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January 27, 2021

Reddit "WallStreetBets" Forum Counter-Buys Against a Hedge Fund Short-Selling GameStop Stock;
They Break the Hedge Fund and Even the Other Wall Street Firms Coming to the Hedge Fund's Rescue

The hedge fund was betting on Game Spot to lose money by selling shares it didn't have. The idea is that you sell the stock at one price and later, when the price falls (as you predicted, but also caused to happen), you can then buy the stock at the lower price. You're able to sell the stock you originally didn't have, and pocket a profit.

At least, this is how I think it works, based on Trading Places.

24 I don't believe you can sell shares you don't own. (???)

The way I understand it, you 'borrow' the shares from a Brokerage House, or the Company itself, for a fee. Say, 5% for 30 days. Then you sell them and pocket the money with the idea that you expect the shares to drop and you can buy them up to replace the borrowed shares at a much reduced price, pocketing the difference.

Posted by: Uncle Rick

The Reddit forum "WallStreetBets" organized a counter-maneuver, buying up the stock. They raised the Game Spot price so high that the hedge fund is losing millions and millions.

A lot of people are applauding, because we want someone to start hurting these people.

- Shares of GameStop and AMC Entertainment Holdings soared for a fourth day running on Wednesday, forcing hedge funds to retreat from heavy losses and sparking calls for scrutiny of a social media-driven trading frenzy.

Short-seller Citron, a target for some of the individual traders who have helped drive huge gains for a number of niche Wall Street stocks in the past week, said in a video post it had abandoned its bet on GameStop shares falling.

With commentators and lawyers calling for scrutiny of the moves, Nasdaq chief Adena Friedman said exchanges and regulators needed to pay attention to the potential for "pump and dump" schemes driven by chatter on social media.

Yes, there could be some of that going on -- get people stoked to teach Wall Street a lesson buy buying up a stock ("pumping" the stock's value), then dump it once the value is near its high, leaving most of the marks holding stock which is rapidly declining in value.

But... you know, Wall Street does this kind of shit every day.

The Securities and Exchange Commission (SEC) declined to comment.


GameStop's stock has surged nearly 700% in the past two weeks,
upping the struggling video retailer's market value from $1.24 billion to more than $10 billion. BlackBerry Ltd is up 185% and on course for its best month ever.

Now, all of that value is illusory bubble value, but at least they made the hedge fund bleed.




38 Here is the real story: The online community they had was able to 'vet' the people giving advice (ie no grifters or fraudsters, cough cough conservative inc cough cough), they were able to hold up the moral of the people involved (cough cough conservative inc cough cough), were able to formulate effective counter arguments to the mainstream consensus (cough cough conservative inc cough cough), and because of that, they now have a scalp (cough cough conservative inc cough cough).

Gee I wonder if there is any lessons for our movement in there
Posted by: Dr. DJ3Way

The squeeze play, explained:

Thanks to Lizzy. She digests the video:

The way it's explained in the video:

1. Hedgefund guy borrows GSE [GameStop] stocks for a set price with agreement to sell back to same person.entity in 3 weeks (or whatever timeframe). Say $60/share.
- - -
2. Hedgefund guy then sells them on the assumption that he will buy them back in a fews weeks at a lower price because GSE is tanking. Sell at $60, then buy back in a few weeks at $30.
- - -
3. At agreed upon time, hedgefund guy then sells his shares, which he reaquired at $30/share back to the original owner for $60/share. That's two transactions where's he's made money offo of the tanking stock price.

What the redditirs did was interrupt the transactions during step 2. Hedgefund guy sold his shares, but then redditors drove up the price -- so he is forced to buy back (per agreement made in step 1) but not at a better price, at a much higher price. Worse, per the agreement in step 1, the sale in step 3 is set price (he can't make up loss).

Oh my goodness:

116 I was telling you guy about this yesterday. I'm a WSB lurker, I don't follow their stock advice since they're wrong like 99% of the time. However, one dude was big on GME over a year ago -- said wall street hated them for no reason, they had strong fundamentals. Put in $50k worth of calls. Hit most of them. Kept reinvesting the money in calls. Some hit, some didn't. Kept on reinvesting. All throughout covid, everything. Anyways, he noticed that the number of shorts were higher then the float (more shorts then stocks available), and was like "um, guys .. am I retarded? Look at this" and next thing you know, here we are. Guys at about $40 million right now.

Basically, every one of those shorts has to be covered. So the hedge funds HAVE to pay the shares from you at some point. And if you're determined to hold on them until you hit $1000 (and they've now moved the goal to $2000), the hedge funds HAVE to buy them at that price to cover their margin. Unless they go bankrupt, then the brokerages have to. Or someone has to get the SEC involved, or get GME to issue more shares, or something. Either way, something has to give.
Posted by: Harry Paratestes

The squeeze aspect comes from margin calls. In order to avoid massive losses themselves, the broker/lenders require the borrower(person shorting) to have a certain amount of value in the account relative to what they borrowed. When you start getting huge paper losses, you get what is called a margin call. This means you have to add more money to the account or buy back the stock and deliver it immediately Posted by: Red Turban Someguy - The Republic is Already Dead

Mitt Romney hardest hit:

56 No sympathy for anyone. The hedge fund managers have been precipitating business collapse using psychology of the market, and making huge money on that deliberate ruination for years. They rely on people seeing them hedge against a stock and then panic sell so they can then use that to cover their positions and turn a profit. This type of action always had a large potential for a counter-hedge of someone buying into the short sell and then making some investment to blunt the panic sell. Everyone involved was gaming the system. And in my mind it's high time the short sellers got bit in the butt over psychology of the market turning against them. Maybe they will get a little more cautious about trying to make money over a businesses failure. Posted by: Saintly Akin

More:

224 also, it looks like the hedge funds in question used nacked shorts, which have been illegal since 2009.

Well, illegal for us non-hedge funders. Somehow hedge funds have found a way around it.

Basically, they go to a broker and say "hey, can we borrow 100,000 shares from you?" and the broker says "sure" then they sell those shares on the open market, expecting the price to drop.

At some point, the price "bottoms out," they they buy back 100,000 shares at the bottom, and give them back to the broker.

They literally have no money on the line.

Unless, of course, the stock doesn't go down, and instead goes up, then they have potentially unlimited risk.

Oh, and to make it even better -- the broker can lend those same shares to multiple people. Thus how we get to a shorted position that is larger then literally the entire number of shares being publicly traded. And then what? Well.. we'll find out.
Posted by: Harry Paratestes





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