by Brian DeChesare Comments (48)

The GameStop Short Squeeze: Why Almost Everyone is Wrong About It

GameStop Short Squeeze

I rarely write about current events on this site, but in the past year, I’ve already broken that rule multiple times due to the (government-imposed) coronavirus “crisis.”

And 2021 seems to be off to an even crazier start in terms of geopolitical, health, and financial events, so why not go deeper down the rabbit hole?

This past week’s big news was the massive GameStop short squeeze and how it represented a “populist revolt” against evil Wall Street firms such as hedge funds.

The only problem is that this narrative is completely wrong, and the clueless mainstream media was even more clueless about this story:

What the Media Claims vs. What Actually Happened

In case you’ve been cut off from the internet for the past week, the NY Times offers a version of the commonly accepted narrative.

The main points seem to be:

  1. The evil hedge fund Melvin Capital, representing a combination of Sauron, Voldemort, and Thanos, aggressively shorted various companies, including GameStop, believing these companies’ share prices would fall.
  2. Then, “an online army of investors” on Reddit joined forces like the Avengers to attack Melvin Capital and other hedge funds that bet against these companies. They were doing this to “challenge the dominance of Wall Street.”
  3. This army of Redditors bought tens of millions of GameStop shares to force the price up. Then, Melvin Capital had to cover their shorts by buying shares at much higher prices, which pushed the share price even higher.
  4. Next, Point72 and Citadel had to step in and bail out Melvin Capital for $2.75 billion because the fund lost so much money on its short positions. The firm was also down over 50% in January.
  5. The Redditor army destroyed the Death Star! Victory for the populist rebellion!
  6. But then Voldemort convinced the government to let the hedge funds win, so Robinhood temporarily blocked buys of GameStop shares. But then Robinhood caved to public pressure and re-enabled trading but restricted the number of shares per account. Collusion!
  7. Robinhood squandered all the trust it had built up in a single day. The company is over.
  8. And now politicians should regulate Reddit, Robinhood, and hedge funds. They should also ban short-selling because short-sellers are evil; they may even be Voldemort’s accomplices.

There’s so much wrong with these points that I’m not sure where to begin.

But let’s start with the most important one: this was not a “populist revolt” against Wall Street.

Yes, retail investors on Reddit acted as the catalyst, but the order volume and sizes of share blocks traded do not support this narrative.

This was primarily an institutional battle, and while some day traders made money, the vast majority will lose money.

The real winners are Citadel, Silver Lake, and various other trading firms.

This Was a Hedge Fund vs. Hedge Fund Fight

It’s fairly easy to verify that retail investors did not do much to boost GameStop’s share price beyond the initial stages.

Just look at the buy and sell data from Citadel Securities (the market-making arm of Citadel):

GameStop Retail Buys and Sells

Robinhood routes more than 50% of its orders through Citadel, and Citadel pays Robinhood for this “order flow” (see our coverage of prop trading and market-making for more on this).

Citadel does not process all retail trades, but according to its own website, it is responsible for “39% of all U.S.-listed retail volume.”

Therefore, if ~39% of retail volume in GameStop last week – and probably more than that – showed an even mix of buys and sells, day traders were probably not the primary force behind the stock’s increase.

I don’t have data on trading volume by firm, but given that many of the trades were for 5,000 to 10,000 share blocks (worth $500K to ~$3-4 million), I’m going to take a wild guess and say that it was mostly institutional.

Most likely, some combination of hedge funds and high-frequency / momentum / algorithmic traders saw this activity and started following the trend… in much bigger quantities.

Some “professional” day traders who don’t trade via retail brokers may have also been involved, but I doubt their volume alone could account for the bulk of this move.

Robinhood Cannot Restrict Trading Activity! It’s Unjust! Collusion!

No, Ken Griffin did not call Janet Yellen and ask her to order Robinhood to shut down speculative buying.

It’s a nice conspiracy theory, but it’s not the reason for the trading restrictions.

When traders buy and sell stocks, the trades do not settle right away.

In the U.S. markets, it takes two days for trades to settle (“T + 2”), which means that Robinhood is taking some credit risk while they wait to pay or receive cash.

The National Securities Clearing Corporation (NSCC) handles the exchange of cash for securities, and the Depository Trust & Clearing Corporation (DTCC) sets the rules for brokers.

