Author Topic: Reddit Wrecks Hedge Funds  (Read 19096 times)

Reddit Wrecks Hedge Funds
« on: January 27, 2021, 02:55:50 PM »
r/wallstreetbets Has been engaging in an odd but very interesting practice of the last week or two that involves essentially wrecking hedge funds. It seems to revolve around ruining the "shorting" phenomena. Shorting involves borrowing shares off a person/institution and selling them in the belief that the price will go down. When that happens you buy the same amount back and give the shares to the original owner and take the difference. IF a group decide to reverse this for themselvs then the whole thing goes to shit and the reddit lot are doing this with glee. Obviously you need to be in on this at the start to make insane cash and the community is making this clear. Also at a certain price the whole fund goes bust and money goes from the bigger to smaller. It is not risk free but interesting. Two links to help explain:

https://www.vox.com/the-goods/22249458/gamestop-stock-wallstreetbets-reddit-citron

https://www.forexlive.com/Education/!/the-gamestop-rip-crystalizes-a-new-era-in-the-stock-market-20210122

And 2 twitter threads to help also:

https://twitter.com/MorningBrew/status/1354138774368776192

https://twitter.com/williamlegate/status/1354166397874671616

The last being the most relevant.

bgmnts

  • Depressed to the point of poisonous toxicity.
Re: Reddit Wrecks Hedge Funds
« Reply #1 on: January 27, 2021, 03:03:06 PM »
Saw this the other day and it confused me because economics is mind numbingly stupid.

Weren't there a group of investors who shorted the housing market as per the film The Big Short? Is this similar?


Sebastian Cobb

  • bad opinion haver
Re: Reddit Wrecks Hedge Funds
« Reply #2 on: January 27, 2021, 03:06:16 PM »
I understand the shorting but how does it work in reverse?

FerriswheelBueller

  • CaB rear of the year 2020
  • Silver Member
  • ****
  • Take it easy, but take it.
    • I am antsy for baseball in the off-season.
Re: Reddit Wrecks Hedge Funds
« Reply #3 on: January 27, 2021, 03:10:37 PM »
Saw this the other day and it confused me because economics is mind numbingly stupid.

Weren't there a group of investors who shorted the housing market as per the film The Big Short? Is this similar?

Sort of, yes. It is the same mechanism.

Hedge funds are the next big bubble to go in my opinion - the services they offer were cutting edge in 1985. Less so now.

Utter Shit

  • Snotty Bumstead
Re: Reddit Wrecks Hedge Funds
« Reply #4 on: January 27, 2021, 03:14:29 PM »
Saw this the other day and it confused me because economics is mind numbingly stupid.

Same, I read three different articles about, each less complicated than the last, and I still haven't got a clue what any of it means.

bgmnts

  • Depressed to the point of poisonous toxicity.
Re: Reddit Wrecks Hedge Funds
« Reply #5 on: January 27, 2021, 03:17:33 PM »
Sort of, yes. It is the same mechanism.

Hedge funds are the next big bubble to go in my opinion - the services they offer were cutting edge in 1985. Less so now.

Fair enough then. I really hope these internet weirdos cripple the banks but sadly these cunts are the masters of leeching from society whilst facing absolutely no consequences.

FerriswheelBueller

  • CaB rear of the year 2020
  • Silver Member
  • ****
  • Take it easy, but take it.
    • I am antsy for baseball in the off-season.
Re: Reddit Wrecks Hedge Funds
« Reply #6 on: January 27, 2021, 03:19:37 PM »
I understand the shorting but how does it work in reverse?

A business is about to fail, you borrow a share of that business from an institutional owner and sell it for $10. The stock price drops to $8 a share, you buy one share back and give it to the institutional lender, then pocket the $2 difference. Free money.

If someone sees you taking a big short position on a stock, they can buy that stock and drive the price up. The share the fund borrowed and sold for $10 is now worth $12 so they’d have to buy that to give back to the institutional lender and eat the $2 loss[1]. You’re one person though, so how much stock can you buy? It’ll have essentially zero effect on stock price so who cares, fill yer boots and lose yer money as the stock price drops.

...but if there are a nebulous collective of people all buying stock, it’ll have an actual impact and drive up the price of the stock. Suddenly the fund has to either buy back shares now and eat the loss, or hold on.

The fund won’t actually go bust until the initial lender of the shares asks for them back at which point the fund has to buy them back to fulfill the debt at whatever the market price is and oh no we’ve gone bankrupt. The viral campaign could run out of steam by then, the price drops back to a regular level and the fund survives (or even profits - remember, these are failing businesses and artificially increasing the stock price won’t increase the value long term).

