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Comment by jonplackett | Hacker News Reader

I’m seeing so much news about this but don’t understand what’s happening. Can someone do a recap?

Institutional investors were betting that GameStop (GME)'s stock price would fall, redditors were betting that it would rise. So far the redditors are winning.

Early on, the bets had some basis in reality, but now it's become more of a speculation game.

Yesterday, two of the big institutional investors decided to fold, effectively loosing 100% of their investments. Edit: or, potentially more.

The same thing has started happening to a few other stocks.

I linked to the Bloomberg Money Stuff column a couple of other places, but I'll post the links here too for a more thorough (and humorous) overview:

Monday: https://www.bloomberg.com/news/newsletters/2021-01-25/money-...

Tuesday: https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...

Yesterday: https://www.bloomberg.com/opinion/articles/2021-01-27/reddit...

>Yesterday, two of the big institutional investors decided to fold, effectively loosing 100% of their investments.

They can lose much more than the total value they initially invested into the shorts, since they have to buy back at several multiples of the price of the stock at the point they bought and they had heavy borrow costs too. That's why the hedge funds are at risk of going bankrupt - because they aren't only liable for the value they invested but they're liable for the whatever cost it takes to buy back the stocks they shorted.

You're correct.

The 100% number came from a video that someone at Citron Capital posted. I can't find the actual video, but it's quoted at https://www.bloomberg.com/news/articles/2021-01-27/melvin-ca...

However, I'm not sure about Melvin - they may well have lost more than 100%.

Users on r/WallStreetBets have rallied around buying stocks, like GameStop ($GME), that are heavily shorted by the market (generally by larger trading firms). This buying has driven the stock prices up very very quickly, because of the buying itself and other knock-on market forces (google: gamma traps, short squeezes). The players that were short have thus lost a lot of money on their bets. r/WSB has taken a lot of pride in this and using it as a rallying cry to keep buying. It's mostly bs - everyone just wants to get rich - but it's effective and making headlines.

It's quite simple really:

1. Big hedge fund bet against GameStop stock (shorted up to 140% of the stock, it's called naked short and everybody thought it was illegal since 2008 but that's another story)

2. Lot of small-to-medium investors coordinated over Reddit to take the opposite "bet" en masse (basically buying a lot of GameStop shares) so that the price will go up and "big hedge fund" lose a lot of money.

=> The plan worked. It's a first. Hence the news coverage.

Edit: Typos and formatting

This isn't a naked short.

A naked short is when you short a stock without first borrowing it. It is not the same thing as having shorts past 100% of outstanding shares, since a single share can be lent multiple times.

Thanks for the precision.

Which one is more insane?

Was/is there a risk of the redditors losing all their money / just as much money a the hedge fund? Or is it like the hedge fund were betting with worse odds so have more to lose (excuse my ignorance of how shorting works!)

Its twitter but this thread is a pretty nice summary https://twitter.com/MrBrownEyes2020/status/13545170672407715...

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