Small Town Business Ideas Reddit – Real Estate Agent in Valparaiso, Ind. A former line cook from the Bronx. An evangelical pastor and his wife in Huntington Beach, California, a high school student in suburban Milwaukee.
They are among the millions of amateur traders who are collectively taking on some of Wall Street’s most sophisticated investors — and, at least for now, winning. Driven by a mixture of greed and boredom, hell-bent on teaching Wall Street a lesson, and fueled by an endless stream of get-rich-quick hype and ideas presented through social media, these investors piled into trades around several companies, pushing their stock prices to stratospheric levels.
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Some of the names come from an earlier business period. BlackBerry shares are up nearly 280 percent this year. Shares in AMC, the movie theater chain, rose nearly 840 percent. But the ad that captures the David vs. Goliath nature of the moment involves GameStop, the troubled video game retailer that was once a fixture in suburban malls.
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On Wall Street, individual investors are often derided as “dumb money,” destined to lose out to the highly compensated analysts and traders who buy and sell stocks for a living. But in recent days, individual investors — many of them followers of a popular, young-and-dirty Reddit site called Wall Street Bets — have corrected that narrative by banding together to pressure at least two hedge funds that have bet that shares of GameStop is going down.
While hedge funds and other professional money managers have been shorting GameStop, betting that their stock will fall further, retail investors — online merchants, mom-and-pop investors, small brokers and others — have pushed it the other way. . , buy stocks and stock options. That caused GameStop’s market value to rise to over $24 billion from $2 billion in a matter of days. Its shares are up more than 1,700 percent since December. Between Tuesday and Wednesday, the market capitalization rose over $10 billion.
Online tribal framing, like a kind of team sport that rivals the willing Wall Streeters, has been particularly useful in getting more investors to participate. This week, Tesla CEO Elon Musk promoted the trade by posting to a Reddit Twitter page. And speculation is mounting that other investors see new opportunities to push the stock even higher.
Ben Pate, 16, a high school student in Wisconsin who said he made $750 in GameStop stock, said the campaign felt like vindication for him and other young traders. “It’s a good opportunity to make money and stick it to hedge funds,” he said. “By buying GameStop, it’s like beating them at their own game.”
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No one knows how this ends. Some analysts say the intense activity could eventually trigger a broader market selloff by forcing hedge funds on the losing side of these trades to sell parts of their portfolios to raise cash to cover their losses. While this speculative frenzy played out on the market’s fringes, the S&P 500 fell more than 2.5 percent on Wednesday, its worst day since late October, as the Federal Reserve issued a dovish assessment of the economy and before a number of major tech companies announced theirs. earnings.
“What happens in stressful situations is that people are forced to make money, and that often means selling your winners,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn. “How does it end?” Bad. “After all, the bigger the balloon, the louder the pop,” said Mr. Sosnik. “When does it end?” I don’t know.”
On Wednesday, retail brokerage firm TD Ameritrade placed trading limits on GameStop, AMC and other stocks, citing “unprecedented market conditions.” And market regulators could step in.
Pablo Batista’s $4,000 stock investment grew to more than $67,000. “That’s ridiculous,” he said. “That’s crazy.” Credit… James Keivom for The New York Times
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Starting last summer, GameStop shares began to rise after an investment firm owned by Ryan Cohen — the founder of online pet supply store Chewy, whose stock was popular with retail investors — bought a stake in the company and joined its board. . Around the same time, some hedge funds were betting that GameStop’s stock would fall. The company was recovering from consumer shifts to online commerce and streaming, but the pandemic was further disrupting it.
Short selling works like this: An investor, anticipating that a stock’s price will fall, borrows shares of that company from another investor for a fee and immediately sells it, hoping that when the price falls, they can buy back the shares cheaply, return them the owner and pocket the difference.
It’s a dangerous trade. If the stock goes up, the short seller is exposed to theoretically infinite losses. (After all, stock prices can continue to rise, while they can only fall to zero.) For that reason, when a bet goes wrong, sellers rush to buy back the stock they borrowed because they can return it and to exit their trades – a process called covering.
That’s what’s happening with GameStop. As retail investors began buying its stock and options — many of them fueled by bets on Wall Street and other forums — its stock began to rise, forcing short-term hedge funds to buy back the stock they had borrowed for a higher price, which raised the share price itself. In Wall Street parlance, this is a “short squeeze”—a strategy that sophisticated investors sometimes use against each other.
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Over the past three trading sessions, GameStop stock has taken a wild ride. Shares of the $24 billion company, Wall Street’s most actively traded stock, changed hands on Wednesday, when shares rose nearly 135 percent.
Analysts say GameStop’s stock is not anchored by the underlying profit expectations that typically determine a stock’s value.
“Trading like we’re seeing at GameStop is humbling for those of us who adhere to the quaint notion that capital markets channel investors’ money to the most efficient and productive uses,” said Tyler Gelash, former executive director of the Securities and Exchange Commission. it is now run by the Association for Healthy Markets, a non-profit organization that promotes transparency in financial markets.
Pablo Batista is among those leading the rage. After the pandemic closed the restaurant in Midtown Manhattan where he worked as a line cook, he traded stocks from his family home in the Bronx. At first Mr Batista, 25, traded to pass the time during the lockdown, but has since become more serious as his $4,000 investment in stocks has grown to more than $67,000. actions together with former high school friends.
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“At this point, I’m overwhelmed,” he said of the $11,440 GameStop stock traded on Monday. “It’s ridiculous. It’s crazy.”
Almost since the invention of the internet, investors, traders and speculators have flocked online to exchange rumours, check their holdings and dump stocks they’re trashing. In the 1990s, such message boards were hotbeds of bullish conversation about the popular tech stocks that dominated the dot-com boom.
The current mania is reminiscent of the 1990s, except more viral and fueled by options trading. Since the pandemic hit, millions of Americans — many out of work or working from home — have opened brokerage accounts and started actively trading, helping fuel a market rally.
Retailers don’t just buy and sell stocks; they also buy options, which are a type of financial instrument that gives the holder the right to buy or sell shares. Brokerage firms have largely marketed options to retail investors because they are more profitable.
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And then there’s Wall Street Bets, a wildly popular Reddit forum focused on options trading that has become a kind of public think tank where retail investors loosely coordinate their collective buying power for targets that are likely to boost pop prices. In recent weeks, posts have begun appearing on the forum pointing to a large number of GameStop shares being shorted and specifically encouraging others to buy stock and options to move the price higher.
“Rally the troops, my brothers, for the war may be over very soon,” wrote a passing Guardian commentator on January 19. “You control the power, it doesn’t go to the GME moon, it goes to the edge of the [expletive] visible universe.” “
Such open calls on social media for investors to coordinate their behavior have struck many observers as bordering on market manipulation. On Wednesday, the S.E.C. The statement said it “monitors continued market volatility.”
Lawyers say platforms like Wall Street Bets are incredibly difficult to police, and it’s not clear there has been a violation of securities law.
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“If all it does is encourage people to get out and drive up the price, I think on the face of it, without anything more, I don’t think it’s illegal,” said Andrew Calamari, a securities attorney at Finn, Dixon & Herling . , and former director of the New York office of