21
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Melvin Capital reportedly lost 53% of it's assets due to r/WallStreetBets driven GameStop stock surge
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- Title
- GameStop short-seller Melvin Capital lost 53% this month after the Reddit-fueled frenzy sent shares soaring
- Published
- Feb 2 2021
- Word count
- 394 words
Hope they lose more. Every name that's come up so far could stand to lose a fair bit of money, and has done some seriously questionable stuff in the past.
The lot of it stinks, and especially with the ladder attacks that have been going on, might get more interesting over coming days. SEC has stopped the sale of shorts on GME, effective tomorrow. We'll see what happens then.
My biggest worry is retail investors gambling with more than they can afford losing. There's a very real possibility to execute an unforeseen level of short squeeze, but that doesn't come without substantial risk and I'm worried that people not researching enough will get burned in a bad way.
There are essentially no search results for short ladder attacks before this year. As far as I can tell, it seems to be somewhat of a LARP made up by a redditor to get more people to buy $GME.
See here.
It seems /r/WSB is quickly approaching Q levels of delusion as people regurgitate whatever they read that confirms their priors.
That sub is in straight Q territory right now. It's weird because I kinda support their fight (even though I find it tragic seeing people invest their live savings in a meme) and I think I now understand that Qanon excitement a little better.
You get posts like this, posting weird numbers you've never seen before in your life and you think to yourself, "woah there, am I'm witnessing some huge and exciting story, here?" So many people are agreeing! But then you see the whole thing debunked and it's just Occam's razors all the way down.
And the similarities to Q are striking. The frenzy, the temporary power of fools uniting over something foolish, the increasing desperation in looking for "clues", it's all there.
Yea I don't think it will recover. Wouldn't be surprised if it gets the axe when the inevitable life savings depleted stories start making circulation.
Some holdouts from the earlier version the sub have been congregating in the unpinned daily threads. See today's.
It's not entirely hopeless I think.
The in-group (autists with real data, real facts, real numbers, educated guesses - the reason you pay for bloomberg terminals) can step up and cut through the noise because of the strange way this phenomenon is working out. If you look at their numbers they are averaging like 500K active users with spikes up that will break a million soon. If the users trust their mods, those mods can help cut through the static and focus people's attention on hard data. It's an opportunity for financial education which is kinda priceless. They can hold AMAs that will get a gargantuan amount of participation with those numbers.
Or they can let it run rampant. Really, all the mods need to do is use their green badges and their sticky posts and put some kind of navigation element as the sticky top comment on every thread. Link to the best facts and informed opinions in their sticky updates. That will provide the anchor in the chaos. The group can evolve to work that way, so they can have their hype and have their facts too.
Some of these (far more rational) spinoff groups can get in on this too and the mods should absolutely link to that stuff so they can get some different perspectives in to break up the groupthink. How that plays out long term is anyone's guess, but it should be enough to go on with.
I think reddit's going to be reluctant to ban them while they are keeping the page refresh rate that high. It's mother's milk, all those ad views. Once those dailies drop, though, that's when the claws will come out if reddit's afraid of the risks. If wsb wants to avoid pissing reddit off, remember that it's reddit's front page that they really care about, and letting it run rampant all over /r/all is going to piss them off at some point. The mods can take wsb out of /r/all anytime they want to and keep the pressure off, or turn it back on at the right time when they are ready to move in for the kill on something real.
I think of this like a pack of crazy hunters ready to draw blood. Jordan Belfort's 'killers' if you will, but this time not enslaved to a crook. Not entirely driven by greed this time, either - this is more personal and vengeful. They need to become spartans with facts, not barbarians drunk on covid psychosis and regurgitating bullshit. That's the only way they'll gain the skill to take down their Xerxes.
This wallstreetbets thing has a strange 'realtime' aspect I've never seen flare up and sustain quite like this before. It's the nature of everyone being focused on their stocks and market data, which is less and less valuable the older it is. It seems to have everyone locked in clicking refresh on the wsb forums. This community is just 'in the habit' of being refresh crazy, trained to be that way by the very tools wall street uses.
Oh my god, the unpinned threads are amazing.
Stuff from today reminded me of the old “this is how Bernie can still win” posts from 2016.
The delusion is sometimes hard to watch. I’m on the discord of the German wsb equivalent and there I already saw people who lost 10k+
Some put all their life savings into this in their first week of buying stocks. Some already sold, maybe it’ll get up and the people that hold will profit, but honestly, anyone who was in at 10-20 and didn’t sell at 300 when it traded there for a few days really fucked up if they didn’t take out at least part of it...
I really think /r/wsb mods or reddit should put a stickied comment on every thread to remind people of the risk
I'd like to point one thing out. Just because something doesn't have a name doesn't mean it isn't being done.
You could just as easily call it "Buying more naked shorts to artificially depress price in hopes of causing retail customers to panic and free up shares". From the link.
