Robinghood is playing more games today

[RainCaster]

The subReddit group WallStreetBets is livid today, because Robinhood sold out huge numbers of option contracts and stock positions without permission of the owners. Many other nasty bits of market manipulation have gone down here as well, if you believe the r/WallStreetBets group.

It turns out that the firm (Robinhood) is 40% owned by the same firm that owns the hedge fund (Melvin) who's being squeezed. The number of folks joining the class action is climbing rapidly. For a colorful look at this, check out @ClassActionRH on Twitter.

[Bernardo de La Paz]

1. You have it backwards. Reddit users are manipulating the market. Hedge funds are reacting

It doesn't matter that they are an unorganized group, though they have a base of operations and a megaphone.

The core of people who got the GameStop debacle rolling on Reddit are the manipulators. They might have already sold their positions or soon will.

The rest are suckers to this mania, which is unsupported by facts at these levels.
Many will get trampled during the coming rush for the exits.

Plus ... typo in Original Post title. If you proofread one thing, an OP thread title is a good one to pick.

[jorgevlorgan]

2. So hedge fund managers are allowed to short sale stocks and manipulate the price, and screw

Other Investors. But when it gets turned around it is suddenly a terrible thing?

[Bernardo de La Paz]

5. It's far from that simple. Selling stock, even short selling, does not "manipulate price"

Any sale affects price, but that does not make it manipulation.

Conspiring together and coordinating are manipulation.

[jorgevlorgan]

6. Traders coordinate with each other every day.

They are usually hedge fund managers, insurance companies and executives who coordinate to sell off a stock and drive the price down. But suddenly it is only an issue if average people are doing the same thing?

[Bernardo de La Paz]

8. Please point to credible evidence that this is as commonplace as you say. . . . nt

[jorgevlorgan]

9. It is common place enough that the SEC has had tons of cases where

People end up in prison as much of this has to do with insider trading. Insider trading is one form of market manipulation that is illegal and tons of this illegal practice occurs as ongoing SEC investigations show. Lots of this illegal activity will fall under the radar, but much of this activity can be considered legal -as politicians also engage in widespread market manipulation through the still legal insider trading that is allowed among them.

Shorting stock in the case of gamestop however is an incredibly risky tactic along with trading penny stocks like gamestop. Needing a 1.5 billion dollar bailout because they were constantly shorting stocks is not the fault of the investors who drove up an already volatile stock, but the fault of hedge fund managers who decided to use billions of other peoples' money to engage in a high risk activity equivalent to gambling.

[Bernardo de La Paz]

10. Insider trading in an illegal way is much rarer than you portray. And you keep making sweeping state

You keep making sweeping statements that you can't seem to back up.

as politicians also engage in widespread market manipulation through the still legal insider trading that is allowed among them.

"widespread manipulation"?

There is insider trading by politicians, though not as much is permitted as you insinuate. For example Senator Loeffler, though she may skate. But market manipulation? We're not talking about stimulus or broad tax changes that benefit a class or boost/save an economy, because that is policy. But market manipulation for personal gain or gain by friends and cronies.

Come off it. Widespread?

Please point to some credible evidence of market manipulation by politicians for personal or crony gain. If you can.

Then point to credible evidence that politician market manipulation is widespread. If you can. As you allege.



Re short-selling by hedge funds: Yes, risky and they were stupid not to manage the risk better. I think a bailout would send the wrong signal. Maybe partially bail out some investors but not the fund or the managers. It would send the wrong signal.

[jorgevlorgan]

11. Why do you need evidence that companies act in their self interest to legally manipulate currency?

They do enough illegal activity to manipulate currency but it is somehow far fetched to imagine that this is common practice among people who own millions of dollars in shares of specific companies?

The difference iss that with the wealthy,one person can manipulate an entire stocks price through a single trade. Whereas in this case, a group of people did it. But the latter is somehow worse than. The former?

Also you seem unable to justify why using other people's money to engage in high risk options trading and shirt ng of penny stocks is okay, but getting people together to buy a specific stock is not? The burden of prof here isn't on me. It is on the person trying to demonize large groups of people for participating the stock market, while ignoring the brazenly irresponsible actions of wealthy hedge fund managers, insurance companies and executives.

Why is it suddenly okay for wealthy people to essentially gamble with other peoples' money through options trading and shorting, but not okay for a group of investors to purchase the same stock?

[Bernardo de La Paz]

12. Why did we need evidence of "widespread election fraud"? We asked & none given. Nothing here either.

[jorgevlorgan]

13. You are justifying immorality and greed.

You also failed to acknowledge the point that one person can easily manipulate a stock's price with a a single sale while demonizing the "manipulation" of a stock's price through massive engagement among small investors.

Edit to add: the simple action of placing artificially large short prices is itself a form of manipulation. Just because one group got the better end of the deal doesn't make them any worse.

