(01-27-2021, 06:01 PM)Jags Wrote:

(01-27-2021, 05:50 PM)jagibelieve Wrote: It goes further than that.

In all reality there was probably not very many people that thought that a business like Gamestop would be successful and have the price of the stock "legitimately" increase.  In all reality this company as well as many others were pretty much on their way out.

What drove the artificial run-up is the fact that many institutional investors were expecting the company to fold and go under (which it still will) so they shorted the stock.

I'll give a VERY basic example.  Say company XYZ's stock price is $20 per share.  The company is not doing well and is on the verge of folding.  If somebody shorts the stock for say 100 shares it means that they are "borrowing" the stock valued at $20 per share thinking that it's going to go down so they essentially "borrowed" $2000.00 ($20 x 100).  When the price drops to say $10 per share they "pay their debt" by buying 100 shares, but since the price dropped from $20 to $10 they only pay $1000 and made the other $1000 from shorting it.  That's a VERY basic example of how shorting a stock works.

Cue the day traders/gamblers on Reddit, Facebook and other platforms.  They decide to buy the stock which drives the price up.  The stock goes to say $30 per share so the institutions that shorted it have to "pay their debt" and end up losing $1000 since "paying their debt" means that they have to buy their 100 shares at market price ($30 per share).  This in turn creates more "demand" for the stock so the price continues to go up and the cycle continues.

The problem is that as the stock price goes up, people "buy in" and drive the stock price even higher.  However, the business model of the company is such that it loses money and is going to fold.  When that happens, people that own the stock will find out that it's basically worthless.

Again, this is a VERY BASIC explanation of what is happening.  If it's just one or two stocks it's not a big deal.  When it starts happening to groups of stocks it is a bigger deal.

That’s a good explanation.  I understand what you’re saying except one thing.  Are these Reddit people artificially inflating it because it’s been shorted? Make money and screw some investor over? Is this something that’s mutually exclusive or no? one doesn’t need to happen for the other to happen, right?

That was a great explanation, comparable to the one I heard on CNBC today.

Yes, the investors on Reddit conspired to target companies that have been extensively shorted, knowing those that are taking the hit will need to buy more stock (as it is going up) to hedge their losses. As such they actually created a big time demand coming from the ones that got screwed the most.

The people that came up with this are math/finance wizards so I personally think it's ignorant to call the Reddit group of investors amateurs and such.

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(01-27-2021, 06:28 PM)jagibelieve Wrote:

(01-27-2021, 06:01 PM)Jags Wrote: That’s a good explanation.  I understand what you’re saying except one thing.  Are these Reddit people artificially inflating it because it’s been shorted? Make money and screw some investor over? Is this something that’s mutually exclusive or no? one doesn’t need to happen for the other to happen, right?

Just my opinion and guess.  I think that the Reddit people (and others) started playing a very dangerous game that they (as well as many others) will lose.  Sure some of them might make some money in all of this, but what is happening is heading towards another big crash.

Disagree.  The Reddit investors got in early.  The short investors came in later and drove the price up even further.  There will be a selloff but by that time, the Reddit investors already made a ton of $$.

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