To reduce the credit risk if brokerage firms like Robinhood fail to produce the cash upon settlement, the DTCC requires brokers to post clearing deposits (the Dodd-Frank rules also require it).

In “normal times,” these clearing deposits are a non-issue.

But when trading volume spikes, firms like Robinhood quickly assume higher credit risk and most post higher deposits – and they may not have enough cash on-hand to do so.

Furthermore, buying activity affects the clearing deposit calculation differently from selling activity – which is why Robinhood disabled buys, but not sells.

I’m not going to delve into all the details here, but this blog post and this Twitter thread cover the more technical aspects.

Essentially, Robinhood had to post a deposit that it didn’t have, so it had to restrict buying activity until it could raise another ~$1 billion of cash.

You can say this is unfair, but you shouldn’t blame Robinhood. The company was following the existing laws and regulations.

But Robinhood’s Business Model is Still Quite Shady

If you want to be outraged at Robinhood, direct your outrage at the right aspect of the company: the fact that they make most of their revenue from selling “order flow” to market-makers like Citadel.

In case you’ve forgotten, the SEC already charged and fined Robinhood $65 million for deceptive pricing.

Yes, trades on Robinhood are “free,” but in exchange for the $0 commissions, you’re getting worse prices on each trade.

And that’s all because retail traders are not Robinhood’s customers: market-makers like Citadel are.

To learn more about why this is a problem, check out this article on How Robinhood Misled the Poor and Rewarded the Rich.

Hint: If a product or service is “free,” you are not the customer. You are the product!

Short-Selling is Evil! Ban It!

Short-selling, i.e., borrowing stock to sell it and then buying it back at a lower price, is a healthy market activity.

Short-sellers have uncovered massive frauds like Wirecard that idiotic politicians and regulators protected, and they allow other investors to hedge their trades.

Melvin Capital almost collapsed not because it was short-selling but because it was doing so in a very stupid and risky way.

If short interest already represents 140% of a company’s float, and the company’s share price is down nearly 10x over the past ~5 years, it’s a terrible idea to short the stock even more.

Sure, GameStop’s business doesn’t have a great outlook and will die or have to change (eventually), but it’s still worth something.

So, Melvin Capital deserved the loss. This is what is supposed to happen when an investment firm makes a poor decision and doesn’t properly hedge itself.

If the government had bailed out the firm, I could understand the anger.

But since the capital came from two private firms – Point72 and Citadel – I’m not sure why people are “mad” at this hedge fund.

Silver Lake and Citadel Won the GameStop Short Squeeze

When these meme stocks finally melt down – and they will – retail investors who bought at the top are going to feel the pain.

Meanwhile, Citadel has earned a fortune from all this trading activity, even after accounting for their bailout.

Remember that a market-maker does not care if the stock price goes up or down – the market-maker wants as much trading activity as possible to make money with the bid-ask spread and commissions.

The other big winner was the tech private equity firm Silver Lake, which owned convertible bonds in bankrupt movie theater company AMC.

It made a nice $713 million after another short squeeze made AMC’s stock price rise 10x, which allowed Silver Lake to convert its bonds into equity.

The Ontario Teachers’ Pension Plan also made close to $500 million selling stock in a shopping mall owner (Macerich Co) following a similar squeeze.

But if you want, please ignore all the evidence and keep believing that these short squeezes represent David beating Goliath.

What Happens Next? What Does All of This Mean?

I’d summarize the sequence of events like this:

  1. Central banks run irresponsible monetary policy for decades by printing money and giving it to the wealthy, driving up asset prices and increasing wealth and income inequality.
  2. Young people lose hope for the future because they realize they’ll never own homes or start families unless they can win hyper-competitive jobs. That’s where I enter this story!
  3. Coronavirus comes along, and governments worldwide enact lockdowns and shut down the economy… for a virus with a 99.7% survival rate (Edit: OK, OK, more like 98-99% depending on the data you believe) that represents almost no risk to people below the retirement age.
  4. Companies use the crisis as an excuse to fire or furlough many employees, further depriving the younger generation of hope and meaning.
  5. Governments then bail out large corporations so that CEOs can become even richer while giving a few crumbs, such as $600 stimulus checks, to the peasants.
  6. The peasants cannot find any jobs, so they turn to day trading to survive.
  7. A few savvy investors realize that GameStop is heavily over-shorted and is ripe for a squeeze. They notify the peasant army on Reddit.
  8. The peasants start buying shares, and the big financial firms realize what’s happening and take advantage of peasant anger to make even more money – mostly at the expense of other big financial firms that made stupid bets.