[Bernardo de La Paz]

16. Nope. Not justifying immorality. When you are greed free, announce it here on DU. . . nt

[jorgevlorgan]

19. Sure. That being said neither group here is worse than the other.

We can manipulate markets and stocks in a ton of different ways. Shorting stocks at artificially high positions is just one form of manipating the stock. Saying otherwise is insane.

[Bernardo de La Paz]

20. Stocks at artificially high positions SHOULD be shorted. Ultimately makes the adjustment easier.

A bubble is a bubble (artificially high position).

The sooner a bubble is deflated the less damage. Shorting deflates bubbles, but it is risky so it must be properly managed.

If the bubble grows much bigger, the pop is bigger and more people get hurt.

[jorgevlorgan]

21. You just described how these hedge fund managers manipulate the prices

In this particular case, they just lost at their own dangerous game. Shorting is always dangerous no matter what. They were playing with other peoples' money and you should never feel too confident that the bubble will or won't burst immediately.

[Bernardo de La Paz]

24. Nope. That is not "manipulation", same as buying it up to high prices is not manipulation

Manipulation is when you try to get other people to buy it so you can sell it at a higher price than you bought it at. By cajoling, blogging, touting, tweeting, wining & dining, etc.

Similarly, manipulation is when you try to get other people to sell a stock down to lower prices so you can can buy it.

Collusion and conspiracy is when you work together with other people to buy it so you can sell it at a good price. Similarly, colluding and conspiring with other people to sell it so you can buy it at a good price.

There are exceptional cases such as the manipulations of the 1890s and cornering the silver market.

But just like buying an undervalued stock at a low price is not manipulation, so selling an overvalued stock at a high price is not manipulation.

[jorgevlorgan]

26. Except most people are keeping the stock which is why the price

has not dropped dramatically. Throwing out the idea of collusion or conspiracy right out the window. On he other hand shorting it for a particular price point sounds a lot more in the category of conspiracy, especially if you have a disproportional amount of resources that regular investors do not.

[Bernardo de La Paz]

28. That's the problem. Most people who bought into the mania are holding and will be hurt

... holding too long.

Just as the hedge fund held the short position too long, so are these geniuses sucked in by the pumpers on Reddit going to hold their long positions too long.

[jorgevlorgan]

29. We will have to see if that happens before drawing conclusions

But in the end somebody can always get hurt, and average investors get hit far worse fromhe actions of hedge fund managers as they might through this kind of activity. The thing is though, penny stocks like this was, are highly volatile -that isn't a secret. People generally know what they are getting into whether they are reddit traders or hedge fund traders. Most exchanges even make some kind of disclaimer of the risk of purchasing and trading certain stocks.

I'm not saying the hedge fund managers are evil, but I am.saying the folks who seemed to do well through their collective power aren't, either. And right now, the focus seems to want to demonize the redditors who seemed to (so far) do well for themselves and others through this action.

[jorgevlorgan]

30. I also want to add that the redditors driving the prices up are not -as far as I know, planning any

sort of mass sell off through any large collective collaboration. The closest thing to that I've seen are posts going around encouraging people to sell no more than 10% at a certain price, buy at dips and hold everything else indefinitely. There seems to be no intention on wanting to hurt anybody in this process.

[A HERETIC I AM]

33. Can you please explain how you think a stock is sold short?

Because based on the following statement and others you have made in this thread, I’m not sure you have a proper understanding of how it’s done;

“On (t)he (sic) other hand shorting it for a particular price point sounds a lot more in the category of conspiracy”

Also, you repeatedly referred to GameStop as a “penny stock”. It’s not. GME has been trading on the NYSE for quite a while. Penny stocks do not trade on an exchange, they trade on the “Pink Sheets” or other over-the-counter markets. Otherwise they aren’t penny stocks.

Also, you have suggested options trades are risky. Without looking it up, can you describe the 4 basic options trades and say which is the least risky and the most risky

Because I am not sure you are clear on that either.

This isn’t meant to be so much a test, as it is a way to ensure anyone reading your posts could have confidence you are speaking on subjects for which you have a proper understanding

[jorgevlorgan]

34. Penny stocks are defined as anything under 5 dollars.

Until last week, that was the case with game stop: when hedge fund managers repeatedly were shorting it. Thanks for your condescension and read up on it of you do not understand yourself. Bye!

[A HERETIC I AM]

35. I am not trying to be condescending, I am trying to understand you

And for the record, I’ve held a Series 7 and Series 66 licenses. I’m betting my understanding is a bit deeper than you might think.

I am also host of this group, and the regular participants generally know me to be fair and knowledgeable. But I don’t know everything by any stretch, and I do not espouse on subjects with which I have a mere casual comprehension.

Of course, you didn’t answer my question. How do you short a stock? By what process? Do you think you can specify what price you want to short and then force the transaction?

This is not the “Economy Group”. We tend to stay away from hyperbole and strive for accuracy here. You are of course free to post anything you wish, but as host I will take the action I see fit to ensure discussions stay relevant to the subject matter and I will ban those who repeatedly violate or otherwise post contrary to the Statement of Purpose:

Discuss matters of personal finance and investing, share advice and ideas to improve your financial situation, and learn about personal finance and investing.