It is interesting and will (probably) result in heavy losses for the fund as portfolio managers lose their nerve, but misunderstands how hedge funds operate and they’ll probably survive in some form or another for boring esoteric reasons.
 1. if funds get spooked, they can buy shares and eat the loss at the current price if they think the price will keep on rising - theoretically short trades can lead to infinite losses as there is no ceiling to how high stocks can go

Shit Good Nose

  • Several bags of balls
Re: Reddit Wrecks Hedge Funds
« Reply #7 on: January 27, 2021, 03:23:57 PM »
?

Still don't get it.

I watched that The Big Short and I'm sure it's a brilliant film and everything, but it completely lost me (in terms of understanding what the fuck was going on) about 20 minutes in.

I suspect that's why these banks and financial big shots continue to get away with it, cos no one else understands what it all means.

Captain Z

  • CABBALD
Re: Reddit Wrecks Hedge Funds
« Reply #8 on: January 27, 2021, 03:29:28 PM »
Money printer go brrr

Re: Reddit Wrecks Hedge Funds
« Reply #9 on: January 27, 2021, 03:29:33 PM »
From a long ago finance degree, I believe that calls and puts are contracts to buy or sell a stock at a set price at a specified point in the future. You buy them as financial instruments - so the price of these instruments fluctuates as the markets do. Generally speaking I think the instruments provide an option to buy/sell something, or a commitment to buy/sell something.

Presumably the price skyrocketing weakens the values of these instruments incentivising the bankers to dump them. All a very long time since I did this stuff though.

Paul Calf

  • LOTION MAN
  • Golden Member
  • *****
  • Miscarriage
Re: Reddit Wrecks Hedge Funds
« Reply #10 on: January 27, 2021, 03:37:38 PM »
I understand how it works, but what's in it for the investor lending the shares?

FerriswheelBueller

  • CaB rear of the year 2020
  • Silver Member
  • ****
  • Take it easy, but take it.
    • I am antsy for baseball in the off-season.
Re: Reddit Wrecks Hedge Funds
« Reply #11 on: January 27, 2021, 03:38:54 PM »
Still don't get it.

I watched that The Big Short and I'm sure it's a brilliant film and everything, but it completely lost me (in terms of understanding what the fuck was going on) about 20 minutes in.

I suspect that's why these banks and financial big shots continue to get away with it, cos no one else understands what it all means.

I borrow a milky way[1] off you, and sell it at the tuck shop for 30p[2]. I owe you a milky way now and I’ve promised to give it you back by lunch time[3].

Then I cruise the playground and buy another milky bar for 20p (using some of the 30p I just got) and give that milky bar to you at the stroke of 1pm. Free 10p for me.

Now imagine I’ve sold your milky way at the tuck shop for 30p, but the only person who’ll sell me a replacement milky bar is one of the sixth formers and they want 50p for it. If I don’t get it now, the others could try and charge me 60p or (gulp) a pound. It’s already 12:30pm and if I don’t give you your milky way back soon, your brother and his older mates will “get” me after school near the bus stop. If I buy the 50p one, I’ll end up down 20p[4].

Essentially, reddit users have run round the playground in this scenario and bought every milky way this side of the staff room so now the only ones available cost twenty quid and the small boy in this scenario is either going to be out £19.70 (the 30p profit from selling the borrowed milky way minus the net cost of buying a replacement at twenty quid[5]) or get his schoolbag thrown over the wall by your older brother[6].

What I’m suggesting is that the schoolboy might borrow a milky bar from someone else to pay you back[7], then try and buy a milky bar to repay that lender next week. I’m also suggesting by next term (if I can wait that long) the price of milky ways will go back to normal and I can sell it at 20p and still make my initial 10p profit once everyone on reddit gets bored.
 1. one share of a specific stock
 2. short selling
 3. 28 years old, we are
 4. trading loss
 5. huge trading losses
 6. bankruptcy
 7. institutional line of credit

Chollis

  • Master of Codes
Re: Reddit Wrecks Hedge Funds
« Reply #12 on: January 27, 2021, 03:39:24 PM »
didn't understand any of that sorry

Paul Calf

  • LOTION MAN
  • Golden Member
  • *****
  • Miscarriage
Re: Reddit Wrecks Hedge Funds
« Reply #13 on: January 27, 2021, 03:41:23 PM »
Why am I lending you a Milky Way when you're obviously going to leave it in your pocket until it melts to the shape of your cock then try to convince me to take it back? What's in it for me?

I appreciate that Milky Ways are fungible, but I've still given you a share of my utility for no reward.

Utter Shit

  • Snotty Bumstead
Re: Reddit Wrecks Hedge Funds
« Reply #14 on: January 27, 2021, 03:46:58 PM »
I borrow a milky way[1] off you, and sell it at the tuck shop for 30p[2]. I owe you a milky way now and I’ve promised to give it you back by lunch time[3].