The final step will likely be the stocks crashing and the peasant army losing their money, further driving desperation, suicides, and a declining birth rate.

Of course, politicians are too stupid to understand the bigger picture, so they will likely try to “fix” this problem with solutions such as:

  • “Let’s ban short-selling altogether! Short-sellers are evil.”
  • “We should require all broker-dealers to accept all orders, even if it violates our own laws that we wrote after the last crisis.”
  • “Let’s bail out all Robinhood users who lost money on GameStop! And then forgive student loans. No relationship.”

There is room for sensible regulatory change here.

For example, I don’t think firms like Citadel should act as both market-makers and hedge funds because of the obvious conflicts of interest.

Yes, technically, they’re “managed separately,” but the firm has been fined repeatedly for acting against clients’ interests.

Also, consider something like the rules in the Indian capital markets, which limit the maximum net position in any stock to 20% of its free float and also limit the sizes of positions that individual clients can take.

But since politicians are the dumbest humans on the planet, we’ll probably get a “solution” that makes the problems even worse.

GameStop Short Squeeze: Key Takeaways

In conclusion, we should continue the lockdowns and money printing forever.

Government policy worldwide should have three main goals:

  1. Ensure that all real businesses die and that all employees lose their jobs.
  2. Make as many young people as possible commit suicide.
  3. And for the ones who survive, give them enough stimulus money to become full-time day traders.

Trading stonks is more important than finding a good job, building products or services, raising children, staying in good health, or starting companies.

That’s because children, for example, eventually grow old and die.

But stonks can only go up forever in a straight line until the end of time.

Things that go up forever are good, but things that die are bad.

If you don’t have enough money to trade stonks full-time, one good option is to sell extra body parts, such as your second kidney (why do we have more than one, anyway?).

I recommend following Elon Musk on Twitter and the Wall Street Bets subreddit to get tips for the next meme stock or meme cryptocurrency.

Memes now drive intrinsic values because concepts such as “cash flow” are outdated.

Also, we are not in a bubble because the world’s richest person is pumping a fake asset in an unregulated asset class based on a dog’s meme.

And that’s a sign of a healthy underlying economy because all progress should be judged by memes, stonk prices, and fake assets.

Risk on!

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

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  1. Great article, and in normal times I wouldn’t be in AMC or GME for the reasons they were shorted. What I was hoping to see in your article was the games these Hedge Funds use. There is no way for anyone to tell if they’re naked shorts or ladder attacks but it seems to be the case with the data that is available to people. looking at the buy and sel orders on lvl 2 shows a pattern.

    The ladder attacks are supposedly using synthetic shares. Since they don’t really exist there is no taxes paid on the gains. This is what we’re talking about is the practices used by MM that seem untraceable and unregulated, combined with HFT / algo combo to outwit retail investors.

    Also since that fated day with RH restrictions on purchases both AMC /GME were heavily shorted and the charts are eerily similar. In addition to the most recent short interest data for AMC has figures altered from previous reports of these two companies by Finra. Finra’s explanation to the discrepancy was attributed to their internal reporting system. So the data for SI is halved. Yet for many other companies their data is unaltered.

    I’m shorting these with money i can afford to take losses on. I’m hoping these irregularities are investigated. I do believe MM should posses special rules but I believe they know how to break laws, because they can pay the fines which will be substantially lower than correcting their illegal behaviours.

    I avoid conspiracy theories to a fault, but on the surface none of this adds up. Most recently people have been getting delay messages trying to borrow shares of AMC, yet according to Finra’s numbers they should be plentiful.

    Who knows what’s going to happen but there is allot more to it if you put some time finding these nuggets on how this game is playing out.

    On a final note, would you think that markets would be managed better with transparency and accuracy if done through blockchains via smart contracts? I’m talking next generation blockchains similar to Polkadot. Cheers and thanks for your analysis.