You can choose not to answer my question, and that’s fine. I have a feeling you won’t.


All the best, and may all your trades be net gains

[A HERETIC I AM]

36. You are correct, by the way....

On the definition of a “penny stock”, in that it can be defined as an issue that trades below five bucks. But you insinuate that it had always been thus with GME, and that is not true, as a simple search of share price history will reveal.

I was wrong in my previous post to suggest that all shares that would or could be considered as “penny stocks” do not trade on an exchange. My apologies for the inaccuracy.

[Bernardo de La Paz]

14. Stocks not enough. Now you make sweeping allegations about currency manipulation.

I don't see anyone here "demonizing people for participating in the stock market".

I don't see anyone here ignoring "brazenly irresponsible action of wealthy hedge fund managers".

I don't see anyone here claiming it is "not okay for a group of investors to purchase the same stock".

I didn't attempt "to justify why using other people's money to engage in high risk options trading and shirt ng of penny stocks is okay, but getting people together to buy a specific stock is not?" It's not my position and you can't deceptively pretend it is. At the least you are confused between what individual entities do (such as a hedge fund) and what groups do (such as cartels and conspiracies, even out in the open conspiracies).

Nice set of straw men you propped up there.

You don't win debates by trying to stuff words into other people's mouths. It's just a disgusting tactic.

[jorgevlorgan]

15. Now you are just stretching.

The fact is that the simple placement of artificially large shorts of certain stocks IS a form of manipulation. Just because one group got the better, doesn't make them any worse. Market squeezes happen all the time -if you have as much knowledge of the market as you act, you would know this. Just because regular investors were successful in doing the same thing regular hedge fund managers, ceos, are doing, doesn't make what reddit it's are doing wrong.

[Bernardo de La Paz]

17. I'm not stretching. Been pointing out YOUR stretches. Been asking for evidence, unsuccessfully. . nt

[jorgevlorgan]

18. Failing miserably

And ignoring every other facet of common sense in the process

[KPN]

32. Can't prove it, but I believe Trump manipulated markets with

his statements and their timing regarding tariffs and the Fed all the time. With everything else we know about him, it’s hard for me to believe that family and friends did not get inside information of his statements ahead of time. ... I am 70. In my years, market volatility and unpredictability was higher than any other period I can recall. Some of it was just more chaos and, I suspect, some was not.

[Bernardo de La Paz]

37. Yes, could be. A couple suspicious aspects to his moves

There were a few very large last minute Friday swings that were followed by dramatic Friday night news dumps.

There were some trade tariffs that might have had market insider trades.

We should expect volatility to have been high during the regime of the Worst President Ever, especially one that is also of the Most Bombastic Politician Ever.

[KPN]

38. Our retirement accounts were essentially flat performance-wise

The past 4+ years because of that volatility. Having experienced 1987, 2000 and 2008/9, and being retired and somewhat dependent on those funds, the frequent multiple percent swings, climbing walls of worry and several sudden corrections (usually related to Trump having said something) turned me into a capital preservation-oriented market timer. Since last March, we’ve been mostly in bonds and cash. It’s been a ridiculously worrisome 4+ years on so many levels. I yearn for boring stability.

Ps — all of this started with Comey.

[KPN]

3. Yeah. Someone is going to take the fall from all of this for sure, and it probably won't be the

initial instigators. At the same time, it's nice to see grassroots activism taking on Wall Street, especially the hedge funds, and actually making a dent. I have yet to see a convincing case that options trading is just investing and serves a purpose that benefits us all sufficient to defend it's legitimacy/legality. Sometimes simple is better. This is one of those cases.

[Bernardo de La Paz]

4. Options trading adds liquidity to a market. Wheat and hog farmers use them to reduce their risks,

... as just one kind of example.

[jorgevlorgan]

7. Options trading has always been considered a high risk investiment

Just because people rely on it doesn't mean they should.

[Bernardo de La Paz]

22. If you think it is ALWAYS high risk, you don't understand it. Further it is often in combination

Further, it is often in combination with more regular investments so that the combination is LOW risk.

Options includes buying and selling calls, buying and selling puts, strangles, straddles and other techniques. It is not just buying a call.

For example, options can be used to limit risk at the cost of capping upside potential. That is low risk use of options.

It seems you have a narrow view of options and it seems you think that options are inherently bad. If that is not so, then state clearly.

[jorgevlorgan]

23. General common sense suggests that all options trading, shorting, etc needs

To be done with extreme caution. Any portfolio I have that involves shorting, or options trading is considered a high risk portfolio. Why is that? Does trowe price not understand how those things work?

[Bernardo de La Paz]

25. If caution is required that does not make it evil. . . . nt

[jorgevlorgan]

27. Right. It makes it risky.

[KPN]

31. Options are to easy to be and get abused all the time ...

because they are legal. They do make sense with commodities, especially renewable commodities. What is their social benefit when it comes to GameStop or, say, Tesla?