capital hedge fund got a 2.75B investment yesterday with an option for another billion I think Friday.  They knew they were going to have to pay the price for this squeeze, and it's coming.  Absolutely amazing to me that these groups can take on that level of risk with confidence that the government will just bail them out if needed (aka 2008).  This has to change going forward, and that's a big part of what's going on with GME.

[southsider2k5]

1 minute ago, bigruss said:

The Melvin Capital hedge fund got a 2.75B investment yesterday with an option for another billion I think Friday.  They knew they were going to have to pay the price for this squeeze, and it's coming.  Absolutely amazing to me that these groups can take on that level of risk with confidence that the government will just bail them out if needed (aka 2008).  This has to change going forward, and that's a big part of what's going on with GME.

Is the government bailing them out?  That doesn't sound likely to me.

[mqr]

Just now, southsider2k5 said:

Is the government bailing them out?  That doesn't sound likely to me.

Steve Cohen bailed them out

[southsider2k5]

Just now, mqr said:

Steve Cohen bailed them out

Just looked it up, looks like Citadel also put some cash up.  They get an equity stake for letting these guys have some cash.

[bigruss]

Just now, southsider2k5 said:

Just looked it up, looks like Citadel also put some cash up.  They get an equity stake for letting these guys have some cash.

That reminds me, Citadel pumped cash in and as a MM they were able to halt trading and try and put measures in to slow the increase.  How is this legal?

[southsider2k5]

Just now, bigruss said:

That reminds me, Citadel pumped cash in and as a MM they were able to halt trading and try and put measures in to slow the increase.  How is this legal?

Exchanges have pretty broad leave to institute halts and slow downs such as fast market conditions in situations that aren't normal market conditions, especially if illegal trading is suspected.

For the sake of this, I am going to guess that there is a Chinese Wall between the two entities of Citadel here, which means from a technical and legal standpoint the same entities aren't doing these activities.   You pretty much have to have your company divided up this way to prevent regulatory nightmares.