The SEC isn't cutting of the selling of GME shorts for no reason.
Shorts have decreased from 60m to 30m.
https://twitter.com/biancoresearch/status/1356639453394141184/photo/1
So I'll be the first one to say I'm not some stock market whiz, but in a single trading day the number of shorts dropped 30M when the volumes say it's impossible.
Volumes show Friday was 50M and Monday was 37M. So either Friday had 60% of all trades getting out of short positions or Monday had 81% of all trades getting out. If Friday, they managed to do it without the stock going up, if Monday they did it with the stock going down... Doesn't add up.
edit
me speak word good (fixed phrasing error).
Multiple data companies are saying that shorts are covering.
https://www.bloomberg.com/news/articles/2021-02-01/gamestop-short-interest-plummets-in-a-sign-traders-are-covering
They each have a different estimate, but all estimates point to the same thing.
The only short data quoted in that article is the same from the tweet, S3.
Anatomy Of A Short Attack
Jim Crammer manipulation at Hedge Fund
'Essentially' ie outside of rando blogs. I'll take the 57k rep stack exchange contributor's opinion over a random blog. In response to said link:
I'm not playing the appeal to authority game, I offered you two links that describe the anatomy of a short ladder attack and the other games that Hedge Funds can play, you take from them what you will. But when money is on the line I do not expect anyone to play fair
The first link is a guest blog that explicitly lists a disclaimer:
If you follow his link, this is his website
It's as nonsensical as a 2000s conspiracy website. (And looks like one too).
I mean at some level we have to define a minimum standard for information or we just end up debating anti-vax blogs all day.
is just an apply to authority. You have offered no real counter to the information I have provided.
It's in the first link I posted. Your article:
vs.
I don't really see how NBBO would prevent this sort of strategy. I can see how it doesn't work if there are a lot of people actually trying to sell stock to a better bid than what the people shorting it want the price to be at, essentially forming a "wall" on the price. But, I don't really see why there couldn't be a situation where sales volume would be low enough where the cost of buying out the profit takers would still be "worth it" because that's really the only thing you need to overcome to make this work (aside from laws), as far as I can tell.
That just how the market works? If there's not enough buy/sell pressure to support a given price (or you have enough money) you can move the price.
What the above article is talking about is hedge funds selling to each other at lower prices than the NBBO -- which I doubt is even technically possible with the given infrastructure.
I don't really know what the details of what he is suggesting are, other than the simple idea that two large investors could, in theory, collude with each other to drive market price in some direction through a series of coordinated transactions. I can see how NBBO makes this more challenging, because if there is a lot of volume, then to accomplish this you would necessarily have to spend a lot of your money on stocks from people who aren't part of the scheme who are just trying to buy and sell like normal. But, if you stand to lose or gain enough, or volume is low enough, it seems pretty obvious to me that two colluding firms could easily conspire with each other to manipulate the price in a direction they think would favor their interests in the manner I described. NBBO does not seem to really "solve" the problem, it's just an obstacle. People are mad because they think that large institutional investors are working together to try and trigger a panic sell, and I don't see any compelling evidence to make me think that I should not at least humor this possibility.
How? There's two sides to every trade and if your deliberately pushing the price in a direction someone is losing out. Why would a hedge fund with GME shares be conspiring to push the price down?
I would really encourage watching that video. It's quite eye opening to just how easy it is to manipulate stock prices when you've got large sums of money, and some of the incentives to do so.
Jim Cramer is legit.
But the entire short ladder thing is a meme phrase from WSB, which is frankly so far off the deep end people are going to end up getting badly burned.
The only way to move the price down on GME is to take out all the buyers, and on such a heavily traded stock such as GME, that means you are selling short significantly. But the short vol has gone from 60m to 30m.
I suppose we will find out tomorrow now that Robinhood is lifting restrictions and short selling is restricted.
But think about it. Is there a great conspiracy afloat? Or did WSB pump GME far in excess of a reasonable value, and now the stock is going to come crashing down to what it is worth ($5-25)?
Edit: Here is actual proof of market manipulation, it's typically seen on thinly traded penny stocks and the SEC comes down hard: https://www.sec.gov/news/press-release/2019-216
I thought Melvin Capital closed out of their GME short position last week.
The first report of that which I saw on CNBC appeared to be a lie, given that shorts in terms of % of shares was actually up.
Suddenly people trust wallstreet’s stock position claims?
It’s weird. I’m not convinced they’re all covered still, but the whole thing is crooked enough that who knows it we’ll ever know the truth of everything in this event.
Before the squeezes last week there were several reports on financial media claiming Citron and Melvin were covered and out. Like, we all know that was a straight lie now. So...why believe anything coming out of these institutions now? With money this big you can’t trust anyone.
(Hence the word reportedly. Feel free to disagree.)