Can someone please explain the Robin Hood Wall Street ruckus?

I second OP. Years ago someone explained the concept of short selling to me and I had a hard time comprehending it. I need a very basic, below Cliff Notes explanation.

The stonk market:

More like the STANK market.

You know that something is seriously ROTTEN in Denmark, when AOC and Ted Cruz are both on the same side, screeching about the stock market.

That's the part I don't get.

Professional traders were essentially placing bets that the price of GameStop stock would go down. Non-professionals worked together to buy stock and drive the price up to thwart the professional traders. The pros whined that the amateurs were "manipulating" the stock.

Thanks, R6.

No wonder Stephanie Ruhle was on MSNBC giggling this morning about how Wall Street pricks were INDIGNANT that these outsiders had dared come into THEIR territory and tried to beat them at their own game.

Apparently, Wall Street pricks seem to think that they're the only ones who can lie, cheat and steal.

But when others do it, they cry FOUL!

Typical fucking Deplorable cunts.

Short selling:

Apples today cost $1.00. You believe the price will fall, and you don’t own any apples. You borrow 500 apples from a friend and sell them for $1.00, pocketing $500. When it is time to return the apples you borrowed, you go to the supermarket and buy them for $0.50, costing $250. This leaves a profit of $250, or 100%.

[quote]Apples today cost $1.00. You believe the price will fall, and you don’t own any apples. You borrow 500 apples from a friend and sell them for $1.00, pocketing $500.

How do you just “borrow” 500 shares from a “friend”??

[Quote]Professional traders were essentially placing bets that the price of GameStop stock would go down

So placing the bets actually can influence a stock price's downward trajectory? This sounds like an illegal practice (yes, this is how naive I am about the market.) What's to stop some traders from ganging up on a company yo destroy it? Which sounds like what happened to GS.

That was my next question R9.

I can't understand how they "borrow". Do they go to the stock exchange and promise to pay $5.00 per share and then at the end of the day they have to pay for it? How does borrowing work in shorting a stock?

Ted Cruz worked for Goldman Sacs, no?

What a fraud, this guy.

[quote]So placing the bets actually can influence a stock price's downward trajectory?

It can drive the price up or down depending on how many people are buying or selling. When many people are buying, the stock price usually goes up. When many people are selling, the stock price will go down.

If you have a 401k or pension plan, and it's invested in stocks (which many are), you (and me) are royally screwed because the stock market can tank in an instant.

[quote] Ted Cruz worked for Goldman Sacs, no?

He actually worked for them? I just showed up, gave a few 10 minute speeches and collected a huge Goldman Sachs paycheck.

[quote]If you have a 401k or pension plan, and it's invested in stocks (which many are), you (and me) are royally screwed because the stock market can tank in an instant.

You shouldn’t be heavily invested in stocks if you’re close to retirement age.

Thank you, R8, you explained it just slightly above my level of comprehension but it is the most clear explanation yet and I think I understand now.

Christ, r15, give it a rest.

[quote] How do you just “borrow” 500 shares from a “friend”??

Stocks and other securities are fungible. You go to your investment bank who has the stock you need and they agree to put the shares in your account for an agreed period of time. You sell them and deliver to the buyer. At the end of that period you must return (or “cover”) the stock you borrowed. You go to the market, buy the shares (if you bet right, at a lower cost than you previously sold them) and transfer them to your bank.

Of course there are fees charged by the bank for the loan.

The “short squeeze” occurs because when you are running out of time to return the stock you borrowed, you have to buy it in the market no matter what the price is. Thus, people who have bought the stock (gone “long”) can take advantage of your “forced buyer” status. If a lot of traders have shorted the stock, a lot of buying will have to happen, even if the price is seen as too high.

Ready for Trading 102, OP?

Then there’s the concept of options, where you can place an option to buy (call option) or sell (put option) at a certain price if the market hits that price. You are not obliged to do do but can have said option. You usually do that to hedge yourself from any losses created by major market shifts.

What makes this especially juicy for those who started this plan is they got in on the ground floor, then convinced thousands of others to follow them and buy the stock (you know, to “stick it to the Man”), driving up the price and their own profits. Wall Streeters are crying out that this is blatant market manipulation, but are hard pressed to explain how it differs from what they do routinely.

Every time I've seen short selling explained it always starts with "You BORROW money to buy a bunch of stock...." That's what throws me off.

I can understand buying a lot of a company's stock (thus driving up the price), then selling it (causing the stock value to dip below what you originally paid for it), then buying it back at the low price, so you end up both with the stock you originally had and a profit from selling it at a price you artificially jacked up. But why does it have to be done with borrowed money? Is that to make it more evil?

