Hedge fund tries to short Gamestop, now gets short squeezed by R/wallstreetbets

[Dereich]

The more I think about this, the more I find the r/WSB maneuver to be similar to Trumpism and MAGA. They find a "big bad establishment" enemy, "Wall Street" in this case, find loopholes in the rules to execute deplorable behavior attacking said enemy (collusion and market manipulation in this case), and then justify their deplorable behavior by saying they were going after the "right" target, the hated establishment, while attacking the establishment further for "being unfair" when it tries to repair the damage.

The substantial overlap between WSB and MAGA has already been established by several media outlets. To all the people on this thread cheering WSB on, how do you feel to be essentially cheering MAGA? Has it ever occurred to you that the profits from this maneuver may ultimately be funneled into MAGA?

I suppose you also think that Atlas users are fools for supporting other causes involving disreputable people, like abolishing the death penalty (helps murders and rapists) and supporting free speech (helps radicals and fascists)?

[Dereich]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

[Dereich]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

The discussion on WSB was "everyone buy GME and GME calls now", so people did so, drove GME shares up, causing a short squeeze.

Similarly, Trump said there would be protests on Jan. 6, yelled on Twitter repeatedly about it, then gave a speech at the White House on Jan. 6 saying everyone should go to the Capitol, and they did so. But so far we don't have evidence that Trump directly coordinated with any group about Jan. 6 events. So Trump has done nothing wrong?

How is that any different than stories you see all the time saying "this analyst says that right now you should buy X share" or Jim Cramer telling people every day on CNBC to buy one company or another? Are those collusion?

Your Trump comparison is an ultra-strained reach to try to discredit the small investors. These are (comparably) unsophisticated investors who don't have the ability to control the market themselves. There is no figurehead at the head of this telling people who will do whatever they say what to do.

[Dereich]

No one is saying these retail investors are heroes or anything. Some of them are rich but a lot of them are just ordinary Americans investing their stimulus checks into something where they saw a chance and a major screw up by a big player. Rather than the market rewarding at least the earlier group of these people for seeing a good chance the market decides to mess the whole game up so the original big guy will win in the end.

1. These "ordinary Americans" are free to close their positions and collect their 1000% profit.

2. Melvin Capital and Citron Research have closed out their shorts at massive losses. To say the "big guy" will win is untrue.

3. The behavior of AMC/GME stocks the last few days is totally unnatural and unhealthy. It was caused by collusion among market actors. These are prohibited behaviors, if institutional market participants colluded like this the SEC would shut them down immediately. The fact that retail investors were able to collude using Reddit as a forum is a loophole and I'm sure the SEC is studying this situation now. New regulations (on retail brokers probably, maybe additional scrutiny on forums like r/WSB) will be coming to address this behavior.

Basically the WSB logic is very similar to the MAGA logic on the morning of Jan. 6, "We're going to have an armed protest and storm the Capitol, we're on the right side since we're overturning the stolen election, nothing's going to happen to us since the police are undermanned and on our side, what could go wrong?"

I'd like you to elaborate a bit on this "collusion." From what I can see, there's no kind of formal agreement or strategy among investors to act. Certainly there are a lot of people on Reddit and Twitter saying that they're buying the stocks and intend to do so to punish the short sellers, but its hard to see how that could be collusion under any definition. If a bunch of people decide to buy based on the stories they hear about others buying/bad hedge fund behavior how is that any different than investors buying when they hear that a company had a good quarter or selling when they hear about a corporate scandal?

The discussion on WSB was "everyone buy GME and GME calls now", so people did so, drove GME shares up, causing a short squeeze.

Similarly, Trump said there would be protests on Jan. 6, yelled on Twitter repeatedly about it, then gave a speech at the White House on Jan. 6 saying everyone should go to the Capitol, and they did so. But so far we don't have evidence that Trump directly coordinated with any group about Jan. 6 events. So Trump has done nothing wrong?

How is that any different than stories you see all the time saying "this analyst says that right now you should buy X share" or Jim Cramer telling people every day on CNBC to buy one company or another? Are those collusion?

Your Trump comparison is an ultra-strained reach to try to discredit the small investors. These are (comparably) unsophisticated investors who don't have the ability to control the market themselves. There is no figurehead at the head of this telling people who will do whatever they say what to do.

Clearly the retail investors do have the ability to control the market on GME and AMC when coordinated. The short squeeze didn't "just happen", that's like saying Jan. 6 was a spontaneous event. A mob formed, riled up by the rhetoric on r/WSB, and decided to take destructive collective action. By the "incitement" standard r/WSB would be clearly guilty of whatever Facebook, Twitter, Parler, etc. were guilty of prior to Jan. 6. The SEC will find out just how much coordination there was (and probably subpoena Reddit to do so).

FINRA/SEC know that stock-picking analysts like Jim Cramer can easily be manipulating the market, so there are regulations against that.

Again, the difference is that “incitement” had to be incitement of a crime. The January 6th mob committed a bunch of crimes. If you want to say the same standard applies, you have to point to a crime that was committed here.

Easy, securities fraud. I suspect the current rules are not strict enough to nail the traders, but I'm glad the SEC will try and I'm sure there will be new regulations in the future to guard against this kind of behavior by retail investors.

It would already be illegal if institutional traders agreed to all buy a stock at once to punish a hedge fund.

Where is the fraud? Clearly it is not a requirement of the stock market that you must trade solely on fundamentals. And punishing an investor for how they invest isn't illegal either; the whole idea of a "poison pill" is to punish an investor for their investment decisions. There is no misrepresentation at play; its not like the Redditors are pushing fake news about how GameStop is actually a trillion dollar company. There's plenty of encouragement to buy shares to other small investors, but as has already been discussed that's super-common in financial journalism already. Unless you think this Reddit mob being secretly directed by some kind of investor puppetmaster there's no fraud at work.

I have no idea what kind of rules you think the SEC will put in place here; should they make it illegal to publish which companies are being shorted? Or maybe they should ban non-journalists from talking about companies they want to do well on the market?