    Tony

    1. Thanks. I’m not sure if the blockchain would solve these specific problems because everything would still have to integrate with legacy systems. It might improve some aspects of markets, but I don’t think it’s the magic bullet solution.

      Yes, there’s always more to the story, but these types of current events articles aren’t really the “core business” of this site. We provide career and recruiting advice, and I occasionally write about other topics when warranted. Investigative journalism can be fun, but I don’t have the time or budget to hire a team to do it.

  2. Can you clarify this point – “Therefore, if ~39% of retail volume in GameStop last week – and probably more than that – showed an even mix of buys and sells, day traders were probably not the primary force behind the stock’s increase”

    I don’t understand your logic. You mentioned that Citadel is responsible for 39% of all US listed retail volume, and that Robinhood routes more than 50% of its orders through Citadel. So, of the 39% of all US listed retail volume they are processing, some of that is coming from Robinhood (only 50% of Robinhoods total orders), and and even smaller percentage of that is from Gamestop. Given this information, how can we infer anything about the percent of retail volume in Gamestop that showed an even mix of buy and sells? I’m just confused to your point.

    Wouldn’t it be more helpful to look at total volume in Gamestop last week, and then look at what % was purchased in blocks of 5000 vs less?

    Thanks for your clarification!

    1. Did you see the rightmost columns in the table? Citadel processed around 30% of *all retail GameStop trades* in that week. So that includes trades not just from Robinhood, but also from the many other brokerage firms that use Citadel Securities.

      It is possible that the remaining 70% of retail GameStop trades looked completely different from the 30% here, but that seems unlikely because these represent trades across all online brokerage platforms. And, as far as I know, these brokerage firms randomize the trades that go to their market-makers based on contracts that award specific percentages to each one.

      So, unless these platforms decided to stop randomizing the trades they send to market-makers for GameStop in this one specific week, the 30% of total retail trades in GameStop here is likely to be representative of all retail trades in the market (even if the exact buy/sell percentages are slightly off).

      Yes, it would be better to look at total volume by share block size, but I don’t know where you can easily find that data, and I don’t have a Bloomberg subscription because I’m not an active trader. It would be even better to look at the retail vs. institutional split, but again, I don’t know who actually has that data or if they would even disclose it.

  3. Do you think we’re going to see an explosion of these “mini-bubbles” in random stocks over the next 5 years, or not so much?

    Is the party over, or is it just getting started?

    (Side note: I bought a handful of JAN 2022 GME calls with a strike price of $12 for $0.73 a little over a year ago… I sold them for $5.12 three months later :s)

    1. Yes, I think it’s very likely there will be more speculative bubbles in other random assets. I think we’re in the late stages of this market, but then I’ve also thought many markets overvalued going back to 2013, so maybe you shouldn’t listen to me. At this point, I think there would have to be some major geopolitical event like a war or invasion or nuclear launch or another pandemic to cause a crash.

  4. It seams that Citadel is flying under the Radar and throwing Robinhood under the bus, but the after close forced sale of the leveraged stocks to cover their cash reserves instead of a margin call to the stock holder was a poor call on Robinhoods part. It would likely be a deal to make the capital quickly, but it’s annoying to the public when a common shareholder losses out to a back room deal. See Sirius bank shorting buyouts. I assume there is a fine print clause that protects them, but I am interested to see if the class action lawsuit progresses. Great article.

    1. Thanks. Yes, Robinhood definitely deserves some of the blame here, and their perception has fallen so much that they might not recover from this one.

  5. You seem to have tried to understand the topic but bring up some contradictary points in your article. First, you claim that Citidel had to take on risk because of the dramatic increase in trades, but then you also say that Retail investers didn’t actually make enough trades to affect the price. So which is it? The fight between Wall Street and the proletariate isn’t a fight about money as you seem to assume. It’s a fight for justice. Why should big hedges be bailed out when they lose money because of their own braindead decisions. Yet retail investers who could have made money off the first spike were fucked, unlike big investers like Michael Burry who made upward of $270 Million. Your whole articale reaks of Liberitarian privilidge.

