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Wall Street Bets vs. Billionaire Hedge Funds


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Junior Supervisor

Junior Supervisor

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The french revolution of finance is in works, I'll be dissecting and explaining this phenomena along with the positions won by myself and others apart of this subreddit. For those of you unfamiliar WallStreetsBets (WSB) is a popular subreddit for investors that want to "bet" against Wall Streets positions using call options and put options trading (guessing the price of a stock tomorrow, or on a set date: guessing correctly nets profit) 

The beautiful thing about this movement is it's not a movement with any one representative point of view. It's more of a public gathering where if one person has an idea and it's well thought through, it gets upvoted and awarded. It's truly democratic and decentralized. IT is an anti-establishment of what financial fiscal operations hold dear on Wall St. and the money that is behind our beloved fortune 500 companies. 

The $GME phenomenon started exactly this way, when a few people including Michael Burry (Big Short fame) noticed that it was trading ridiculously below book value. Others on here took notice and believe it or not, did thorough due diligence (I encourage you to use the "DD filter" and see some of this, it's pretty incredible work) with financials laid out and then wrote posts about it. When Chewy founder Ryan Cohen took on a large position and became another activist investor with a grand new vision, more people on here noticed and saw not only and undervalued asset but one with actual explosive growth potential given the gaming sector growth.

Then people here took notice of the fact that 148% of the float was sold short (still a bit hazy on how this is legal) and did what Wall St. and the mainstream media didn't do, they looked and saw the audacity and greed of a few funds who thought they could never lose, were completely over leveraged and then acted on this public info and posted about it. More people in the subreddit noticed and more people acted.

This is done everyday by hedge funds behind closed doors. The only thing WSB did differently is that they did it out in the open and without insider information. Completely legal, completely sound. 

https://www.reddit.com/r/wallstreetbets/ ]

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I've been trying to understand all of this that happened because it is exciting to see how much power, we the people have. The fact that Robinhood and other trading companies stopped trades for multiple tickers like $GME, $AMC, $NOK and a few others, makes me wonder how these companies have the ability to stop trading just because it isn't going their way. I know you are more in knowledgeable in this area and maybe you can explain this more. Even buy Dogecoin was stopped for a short time.

 

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Junior Supervisor

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3 hours ago, Nemesis said:

I've been trying to understand all of this that happened because it is exciting to see how much power, we the people have. The fact that Robinhood and other trading companies stopped trades for multiple tickers like $GME, $AMC, $NOK and a few others, makes me wonder how these companies have the ability to stop trading just because it isn't going their way. I know you are more in knowledgeable in this area and maybe you can explain this more. Even buy Dogecoin was stopped for a short time.

 

I think it'll make sense after I explain first why these stocks hurt hedge funds. 

What Is a Hedge Fund?

Hedge funds are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

For more definitions and most other investment help, I recommend using [ https://www.investopedia.com/ ] the first tab is an education tab, that entire section can save anyone from making poor decisions in todays market. 

Back to explanation of ongoing events. 

Gamestop's stock had been falling for six straight years. Many professional investors had bet that this decline would continue.

In such bets, called "short sales," investors borrow a share and sell it. They are then obliged to buy back the borrowed share at a later date. The bet pays off if the price drops in the interim period, meaning the traders can pocket the difference. This is basically betting that the company will fail and the stock will go down. 

Both Melvin Capital Management and Citron Research placed such bets, heavily. GameStop was one of the most shorted stocks on Wall Street. 

When users of the Reddit threads like r/wallstreetbets realized this, they saw a way to profit at the pros' expense by buying up GameStop stock, they were able to ruin the short positions held by the hedge funds. The WSB investors posed such a serious challenge to well-known hedge funds costing them a reported $23.6 billion this last month alone. 

This in turn forced hedge funds to cut their losses post-haste, liquidating their contracts by buying back shares they owed in the company and selling them one last time. Done en masse, this sent the already-overvalued stock prices soaring higher still, ready for the amateurs to sell their papers and cash in. 

 

Now for the fucked up part and why does tickers are frozen on Robinhood. Melvin Capital Management is owned by Citadel LLC according to a Bloomberg report, gave Robinhood 40% of their revenue and a constant $39 million dollars of Robinhood’s revenues from equities and options order flow came from Citadel Securities, a market maker sister firm of Citadel. At the time, this represented more than 35% of the trading platform’s revenues.

