Part 1, prolog
So, you have all likely heard of the Gamestop news. Here is the run down of what I understand so far.
Gamestop as many of you are aware, is a retail industry that sells videogame products. Like a Barns&Nobels but instead of books they have videogames.
In March 2020 their stock hit a low of $3 and change, some people bought in saying the evaluation that the media is saying is vastly underpriced. No big deal, these people were just betting the stock would go up.
About 2 weeks ago, Citron Research a Hedge Fund released a video on YouTube explaining that they are shorting gamestop.
A hedge fund is basically a Mutual Fund that is invitation only. Both are investment companies that take your money and invest them into the market as they see fit in order to produce profit for you. They follow slightly different rules, but the main thing to remember is that if this was ThanksGiving, the Hedge Fund is the grown-ups table, the Mutual fund is a children's table.
A short is a bet against, basically they borrow a share normally from margin (debt) they then sell the share, once the price drops, they buy the share back at a lower price and pocket the difference. The only thing required to give back is the share by a time you specified and a price you set, it's like you take out a loan to buy a car worth $20k, you drive the car for 5 years, and the car is now worth $3k, you give the car back to the bank and they give you the remaining $17k, but there is a time limit, and if the price you said it would be worth is not reached by the end of your time, you owe the stock in full. (it sounds stupid, I know but this is roughly how it works).
Once the video of Citron hit a specific part of reddit called WallStreetBets, people were very angry. Gamestop is extremely nostalgic for my generation, and a frenzy ensued of trying to save Gamestop, roughly through nostalgia. (This started roughly January 11th).
The plan was simple, if they make money by the negative difference, and people increased the price, they would now lose money and have to pay the bank, because when they return the $20k car and its worth $100k you pay them the increased %. So they drove the price up from $20 a share on January 12th to $60 a share on January 21st. The trend started gaining traction through reddit and it hit $100 a share on January 26th.
At this time of $100 a share, big names started tweeting and making videos such as Elon Musk, which gained it more traction and this is where the fiasco begins.
Part 2, Bring me the MONEY!
People started seeing major dollar signs, as pictures with shares purchased in March for a few grand were now worth MILLIONS. Everyone wanted in, they bought the stock and rode the wave. This new wave of buyers was different from the last. The first group were willing to loose thousands and hundreds of thousands per person just to punch the bully in the face, which they did achieve with an amazing right hook. This second group was focused on the profits, they wanted to be millionaires (on paper) as well. So, they would take out shares at $100 sell at $125 for a gain that would take a normal market over 3 years. Yet, the price kept going, and going, and going.....
Quickly everyone started to realize, this is not just another Pump and Dump scheme. (Pump and dump is a possibly illegal strategy where you buy lots of shares, people assume this is stock is worth tons of money buy into it making the price go higher, and you sell all your shares for profit leaving them with the debt.)
This miraculous stock would only grow, and grow, and grow. People started finding this weird. So they scoured the news to find everyone talking about WallStreetBets. I will not get into the lingo of wall street bets, but for the least we can say it is coded with extreme sarcasm and profanity. When they scoured the reddit sub forum and got the jest of lingo they understood.... This was not about simply making money, they were doing what is called a squeeze. The goal was to make the stock so much above the short value that the Hedge Funds lost as much money as possible. This is not illegal AS LONG as there is no one spear heading the campaign. Quickly many people found themselves entranced by the altruistic idea that they too could stifle the big guys who always come out on top.
What came next was a surge in price. The stock within 2 days went from $100 a share to just a few dollars shy of $400. To explain this increase... This is roughly (discounting compounding interest) the equivalent of having a retirement fund for roughly 5 years.
People were elated and on cloud 9, a caravan of all creeds and colors came together and have made a historic moment! In a few hours, the first big wave of shorts would expire, leaving the Hedges with billions of losses.
Part 3, Rules for Thee but not for Me.
Out of no where thousands of people started begging for help, most of them new to the market. "We cannot buy!!!" The cry echoed through all social media. Astonished at the naivety of the new players, the veteran traders assembled their brokers to show that buying is very much possible.
Error screens, N/A prices, server down messages, and much more waxed cold onto their phones. The young traders were correct... They were locked out of the market.
Prices plummeted as major holders started selling. The lower and lower prices had all the 2nd wave traders panicking that their years of potential gains would turn into a mountain of debt and they sold as well. "Diamond Hands" would echo through the forums, the veterans explaining that the hedges are manipulating the market to make them panic. "Diamond Hands" they would cry again, the battle cry of never letting go.
At the end of the day, the price was $197 a share with a low of $132, a pile of ashes from the few hours before. This decrease would end up saving the Hedges over 6 billion dollars.
The people rallied over night, FURIOUS at what had just transpired. The new traders with the taste of their own blood still fresh in their mouth from the sucker punch were now ready for an all out war. Even if it cost them EVERYTHING!
The market opened at 8:30 on a Friday, this was their time! Bright eyed and bushy tailed they went back out to the battle field to buy, buy, buy. The market opened and as they stormed the battle field increasing the stock back to over $300 a share in a matter of minutes. Their charge was met with a bone shattering halt. The hedge funds had even stronger barricades. Everyone was limited to 1 share. If you owned 1,000 that was fine, but you could not buy another one since you reached the 1 share limit. The market was stuck.
Slowly it crept up to $374 a share, but their charge was broken. As the new buyers started dwindling once again the price dropped to $259 as stock was sold. But then! A heroic band of brave veterans found the breech in wall!!!!!!
