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Thread: The GameStop Short Squeeze

  1. #1
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    The GameStop Short Squeeze

    Iím reading about how online groups of small amateur day traders are squeezing the short positions of some larger traders, driving share prices to ridiculous levels. Iím no believer in market timing, but this seems to me to be heralding a silly season that will probably end badly for all but a fortunate few.

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    Senior Member catherine's Avatar
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    Wow, to show how clueless I am in trading matters, I have no idea what you just said. I'm just glad that of out of the few individual stock shares I own, lately only one has done well over the past week, and that is a Canadian pot company (and I don't mean Calphalon).
    "Do any human beings ever realize life while they live it--every, every minute?" Emily Webb, Our Town
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    I've been reading about this too. GME is a stock I used to sell covered calls on; when I first bought it back in 2000, it was about 25 and I bought it because my adolescent kids loved the store.

    This is quite a story, isn't it. My one son was talking to me about opening a Robinhood account and I said why, you can do anything they do with your Schwab account except get in a lot of trouble, but maybe he was on to something.

    It's like The Big Short or something.
    Who will be in the movie?

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    Senior Member herbgeek's Avatar
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    I have no idea what you just said.
    Some hedge fund managers had a short position on this stock, meaning they were betting on it going down in price. These reddit folks are making the stock price go up, so the hedge fund managers are screaming because their sure bet didn't' go the way they had planned.

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    Senior Member catherine's Avatar
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    Good for the reddit folks. I hate that parts of the economy are driven by legal gamblers who contribute nothing in the way of products or services. Maybe the reddit folks fall into the same category, but I'm happy with a little disruption to the trading floor and hedge fund managers.
    "Do any human beings ever realize life while they live it--every, every minute?" Emily Webb, Our Town
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    Quote Originally Posted by catherine View Post
    Good for the reddit folks.
    Those Reddit folks are engaged in an illegal activity known as "pump and dump". A few of them make money, the big traders who had legitimate, totally legal, short positions lose money. And innocent people who got caught up in the false cries of "lets stick it to the big guys" end up losing everything they invested. With any luck at all the Reddit people who started that scheme will go to jail, but that's highly unlikely.

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    Senior Member catherine's Avatar
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    Quote Originally Posted by GeorgeParker View Post
    Those Reddit folks are engaged in an illegal activity known as "pump and dump". A few of them make money, the big traders who had legitimate, totally legal, short positions lose money. And innocent people who got caught up in the false cries of "lets stick it to the big guys" end up losing everything they invested. With any luck at all the Reddit people who started that scheme will go to jail, but that's highly unlikely.
    As I am unfamiliar with the legalities of trading, I take your word for it, and thank you for the education. I don't want innocent people to lose money. But I have a bias against people, like hedge fund managers, who generate wealth by betting on air.
    "Do any human beings ever realize life while they live it--every, every minute?" Emily Webb, Our Town
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    The laws and regulations that govern trading are very complex and trying to prove intent is often difficult. That's why Martha Stewart was convicted for lying to an FBI agent about insider trading, but not charged with insider trading itself.

    I know enough to recognize that what the hedge funds were doing is legal and what the people who started the Reddit scheme were doing was a conspiracy to artificially manipulate the price of Gamestop stock.

    Morally my sympathies are with the people who got caught up in this whole thing innocently and were left holding the bag when the exchange halted trading on Gamestop stock because of the obvious manipulation.

  9. #9
    Senior Member bae's Avatar
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    What is it about "hedge funds" that upsets people so?

    What precisely is a "hedge fund"?

    What activities does it engage in?

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    Quote Originally Posted by bae View Post
    What is it about "hedge funds" that upsets people so?

    What precisely is a "hedge fund"?

    What activities does it engage in?
    Mostly arbitrage and trading derivatives. For example they buy something on the Chicago exchange or the London exchange and at the same time sell it at a slightly higher price on the New York exchange. It's basically the same thing day traders do, but with a lot more money and a lot more leverage and at a much higher speed. The name hedge fund basically comes from the fact that when they do it right all of their bets are hedged by making an offsetting buy and sell at the same time. And if it isn't done right, you get the Long Term Capital Management scandal.

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