Trying to understand the gamestop situation is making my head spin.
I need a better understanding of finance.
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BlueVeins · 22-25
Here's what happened:
An investment fund borrowed a shitload of Gamestop stock from a third party lender. The investment fund sold the stock to other people, which lowers the stock price. A bunch of Redditors noticed this and bought the stock, driving the price far up. This is a problem for the investment fund because they have to buy the stock again in order to pay off their debt obligation. If they can't do so, they will go bankrupt.
An investment fund borrowed a shitload of Gamestop stock from a third party lender. The investment fund sold the stock to other people, which lowers the stock price. A bunch of Redditors noticed this and bought the stock, driving the price far up. This is a problem for the investment fund because they have to buy the stock again in order to pay off their debt obligation. If they can't do so, they will go bankrupt.
BlueVeins · 22-25
@KristinaM Correct. This arrangement is called shorting a stock. The investment fund (in this case, a hedge fund) will earn money if the stock price goes down and lose money if the stock price goes up. The hedge fund realized that GameStop was likely to lose money in the future, which was a good call since tbh they're a crummy fucking company.
BlueVeins · 22-25
@KristinaM I don't think the hedge fund has bought it back yet, but that's the gist of it. Now, there's some other nuances to it, such as that shorting a stock hurts the business, so it's kind of a dick move for the hedge fund to go so deep into that strategy. As I explained earlier, shorting stock decreases the stock prices, which makes it harder for Gamestop to raise money if needed (as it would have to sell stock at that lower price). So in a way, the hedge fund is making money by hurting Gamestop.
On the flipside, I'm pretty sure what the redditors did isn't super legal because they were deliberately driving up the stock price to sink the hedge fund. This is known as market manipulation. But you could also argue that the hedge fund was doing market manipulation anyway because they were both helping the stock price collapse AND benefiting from that collapse.
On the flipside, I'm pretty sure what the redditors did isn't super legal because they were deliberately driving up the stock price to sink the hedge fund. This is known as market manipulation. But you could also argue that the hedge fund was doing market manipulation anyway because they were both helping the stock price collapse AND benefiting from that collapse.
PDXNative1986 · 36-40, MVIP
@KristinaM the terminology is the shorts got squeezed, but "Screwed"... well I'll accept it.
Pretty good metaphor anyways. The shorts are getting good and properly fucked if someone drives the price up.
We have a weird market that you can make money on stocks going down in price but it's risky.
Pretty good metaphor anyways. The shorts are getting good and properly fucked if someone drives the price up.
We have a weird market that you can make money on stocks going down in price but it's risky.
PDXNative1986 · 36-40, MVIP
@KristinaM Not exactly a fan of Keiser but We did have temporary common cause because of a common enemy. [media=https://www.youtube.com/watch?v=QCM7rMIqxmk]
This is when I first learned about Short Squeezes.
Common enemies makes for strange bed fellows.
[media=https://www.youtube.com/watch?v=uNW8ZJU8HQA]
This is when I first learned about Short Squeezes.
Common enemies makes for strange bed fellows.
[media=https://www.youtube.com/watch?v=uNW8ZJU8HQA]
PDXNative1986 · 36-40, MVIP