R13, Ted Cruz's wife Heidi works for Goldman Sachs. You may remember her from when Trump called her ugly during the 2016 campaign.

[quote] Every time I've seen short selling explained it always starts with "You BORROW money to buy a bunch of stock...."

That’s not a short sale. That’s taking a long position. It’s just buying stock on margin.

You BORROW the STOCK. That’s the key.

Think of it this way. A normal trade is buy then sell. A short trade is sell then buy.

Wait R8, why would you got to the store and buy more apples when you've already borrowed some from your friend?

Nevermind I get it!

Of course, lots of you have been told to hate Watson.

But Watson has a clear view—

Think of the stock market as Sherwood Forest. The chairman of the NYSE is Prince John. The GameStop guys are Robin Hood and his merry men. Maid Marian is the short squeeze. Friar Tuck is the put option. Does that help, OP?

You know why most people can't understand R8's explanation, even though it's extremely simplified?

It's because it's inherently not fair and doesn't make sense to fair minded people.

I could never understand why the stock market always seemed so complicated to me. Nothing in it seemed "tangible" or "logical."

That's because it's not.

The stock market is gambling. Plain and simple.

That's why bookies and street hustlers can understand it.

It's a "civilized" form of street hustling.

Or in other words: A SCAM.

Here.

[quote] You know why most people can't understand [R8]'s explanation, even though it's extremely simplified? It's because it's inherently not fair and doesn't make sense to fair minded people.

There’s nothing inherently unfair about a short sale. It’s just a prediction about the market.

[quote] I could never understand why the stock market always seemed so complicated to me. Nothing in it seemed "tangible" or "logical." That's because it's not.

Or you’re not as smart as you think you are.

[quote] The stock market is gambling. Plain and simple.

Some people are just looking to make money. Others have certain risks in their future they want to protect against. To use the apples example, their are orchard owners and apple pie bakers who don’t want their businesses ruined if there’s and apple glut or an apple shortage.

You sound like an absolute creep, R32.

The type always looking to make a fast buck at the expense of others.

[quote] There’s nothing inherently unfair about a short sale

Elon Musk would disagree with you.

R31, that's HILARIOUS.

Oh, and here you go, OP. Shorts AND GameStop explained in an excellent concise tweet.

Thanks r34 thats a great very succinct explanation

Here's a question I have though. Why did it take a whole bunch of small investors to team up and take advantage of this vulnerability. Why couldn't huge banks or brokerage houses or even an extremely wealthy person have noticed the hedge fund's GameStop position and done the same thing? In other words why hasn't buying massive quantities of stock to force a short seller to cover been a thing that was routinely done up until now?

Thanks R34. That tweet makes me have hope for the future ... finallythe little guys fight back

It's too small at R34. I can't read it.

Is there a larger version?

I just don’t get the point of options. Why have an option to call or put when you can just put a limit order to buy or sell said stock at your target price?

Do we really think this idea is just something some Redditors came up with to stick it to the rich?

No way.

Someone else is behind this. Why? Because it will tank the stock market and the Economy.

But who? WHO?

I bet it rhymes with GYNA!

Thanks for that explanation R34 (and others' examples). Question: why do that instead of just buying stock and hoping it goes up? Is there a benefit to doing a short?

I like some results of the Reddit populists. Some of them will make money and it stick the institutional banks and actors who need a slap down.

However, middle class folks also have their IRAs in those hedge funds. Because they really don't have a choice not to have their money in Wall Street, because there are no company retirement plans.

The last time Wall Street tumbled, the rich didn't get hurt as much as the middle class did.

[quote] You know that something is seriously ROTTEN in Denmark

It's their cheese! They refuse to use preservatives!

[quote]Question: why do that instead of just buying stock and hoping it goes up? Is there a benefit to doing a short?

1) You can insulate yourself from a certain amount of sector risk. If you think Oil Company A is especially poorly managed, you can short it and buy Oil Company B. Then if there’s a big move in oil prices that negatively affects the sector generally, your losses on B are offset by gains on A.

2) Shorts increase your investment options. If you think a company is overvalued, you can use a short position to profit from your analysis. Shorts are not just done on stocks. Also commodities and currencies.

I wonder how long this will go on...now that the shorting cat is out of the bag, for the little guys (always done for years by bigger boys). These drops are not good for a portfolio, especially being retired. But then, I'm conservative in stocks...35%. Maybe, this will be a buying opportunity if it continues. I sort of like that this levels the playing field, in principle.