So, you have all likely heard of the Gamestop news. Here is the run down of what I understand so far.
Gamestop as many of you are aware, is a retail industry that sells videogame products. Like a Barns&Nobels but instead of books they have videogames.
In March 2020 their stock hit a low of $3 and change, some people bought in saying the evaluation that the media is saying is vastly underpriced. No big deal, these people were just betting the stock would go up.
About 2 weeks ago, Citron Research a Hedge Fund released a video on YouTube explaining that they are shorting gamestop.
A hedge fund is basically a Mutual Fund that is invitation only. Both are investment companies that take your money and invest them into the market as they see fit in order to produce profit for you. They follow slightly different rules, but the main thing to remember is that if this was ThanksGiving, the Hedge Fund is the grown-ups table, the Mutual fund is a children's table.
A short is a bet against, basically they borrow a share normally from margin (debt) they then sell the share, once the price drops, they buy the share back at a lower price and pocket the difference. The only thing required to give back is the share by a time you specified and a price you set, it's like you take out a loan to buy a car worth $20k, you drive the car for 5 years, and the car is now worth $3k, you give the car back to the bank and they give you the remaining $17k, but there is a time limit, and if the price you said it would be worth is not reached by the end of your time, you owe the stock in full. (it sounds stupid, I know but this is roughly how it works).
Once the video of Citron hit a specific part of reddit called WallStreetBets, people were very angry. Gamestop is extremely nostalgic for my generation, and a frenzy ensued of trying to save Gamestop, roughly through nostalgia. (This started roughly January 11th).
The plan was simple, if they make money by the negative difference, and people increased the price, they would now lose money and have to pay the bank, because when they return the $20k car and its worth $100k you pay them the increased %. So they drove the price up from $20 a share on January 12th to $60 a share on January 21st. The trend started gaining traction through reddit and it hit $100 a share on January 26th.
At this time of $100 a share, big names started tweeting and making videos such as Elon Musk, which gained it more traction and this is where the fiasco begins.
Part 2, Bring me the MONEY!
People started seeing major dollar signs, as pictures with shares purchased in March for a few grand were now worth MILLIONS. Everyone wanted in, they bought the stock and rode the wave. This new wave of buyers was different from the last. The first group were willing to loose thousands and hundreds of thousands per person just to punch the bully in the face, which they did achieve with an amazing right hook. This second group was focused on the profits, they wanted to be millionaires (on paper) as well. So, they would take out shares at $100 sell at $125 for a gain that would take a normal market over 3 years. Yet, the price kept going, and going, and going.....
Quickly everyone started to realize, this is not just another Pump and Dump scheme. (Pump and dump is a possibly illegal strategy where you buy lots of shares, people assume this is stock is worth tons of money buy into it making the price go higher, and you sell all your shares for profit leaving them with the debt.)
This miraculous stock would only grow, and grow, and grow. People started finding this weird. So they scoured the news to find everyone talking about WallStreetBets. I will not get into the lingo of wall street bets, but for the least we can say it is coded with extreme sarcasm and profanity. When they scoured the reddit sub forum and got the jest of lingo they understood.... This was not about simply making money, they were doing what is called a squeeze. The goal was to make the stock so much above the short value that the Hedge Funds lost as much money as possible. This is not illegal AS LONG as there is no one spear heading the campaign. Quickly many people found themselves entranced by the altruistic idea that they too could stifle the big guys who always come out on top.
What came next was a surge in price. The stock within 2 days went from $100 a share to just a few dollars shy of $400. To explain this increase... This is roughly (discounting compounding interest) the equivalent of having a retirement fund for roughly 5 years.
People were elated and on cloud 9, a caravan of all creeds and colors came together and have made a historic moment! In a few hours, the first big wave of shorts would expire, leaving the Hedges with billions of losses.
Part 3, Rules for Thee but not for Me.
Out of no where thousands of people started begging for help, most of them new to the market. "We cannot buy!!!" The cry echoed through all social media. Astonished at the naivety of the new players, the veteran traders assembled their brokers to show that buying is very much possible.
Error screens, N/A prices, server down messages, and much more waxed cold onto their phones. The young traders were correct... They were locked out of the market.
Prices plummeted as major holders started selling. The lower and lower prices had all the 2nd wave traders panicking that their years of potential gains would turn into a mountain of debt and they sold as well. "Diamond Hands" would echo through the forums, the veterans explaining that the hedges are manipulating the market to make them panic. "Diamond Hands" they would cry again, the battle cry of never letting go.
At the end of the day, the price was $197 a share with a low of $132, a pile of ashes from the few hours before. This decrease would end up saving the Hedges over 6 billion dollars.
The people rallied over night, FURIOUS at what had just transpired. The new traders with the taste of their own blood still fresh in their mouth from the sucker punch were now ready for an all out war. Even if it cost them EVERYTHING!
The market opened at 8:30 on a Friday, this was their time! Bright eyed and bushy tailed they went back out to the battle field to buy, buy, buy. The market opened and as they stormed the battle field increasing the stock back to over $300 a share in a matter of minutes. Their charge was met with a bone shattering halt. The hedge funds had even stronger barricades. Everyone was limited to 1 share. If you owned 1,000 that was fine, but you could not buy another one since you reached the 1 share limit. The market was stuck.
Slowly it crept up to $374 a share, but their charge was broken. As the new buyers started dwindling once again the price dropped to $259 as stock was sold. But then! A heroic band of brave veterans found the breech in wall!!!!!!
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