The Reddit Rebellion: Gameplay and Melvin Capital – Glenn Greenwald
- Total Posts: 4,544
What Glenn is describing as Short Selling is selling stock options when one expects the price to fall. In other words a Hedge Fund sells an option to another investor to purchase the stock at say $20 per share at some future date. The Hedge Fund expects the stock price to fall. So, if the stock price falls, the Hedge Fund then gets to keep the money for which they sold the stock option because the investor will not exercise the option and demand the stock which has fallen in value.
However, if the stock rises in value, the Hedge Fund is now obligated to transfer the actual stock to the investor at the agreed price of $20 per share even though the stock value might be selling at $40 per share or $400 per share. This leaves the Hedge Fund in the problematic position of finding shares in the public stock market at the higher price that can then be transferred to the investor who is eager to own a stock purchased at $20 per share and is now valued at $40 per share. The investor can then sell their newly acquired stock at $40 per share and pocket the difference of $20 per share.
So, with Gameplay, small investors noticed the huge short options sold by large Hedge Funds. As a group, the small investors then turned the tables on the Hedge Funds by purchasing thousands of shares of Gameplay pushing the stock value above say $20 per share. This left the Hedge Funds to scramble to purchase actual Gameplay shares as the options came due and investors demanded the actual more valuable shares.
This led to billions in loses for the Hedge Funds that now had to buy actual stock shares at the new higher price. It also drove the stock price higher as fewer stock shares were available for sale and the Hedge Funds scrambled to cover their short stock options. The small investors were then happy to sell their newly more valuable shares to the Hedge Funds soaking the 1% for billions.
(A key point is that one can sell a stock option without actually owning the stock beforehand. As a short seller one only has to to transfer actual stock to an investor when the option comes due and the investor actually wants to take possession of the stock.)
“Those who make peaceful revolution impossible will make violent revolution inevitable."
- John F. Kennedy
"The further a society drifts from the truth the more it will hate those who speak it."
- George Orwell
"It is no measure of health to be well adjusted to a profoundly sick society."
- Jiddu Krishnamurti
"Sometimes a pessimist is only an optimist with extra information."
- Idries Shah
"A riot is the language of the unheard."
- Martin Luther King
January 29, 2021 at 5:32 AM #399114
January 29, 2021 at 8:52 AM #399139Cold Mountain TrailParticipant
- Total Posts: 12,932
But even as the crusade continues, this isn’t a simple story of the little guy winning. The entities that own the majority of GameStop stock are also humongous investment firms and private equity. These entities, such as Fidelity and BlackRock, all own millions of GameStop shares each. Individual day traders spending a few hundred or thousand dollars on GME stock are making a bit of much-needed money, but these institutional funds’ positions are now in the billions.
Take BlackRock, the massive investment fund which seems to own a chunk of every company, including 13.2 percent of GameStop. BlackRock owned about 9.2 million shares worth about $174 million in December 2020 according to an SEC filing published on Tuesday. That stake is worth about $3.1 billion right now…
But wait, there’s more. As short sellers scramble to cover their position, an investor like Blackrock is in a good position to help with something called securities lending where “mutual funds lend stocks or bonds to generate additional returns for the funds.” If you are a short seller that needs to cover your position, you can always ask BlackRock to borrow some of its GameStop shares, pay them a fee, and offer up collateral equal in value to the market value of the loaned GameStop share.
GameStop’s other big investors are also seeing their positions rise in value. Board member Ryan Cohen—who paid roughly $76 million for his 13 percent—is also sitting on a stake approximately worth $3 billion. There’s also Donald Foss, founder and former chief executive of subprime auto lender Credit Acceptance Corp. He bought 5 percent of Gamestop last February for $12 million, it’s nearly worth $1.2 billion now…
At the end of the day, the stock market is still a glorified casino with none of the aesthetic value. That means you can walk out of there with $1 million, $100 million, or $10 billion, but as long as the house is still standing, the house is still winning. And if you look at the investors for these companies, it is very clear the house is still standing.
BlackRock, Inc. is an American multinational investment management corporation based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world’s largest asset manager, with $8.67 trillion in assets under management as of January 2021. BlackRock operates globally with 70 offices in 30 countries and clients in 100 countries. Along with Vanguard and State Street, BlackRock is considered one of the Big Three index funds that dominate corporate America…
In March 2020, the Federal Reserve chose BlackRock to manage two corporate bond-buying programs in response to the coronavirus pandemic, the $500 billion Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF), as well as purchase by the Federal Reserve System of commercial mortgage-backed securities (CMBS) guaranteed by Government National Mortgage Association, Federal National Mortgage Association, or Federal Home Loan Mortgage Corporation.
In August 2020, BlackRock received approval from the China Securities Regulatory Commission to set up a mutual fund business in the country. This makes BlackRock the first global asset manager to get consent from China to start operations.
….No one sees any problem here? While you’re cheering for the flameout of the anonymous ‘short sellers’, the biggest guy in the room concentrates more power & wins?
How’d that happen? And what else is on the menu? And who;s using who to do it?
January 29, 2021 at 1:41 PM #399170GZeusHParticipant
- Total Posts: 4,376
It was a tug-of-war between the big investors, before the small investors picked a side and that was enough to pull the other big investor into the mud. The fact that small investors ended up on the winning side is unusual. Wall Street will be coming up with new rules to fix that problem (for them).
Corporate America consists of totalitarian entities laser-focused on short-term greed.
If you just got finessed into calling the medicine that won the 2015 Nobel Prize for its role in treating human disease ‘horse de-wormer’ then you need to sit the next couple of plays out.
January 29, 2021 at 7:05 PM #399260Cold Mountain TrailParticipant
- Total Posts: 12,932
David v. Goliath is more about:
Melvin Capital: 12.5 Billion in assets under management
BlackRock: 8.6 Trillion in assets under management
You know how much bigger a trillion is than a billion? Or how much bigger a billion is than a million? BlackRock controls more than the GNP of every country in the world but the US & China. Melvin is an ant in comparison. Not a battle between 2 ‘big investors’ going on here.
–The world’s biggest fund manager, BlackRock, has become an increasingly influential player in Washington, DC.
–The firm’s global head of sustainable investing is set to head Biden’s National Economic Council, and a former advisor to BlackRock Chief Executive Larry Fink will serve as a top official at Treasury.
–Meanwhile BlackRock’s global chief investment strategist, who worked in the Obama administration before joining the firm, is going to be chief economic advisor to Vice President-elect Kamala Harris.
–Here’s a rundown of fast facts you need to know about BlackRock.
- You must be logged in to reply to this topic.