Whether this case can be proved to be market manipulation in a court of law has yet to be determined, but allegations on social media are abundant. Many are looking for communications between these hedge funds and Robinhood prior to the restricted trades that would prove Citadel "encouraged" the trading platform to play ball or that Robinhood gave them notice of its intent to stop buys for GameStop and others. Its blatant disrespect and a class warfare for anti-competitiveness in the markets. 

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Junior Supervisor

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Sorry that was very long, I hope its easier to read here than over Discord. As for Dogecoin it is a meme crypto, my view of cryptocurrencies is slightly different, you want to invest in those that have a future, that could be used as a monetary commodity (buying a car in bitcoin for example) Dogecoin is a pump and dump meme/scheme because the more people dog pile into it the higher it will rise for the top earners to sell off their positions making a quick buck. 

You'll notice it'll climb then stop and dip down for a little that is where people sold off some of their coin. The nice thing about crypto. is that the blockchain is transparent so that kind fo stuff everyone will get to see and take action on. 

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7 hours ago, Shawn4Japan said:

Sorry that was very long, I hope its easier to read here than over Discord. As for Dogecoin it is a meme crypto, my view of cryptocurrencies is slightly different, you want to invest in those that have a future, that could be used as a monetary commodity (buying a car in bitcoin for example) Dogecoin is a pump and dump meme/scheme because the more people dog pile into it the higher it will rise for the top earners to sell off their positions making a quick buck. 

You'll notice it'll climb then stop and dip down for a little that is where people sold off some of their coin. The nice thing about crypto. is that the blockchain is transparent so that kind fo stuff everyone will get to see and take action on. 

In your opinion what are some of the safest dividend and cryptos to invest in? I’ve been told before that Ethereum and Litecoin have potentials.

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55 minutes ago, Mr Morris said:

In your opinion what are some of the safest dividend and cryptos to invest in? I’ve been told before that Ethereum and Litecoin have potentials.

Meant to say stocks there, typed that paragraph half asleep. 

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I remember when Ethereum was $7 and Litecoin was $1.... Back then I was too scared to buy thinking that it was just a crytpo phase. Ethereum is now ~$1300 and Litecoin is ~$135..... 

 

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Junior Supervisor

Junior Supervisor

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On 1/29/2021 at 6:09 PM, Mr Morris said:

In your opinion what are some of the safest dividend and cryptos to invest in? I’ve been told before that Ethereum and Litecoin have potentials.

I am not legally allowed to financially advise you, I am not also advising you in anyway when it comes to any post related. 

My personal favorite high dividend stocks have been in the real estate industry. Macerich (which is also being shorted, although not at the extent of Gamestop) is a favorite. They had nearly 15% to every share, at one point I was getting rent in dividends alone. I liquidated my position because I'm moving from Robinhood to a different broker but I'll then likely buy it again when it dips down a bit. 

For Crypto I like something that is secure, widely accepted and usable i.e. buy pizza in BTC or even getting a car just in BTC. BTC will always be the best coin, I think everyone should pile into it no matter how small your investment is. It should be treated like a ROTH IRA. 

But understandably it is a higher buy in than most others. BTC derivatives that are cheaper tend to follow the trend of its parent (BTC Cash, BTC Satoshi Vision and others) ETH is very similar to what I describe and is a lucrative position for the long run. Between the two the gains are comparable. ETH also has derivatives like ETH classic. 

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Junior Supervisor

Junior Supervisor

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20 hours ago, Nemesis said:

I remember when Ethereum was $7 and Litecoin was $1.... Back then I was too scared to buy thinking that it was just a crytpo phase. Ethereum is now ~$1300 and Litecoin is ~$135..... 

 

Yeah I always wish I bought more of everything. 

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Junior Supervisor

Junior Supervisor

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I actually don't know anything about Litecoin, when I got into crypto before it was more about privacy and fighting the ever watching eye of the gov't. I went towards Dash/Darkcoin and Monero as they provided that anonymity I wanted. Even though now its been a pain, moving to Japan it heavily regulates these two coins but openly accepts most others. 

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