Then I cruise the playground and buy another milky bar for 20p (using some of the 30p I just got) and give that milky bar to you at the stroke of 1pm. Free 10p for me.

Now imagine I’ve sold your milky way at the tuck shop for 30p, but the only person who’ll sell me a replacement milky bar is one of the sixth formers and they want 50p for it. If I don’t get it now, the others could try and charge me 60p or (gulp) a pound. It’s already 12:30pm and if I don’t give you your milky way back soon, your brother and his older mates will “get” me after school near the bus stop. If I buy the 50p one, I’ll end up down 20p[4].

Essentially, reddit users have run round the playground in this scenario and bought every milky way this side of the staff room so now the only ones available cost twenty quid and the small boy in this scenario is either going to be out £19.70 (the 30p profit from selling the borrowed milky way minus the net cost of buying a replacement at twenty quid[5]) or get his schoolbag thrown over the wall by your older brother[6].

What I’m suggesting is that the schoolboy might borrow a milky bar from someone else to pay you back[7], then try and buy a milky bar to repay that lender next week. I’m also suggesting by next term (if I can wait that long) the price of milky ways will go back to normal and I can sell it at 20p and still make my initial 10p profit once everyone on reddit gets bored.
 1. one share of a specific stock
 2. short selling
 3. 28 years old, we are
 4. trading loss
 5. huge trading losses
 6. bankruptcy
 7. institutional line of credit

Worryingly this actually made sense.

Re: Reddit Wrecks Hedge Funds
« Reply #15 on: January 27, 2021, 03:48:08 PM »
Why am I lending you a Milky Way when you're obviously going to leave it in your pocket until it melts to the shape of your cock then try to convince me to take it back? What's in it for me?

I appreciate that Milky Ways are fungible, but I've still given you a share of my utility for no reward.

It's actually my Milky Way and you are my broker/bank.

FerriswheelBueller

  • CaB rear of the year 2020
  • Silver Member
  • ****
  • Take it easy, but take it.
    • I am antsy for baseball in the off-season.
Re: Reddit Wrecks Hedge Funds
« Reply #16 on: January 27, 2021, 03:51:07 PM »
Why am I lending you a Milky Way when you're obviously going to leave it in your pocket until it melts to the shape of your cock then try to convince me to take it back? What's in it for me?

I appreciate that Milky Ways are fungible, but I've still given you a share of my utility for no reward.

I pay you 2p a day[1] and gave you some conkers (all niners+)[2] and you reckon that’s fair enough. You’re also legally mandated to keep a reserve of milky ways kicking about so you’re not that arsed about the risk of losing one cos your mum bought LOADS from the shops.
 1. interest payments
 2. fees

Johnny Yesno

  • Member
  • **
  • Perfume of a critic's burning flesh
Re: Reddit Wrecks Hedge Funds
« Reply #17 on: January 27, 2021, 03:57:45 PM »
didn't understand any of that sorry

It doesn't help talking about two different sweets with similar names.

Bernice

  • a turkey is a bad person (he/him)
Re: Reddit Wrecks Hedge Funds
« Reply #18 on: January 27, 2021, 03:59:18 PM »
I pay you 2p a day[1] and gave you some conkers (all niners+)[2] and you reckon that’s fair enough. You’re also legally mandated to keep a reserve of milky ways kicking about so you’re not that arsed about the risk of losing one cos your mum bought LOADS from the shops.
 1. interest payments
 2. fees

So who is the lender of the shares in this instance? GameStop itself?

FerriswheelBueller

  • CaB rear of the year 2020
  • Silver Member
  • ****
  • Take it easy, but take it.
    • I am antsy for baseball in the off-season.
Re: Reddit Wrecks Hedge Funds
« Reply #19 on: January 27, 2021, 04:00:09 PM »
It doesn't help talking about two different sweets with similar names.

I noticed that (I switched to milky ways during a re-draft because I thought they were funnier and couldn’t remember if milky bars were a real thing or not) but didn’t bother to correct it. Pathetic.

Johnny Yesno

  • Member
  • **
  • Perfume of a critic's burning flesh
Re: Reddit Wrecks Hedge Funds
« Reply #20 on: January 27, 2021, 04:03:52 PM »
I noticed that (I switched to milky ways during a re-draft because I thought they were funnier and couldn’t remember if milky bars were a real thing or not) but didn’t bother to correct it. Pathetic.

Also, is 'the schoolboy' mentioned towards the end of the analogy 'I', as mentioned at the start ('I borrow a milky way...')?

Better Midlands

  • I'm not internationally known
Re: Reddit Wrecks Hedge Funds
« Reply #21 on: January 27, 2021, 04:04:55 PM »
Still don't get it.