    1. Did you actually read this article / do you understand what market-makers do?

      Citadel Securities, the market-making arm, is not the one taking on most of the risk. They don’t care if a stock moves up, down, or sideways. They make money via the bid-ask spread, so they’re always buying and selling at slightly different prices than the retail orders that come through.

      Robinhood is the one that had to post higher deposits because of the flood of trading activity. This is because Robinhood has to collect the cash from customers and eventually use it to settle the trades. If they don’t collect that cash, trades cannot settle.

      But Robinhood does not *execute* these trades. They pass them onto Citadel and other market-makers and get paid for doing so, and then they collect the cash from customers.

      If this is a fight for “justice,” then you should probably ask what justice was served by allowing people on Reddit to be manipulated into trading by much larger hedge funds that took advantage of peoples’ desperation to make money.

      I agree that hedge funds should never be bailed out by taxpayer funds. But Melvin Capital was bailed out by private companies/individuals, not the government. If private individuals want to waste their money on a lost cause, go ahead.

  6. Hey Brian, great article. Just curious, what are your thoughts long term on the US stock market? All of this stimulus has to keep pumping it up, but at some point do you think it will collapse?

    1. I think either the stock market collapses or the dollar collapses; the only question is which one happens first. The catalyst might be something like China invading Taiwan and taking control of the worldwide semiconductor supply.

      Stimulus won’t necessarily work forever. Yes, it has worked to this point, but now the Fed is out of ammo… what are they going to do next, drop interest rates to negative 10% and print $1 quadrillion per month?

  7. But what about the other companies like AMC, Blackberry, Nokia, Named, and more? Were institutions also responsible for their increases?

    1. I don’t know offhand because I haven’t looked at the data in-depth there, but there were almost certainly institutions involved. Look at the news about the “winners” like hedge fund Senvest today. The degree of institutional involvement varies, but I doubt that any of these names would have gone up by the same percentage without at least some hedge fund / momentum / algo traders also betting on them.

  8. Thanks for the article, Brian.

    This event has largely shown the anti-intellectual movement in America today. Many people in the media, many people on Twitter, etc. think WSB is this brand new group that is about punishing the Wall Street class. I’ve seen WSB posts for a few months/year now. A lot of it has people taking risky option bets in positions and reporting to the forum their huge loss or gain. Interesting to read, but glad I never participate.

    The original WSB poster who posted this GameStop play had some great analysis and it was a well-reasoned position. Hedge funds got crowded into a short where there’d be limited liquidity. WSB users said, if we start buying deep OTM the call options, we can squeeze them… and it worked like a charm.
    But before you knew it, this trade was seen as a movement of the people, the unfortunate combination of America’s populist right and populist left thinking they were getting involved to crush the hedge funds.

    For years, our government has treated fiscal policy like a joke, the Federal Reserve has treated monetary policy like a joke, and sooner or later, that was going to lead to our market becoming a joke.

    Our government has been sending checks to people who dont need them, denying people social contact with other human beings, keeping children out of school (especially poor and minority kids who already are at a disadvantage) despite no evidence that’s whats best for them, and we have a Federal Reserve keeping rich people afloat and companies liquid at the expense at the most used currency in the World…. sooner or later, we need to recognize the negative consquences of these decisions. We’ve already seen some of them with angry riots over the summer and the dumpster fire in Washington DC a few weeks ago.

    Now, you have Congress, as if they dont have anything better to do, running around treating this like serious regulation is needed, regulation that will harm the retail investor, and empower those with too much power already. I dont short sell, I buy put options, but banning short selling would be a disaster. To me, the big culprit is Robinhood. They put a bunch of overlevered users on their platform while themselves limited liquidity. They dont preach long term investing like the other brokers do. They preach trading as much as its users can to just increase the fees Robinhood gets when they sell their data.

    Now, you have a lot of people losing money. Some of them hedge funds getting long, some of it people who were okay losing the money and taking the risk, but still a lot of people who bought when they shouldnt have and didnt understand the risk of doing so.

    I always appreciate your thinking. I havent seen much of this analysis in the media over the last week. People need to learn or the stupdity will just move to another issue.

    1. Thanks. Yeah, agreed on all of the above. Robinhood definitely deserves some criticism here, but I think the politicians will end up being just as stupid. I also think social media makes people dumber. The more I read and watched other videos about this, the more I felt like my brain cells were dying. Maybe I’m just too old.

  9. Hi Brian, very insightful article. I’m guessing this unnamed European country you’re living in must be Britain, given the sarcasm at the end!

    On another note, what about the other 0.3-2% of people who don’t survive the virus; shouldn’t we ‘do this for them’? And if it wasn’t for governments/central banks kicking in, wouldn’t more jobs have been lost and an even weaker economy as a result? Just trying to understand your viewpoint!

    1. The problem is that lockdowns do not really work if you look at the data for similar regions where one place tried lockdowns and the other remained relatively open. In the U.S., look at California vs. Florida for a good example. Both are large states with similar weather, but Florida has an older population, so it should be suffering more… especially since it remained open, unlike CA, which has had repeated lockdowns. And yet cases, hospitalizations, and deaths are much lower and have been much lower in Florida. You can find similar trends in European countries, but it’s not as easy to find directly comparable ones there.

      *If* it’s a small/isolated island country like New Zealand that can easily block its borders and it catches the virus early and it doesn’t mind staying shut forever, lockdowns can work. But that does not describe most of the world.

      Without lockdowns, far fewer jobs would have been lost. Yes, true, traffic to restaurants and bars and so on still would have been down, but these businesses could have at least stayed afloat even if they weren’t doing well.

      I’m not suggesting that we just let 1-2% of the population die, but there are much better ways to handle it. Like what?

      The main argument in favor of lockdowns seemed to be that “hospitals were getting over-crowded” or “there wasn’t enough space in ICUs.”

      Well, here’s an idea: instead of printing trillions to bail out companies and make the rich even richer, spend a fraction of that money to build new field hospitals and increase the capacity. Take everyone who lost their job and give them new jobs funded by the government: build capacity for more beds. They actually did build new field hospitals in parts of the U.S., but most went unused (???) according to what I read.

      If the argument is then, “But we don’t have enough doctors and nurses and we can’t train them quickly enough,” then yes, it’s true that money alone cannot solve that problem. But there are other solutions – for example, bring in medical students or residents to contribute. Or assign people who lost their jobs to some type of role assisting doctors that doesn’t require years of training. Or rotate doctors from areas with lower needs to areas with greater needs.

      We were going to have deaths no matter what, but printing trillions, ruining children’s lives and education, and laying off tens of millions of people was not worth the supposed benefits of lockdowns.

      Finally, even with the massive money printing in the U.S., tens of millions of jobs were still lost! Companies just took the bailout money and fired people anyway. I realize that other countries handled this more intelligently, but the end result is that unemployment shot up, the economy took a nosedive, and trillions of new dollars did nothing… except make people like Elon Musk and Jeff Bezos even richer.

  10. Impressively accurate. I love the sarcasm even though makes it less purely professional. Thank you for everything!

    1. Thanks! I don’t think a site with “Inquisitions” in its title could ever be perceived as *that* professional…

  11. lets get an article about the rothschilds central banking system that have enslaved every country with usury

    1. I’m somewhat conspiratorial, but I think that’s a bit too much even for me… plenty of good reading material on it, though.

  12. Perhaps because of my own personal context, but I think your posts on current events are by far the most enjoyable articles to read here on M&I. I could clearly see you as a top writer on Medium, for example.
    Keep up the good work

    1. Thanks. I do like writing these types of articles occasionally. Unfortunately, they generate almost no long-term traffic and no sales, so I can’t do it too often or the lights go out.

  13. That’s one of the funniest article endings I’ve seen of all time. Great work!

  14. I panicked and sold

    Seeing all the red on $GME today, I panicked.

    I was scared I would miss another dip, so I sold some of my green colored lines to buy $6k more $GME.

    I locked in my profits from other stocks AND lowered my average price per share on $GME. I’m literally Buffet.

    It’s called buy low sell high retards. No one is selling at this point.

    Selling now is literally the same as walking into a restaurant and paying for a billionaire’s lunch. Just venmo a hedge fund directly. You might as well go to one of their 8 homes, strip naked, and let them use you as a footrest. Let them call you good boy while you roll over and lick their shoes. For anyone selling now (which thankfully almost no one is), it’s humiliating.

    Buying now off the short ladder is buying another shorted stock which they HAVE to buy back from you at WHATEVER price you want.

