Isiah 1:17- Learn to do well. Seek justice, Relieve the oppressed, Judge the fatherless, Plead for the widow.
[VIDEO] Whittle takes a look at this short selling of certain stocks going on thanks to Reddit's WallStreetBets. He sees this for what it is, intentionally irrational behavior striking a blow against Wall Street and the hedge fund managers. And like myself he doesn't quite understand how it works.
The idea of this is fascinating, and while the focus of this article from The Verge is Game Stop - a place that I once patronized but stopped because I no longer found used NES games for sale there - I see this has affected companies like AMC Theaters and Bed, Bath & Beyond. All the same I'm still not clear on the concept of a short and when I hear of a short in a financial sense I think of the film The Big Short which sought to explain the mortgage crisis of the late 2000s.
Here's a brief explanation:How r/WallStreetBets gamed the stock of GameStop https://t.co/4Ld6nxgbHf pic.twitter.com/4rDh4HiDBl
— The Verge (@verge) January 28, 2021
If you think GameStop will fail and the stock will go down, or even that the company will go bankrupt, there’s a way to make money on that. Typically, this is done by short selling — a practice where you borrow shares for a fee and sell them for (ideally) a high price, then buy them back at (ideally) a lower price to return them. This can make you a lot of money, especially if the company goes bankrupt and you don’t have to return the stock!
The thing about short selling, though, is that you lose money if the stock goes up, and your losses are potentially infinite if the stock keeps going up. There are several other bad things that can also happen, such as an increase in fees or the original investor wanting their stock back. This means some shorts will be forced to “cover,” or buy the stock back at a high price, which sends the price even higher.
Right now, more people are betting against GameStop than betting it will succeed. “Short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding,” Matt Levine of Bloomberg points out. Some people will notice that kind of thing and think, Hm, this stock is prime for a short squeeze! Basically, because so many people are short, it may be possible to trigger a chain reaction where you buy enough stock to send the price up, forcing some shorts to cover, sending the price up further, forcing more shorts to cover, and so on.
For retail investors, this process has gotten easier and cheaper because of apps such as Robinhood. In addition to letting you buy and sell stock, you can easily buy an option for stock, instead of the stock itself. If you are feeling confident in a stock, you can buy a call option — which lets you buy a stock at a specific price on a specific date.
My head is spinning on this explanation. However, by my eyes it's almost a scam. For those smart enough to play this game, well done..