Here's Captain Tom in a bubble bath to explain


FerriswheelBueller

  • CaB rear of the year 2020
  • Silver Member
  • ****
  • Take it easy, but take it.
    • I am antsy for baseball in the off-season.
Re: Reddit Wrecks Hedge Funds
« Reply #22 on: January 27, 2021, 04:06:02 PM »
Also, is 'the schoolboy' mentioned towards the end of the analogy 'I', as mentioned at the start ('I borrow a milky way...')?

Yessir.

Sebastian Cobb

  • bad opinion haver
Re: Reddit Wrecks Hedge Funds
« Reply #23 on: January 27, 2021, 04:15:37 PM »
Cheers Ferris. Looking into it, there's one seller who has shitloads of shares at the minute and supposedly on 'some William Wallacce shit' and refusing to sell to the shorters.

Quote
If you haven't been paying attention, reddit user DeepFuckingValue all-inned GME calls with $55k in Sep 2019, and hasn't cashed out a single cent. That's right, $55k to $20 million+. Balls of steel. There will be movies written about him
10:51 PM · Jan 26, 2021

QDRPHNC

  • Golden Member
  • *****
  • "A soupçon of pizzazz."
Re: Reddit Wrecks Hedge Funds
« Reply #24 on: January 27, 2021, 04:16:48 PM »
I dabbled in WSB for a while, with a few hundred dollars. Was up for a bit, then lost it when I overestimated how long it would take the pandemic to negatively affect certain businesses.

Reading all this stuff gives me serious FOMO though. It's like watching someone win big at roulette and wanting to put it all on red yourself.

monkfromhavana

  • Member
  • **
  • Top one, nice one, get sorted
Re: Reddit Wrecks Hedge Funds
« Reply #25 on: January 27, 2021, 04:17:17 PM »
Trading Places

Cuellar

  • I'm over here
Re: Reddit Wrecks Hedge Funds
« Reply #26 on: January 27, 2021, 04:17:36 PM »
I borrow a milky way[1] off you, and sell it at the tuck shop for 30p[2]. I owe you a milky way now and I’ve promised to give it you back by lunch time[3].

Then I cruise the playground and buy another milky bar for 20p (using some of the 30p I just got) and give that milky bar to you at the stroke of 1pm. Free 10p for me.

Now imagine I’ve sold your milky way at the tuck shop for 30p, but the only person who’ll sell me a replacement milky bar is one of the sixth formers and they want 50p for it. If I don’t get it now, the others could try and charge me 60p or (gulp) a pound. It’s already 12:30pm and if I don’t give you your milky way back soon, your brother and his older mates will “get” me after school near the bus stop. If I buy the 50p one, I’ll end up down 20p[4].

Essentially, reddit users have run round the playground in this scenario and bought every milky way this side of the staff room so now the only ones available cost twenty quid and the small boy in this scenario is either going to be out £19.70 (the 30p profit from selling the borrowed milky way minus the net cost of buying a replacement at twenty quid[5]) or get his schoolbag thrown over the wall by your older brother[6].

What I’m suggesting is that the schoolboy might borrow a milky bar from someone else to pay you back[7], then try and buy a milky bar to repay that lender next week. I’m also suggesting by next term (if I can wait that long) the price of milky ways will go back to normal and I can sell it at 20p and still make my initial 10p profit once everyone on reddit gets bored.
 1. one share of a specific stock
 2. short selling
 3. 28 years old, we are
 4. trading loss
 5. huge trading losses
 6. bankruptcy
 7. institutional line of credit

In the first paragraph you're buying a milky way and in paragraph two you've transitioned to cruising for milky BARS.

I find these metaphorical explanations adequate on the hand and totally inadequate on the other. I get the principle behind shorting, I think. I just have no idea how it goes from that to reddit bankrupting a hedge fund. How did the hedge funds manage to short MORE GME stocks than actually exist?

Re: Reddit Wrecks Hedge Funds
« Reply #27 on: January 27, 2021, 04:28:11 PM »
Still don't get it.

Me neither. I suspect it's a problem with spatial reasoning and the right side of the brain. I find it difficult to visualise descriptions when reading a book as well.

It looks like a good explanation to me so the solution is to probably keep reading it until you understand it. If you are inclined.

Paul Calf

  • LOTION MAN
  • Golden Member
  • *****
  • Miscarriage
Re: Reddit Wrecks Hedge Funds
« Reply #28 on: January 27, 2021, 04:30:22 PM »
...the right side of the brain...

Nope.

monkfromhavana

  • Member
  • **
  • Top one, nice one, get sorted
Re: Reddit Wrecks Hedge Funds
« Reply #29 on: January 27, 2021, 04:39:41 PM »
Borrow something, flog it, buy a replacement for less money you earned, give it back to the person you originally borrowed it from, go to the pub with them and buy them a pint to say thank you.

Tags: