GameStop slid after those were in place, reversing a gain of more than 30 percent earlier Thursday. Robinhood limited the ability of traders using its app to buy the call options, for example. On Thursday, Robinhood, Interactive Brokers and others placed more restrictions on trading of GameStop and other stocks that have been caught up in the frenzy. Wall Street’s big players know a good opportunity when they see it. They’re the ones quoting Heath Ledger’s Joker character from “The Dark Knight”: “It’s not about money it’s about sending a message.”īut the aggressive maneuvers against the shorts aren’t necessarily limited to the amateurs. And others want to squeeze Melvin Capital, a hedge fund that was shorting GameStop. Some reason that GameStop’s shares are a good value. Slowly, the company gained the attention of WSB and traders who frequent the gamer-friendly social media service Discord. GameStop’s shares started to rise late last year, after the founder of the pet-supply site Chewy bought a stake in the company and got a spot on its board. But they also trade tips and analysis that can go on for pages. Wall Street Bets, or WSB, is where armchair traders gather to share memes, commiserate over losses and share more memes. You can put some of the blame on Reddit’s Wall Street Bets forum, one of the weirder places on the internet. Which means the brokers have to buy more shares, which means … you get the idea. That increases demand, which increases the stock’s price. If it goes high enough, the brokers who would be on the hook have to buy more shares, lest they get stuck having to buy a lot of expensive shares all at once. Normally, this small amount of demand doesn’t do much to the price.īut if enough traders bet big, the demand can push the stock up. To mitigate their risk, they buy some of the shares they’d need. The brokers who sell the options contracts have to provide the shares if the trader wants to exercise the option. (In practice, lots of traders just sell the options contract itself for a profit or loss instead of actually buying the shares, but this description suffices for our purposes.) If the price rises, the trader can buy the stock at a bargain and sell it for a profit. These bets involve contracts that give them the option to buy a stock at a certain price in the future. Some of these enthusiastic amateurs are buying shares of GameStop, but many are placing their own options bets, on the opposite side of the shorts. All this has been made easier by the free trades available through platforms like Robinhood and E-Trade. Some smelled opportunity after stocks tumbled last spring, some were trying to scratch a gambling itch after sports leagues shut down, and for some it’s just a game - trying to ring up dollars instead of points. Over the past year, armchair traders have surged into the market. The amateurs started driving up the price. Icahn - over the dietary supplement maker Herbalife. Usually, these kinds of standoffs involve sophisticated Wall Street investors, for example when Bill Ackman squared off against two other billionaires - Daniel S. This demand kicks the stock higher, and a short who acts too late could be ruined. Shorts have to close their position - that is, buy up the shares they owe their brokers and return them. But you can also lose if someone tries to push up the price by buying lots of shares, even though the company isn’t doing anything different. Enduring Meme Stocks: The frenzy that saw traders congregate on social media and push stock prices for companies like GameStop higher can no longer be explained as simply a pandemic phenomenon.What’s a family to do? There’s no one-size-fits-all answer, but you have options. College Savings : As the stock and bond markets wobble, 529 plans are taking a tumble.Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home.Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment.Our Coverage of the Investment World The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
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