    It’s the best feeling in the world. Empowering. Intoxicating.

    I’m touching my pp right now.

    Buy up their shorts.

    1. Sounds stressful. This is why I’m not an active trader… (just in crypto, occasionally, and that’s enough for me).

  15. Great article. However, I can’t agree with the alleged problem with Robinhood. How should they make money then? Just charging super tight bid/ask? If you look at the point of view of the retail investor, before these apps there was no way at all to trade small if you wanted. These guys came and offered a new service, but they need to get paid. If they are charging too much, then new competitors will show etc etc and at some point there will be an equilibrium.

    1. Thanks. I think they should either:

      a) Charge a small commission on trades, like brokers used to do; or

      b) Tell customers upfront that they will not charge a commission, but that in exchange, the customers will not necessarily get the best price on their trades and could end up paying $X more.

  16. The way I see it we will all soon be able swing through the McDonalds drive through order fries, a coke and round lot of gamestop shares.

    1. Sounds great! I hope Netflix starts offering GME shares with subscriptions as well.

  17. Don’t be so quick to absolve the elites of all wrongdoing. The NSCC is not a government agency but an industrial consortium of sorts. The formula they use to determine margin requirements for a given stock has a “discretionary” parameter that can be changed at will. Ken Griffin didn’t need to ask Robinhood to delist GME directly, he just could’ve told his buddies at the NSCC to raise margin requirements so high that Vlad didn’t have any other choice.

    1. Yes, that’s true, and it is questionable how the NSCC is set up between different financial firms. But if Ken Griffin actually did that, his decision affected many other brokerage firms as well since others also restricted trading activity. So… yes, it’s possible, and there are definitely problems with both Citadel and Robinhood, but I’m not sure it was a direct order from Citadel to the NSCC to increase margin requirements.

  18. Thank you Brian for providing a proper take on the whole situation. Everyone I talk to, and everything that I read (I.e. people who didn’t even know what stock was 3 months ago, but now seem to be market experts all of a sudden), are portraying this as some “David vs Goliath” fight between Main Street vs Wall Street. But in reality, it IS just Wall Street vs Wall Street, especially when you look at the top holdings for some of these companies, or the moves in the pre and after market.

    But I guess it lends to the bigger issue, as always: those new to the market, especially in a speculative bubble, don’t want to do any research for themselves, and just rely on whatever “story” is hot at the moment to “invest” (Sorry – gamble :)

    Love the sarcasm at the end as well.
    Please keep up the great work!

    1. Thanks. Yeah, it’s crazy how little people ask deeper questions about something “major” like this. The news is acting like it’s a national crisis, and everyone just accepts the story at face value.

  19. This a fantastic article. The best piece I have read on GameStop, and probably also your magnum opus, Brian.

    1. Thanks! I had fun with this one.

  20. Bravo, Brian, well done! I don’t think you went too far with the sarcasm….although a lot of dopes will probably send you emails whining about your lack of sensitivity. ?

    1. Thanks! It’s OK, if they get upset, I’ll just offer them a free Robinhood trading account or send them some DogeCoin.

  21. Really, really insightful article, Brian. Thanks a ton for writing. I’m sharing with my friends and family.

    Lots of great gems here. My favorites:

    “Coronavirus comes along, and governments worldwide enact lockdowns and shut down the economy… for a virus with a 99.7% survival rate that represents almost no risk to people below the retirement age.”

    “Meme’s now drive intrinsic values because concepts such as ‘cash flow’ are outdated”

    “Governments then bail out large corporations so that CEOs can become even richer while giving a few crumbs, such as $600 stimulus checks, to the peasants.”

    “Government policy worldwide should have three main goals:

    1. Ensure that all real businesses die and that all employees lose their jobs.
    2. Make as many young people as possible commit suicide.
    3. And for the ones who survive, give them enough stimulus money to become full-time day traders.”

    Gold Jerry, gold!

      1. Dave Portnoy is going to be livid when he reads this.

        1. I’m just glad he’ll still be more angry at Robinhood than me…

    1. Avatar
      myron l ison

      Thanks for sticking to the truth, instead of following the crowd.

      1. Thanks! Always happy to avoid the crowds…

  22. Best thing I’ve read all week.

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