Reddit's Profane, Greedy Traders Are Shaking Up the Stock Market (bloomberg.com) 99
Bloomberg's Luka Kawa reports on the tips and tricks members of the r/wallstreetbets subreddit are using to push prices on the stock market, at least for the short term. Here's an excerpt from the report: The do-it-yourself traders of r/WSB are waging a kind of guerrilla warfare in the markets, trying to exploit what they see as weaknesses in the system to move prices where they want them. For anyone who wondered about where the small day traders who made the 1990s so wild went, meet the 2020 version. After years of indifference, individual investors seem to be finding their way back to stocks, for better or worse. They're flexing muscles in ways that can easily call to mind excesses from the dot-com era.
Members of r/WSB believe they've discovered a kind of perpetual motion machine in the interplay of stocks withÂoptions contracts, which offer a cheap way to bet on whether shares will rise or fall without buying the stock itself. It goes like this: Members make bets that rely on market makers, the professional middlemen who sell you a call (a bet on shares rising) or a put (a wager on a decline). Market makers, like good bookies, don't want to go out on a limb. When taking a bet, they lay off the risk. If someone buys a call, for instance, speculating on a rally, the dealer buys stock in the underlying company. If the stock rises, the dealer may have to pay out on the option -- but that's offset by the gain on the shares. When shares keep rising, managing the hedge entails buying more stock. That's where the Reddit set perceives a weakness. A favorite tactic on r/WSB is to swamp the market with call purchases early in the morning in an attempt to force dealers to keep buying stock. Up and up everything goes -- supposedly. As the stock price rises, so does the value of the calls, often by far more...
Members of r/WSB believe they've discovered a kind of perpetual motion machine in the interplay of stocks withÂoptions contracts, which offer a cheap way to bet on whether shares will rise or fall without buying the stock itself. It goes like this: Members make bets that rely on market makers, the professional middlemen who sell you a call (a bet on shares rising) or a put (a wager on a decline). Market makers, like good bookies, don't want to go out on a limb. When taking a bet, they lay off the risk. If someone buys a call, for instance, speculating on a rally, the dealer buys stock in the underlying company. If the stock rises, the dealer may have to pay out on the option -- but that's offset by the gain on the shares. When shares keep rising, managing the hedge entails buying more stock. That's where the Reddit set perceives a weakness. A favorite tactic on r/WSB is to swamp the market with call purchases early in the morning in an attempt to force dealers to keep buying stock. Up and up everything goes -- supposedly. As the stock price rises, so does the value of the calls, often by far more...
Pump and dump? (Score:4, Insightful)
Like saying the ability to rob people is a weakness in our monetary system.
Re:Pump and dump? (Score:5, Insightful)
The SEC will have their day with them, because they don't have the funds to buy high-powered lawyers.
The number one rule is that someone always gets paid.
And if you don't pay the government, you pay criminals to keep your operation going. Someone always pays. Always.
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The SEC will have their day with them
Oh yeah they will. But I'd put a shiny nickle on Robin Hood being who they go after first. It'd get messy attempting to go after every Redditor.
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Well, not going to happen during the TRUMP admin. He is going out of his way to *undo* _everything_ commonsense Obama did.
Wasn't it Obama who relaxed the regulations?
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Wasn't it Obama who relaxed the regulations?
What?! No. Does removing regulations even remotely sound like a thing a Democrat would do? Seriously?
Re: Pump and dump? (Score:1)
"Does removing regulations even remotely sound like a thing a Democrat would do?"
Only if the regulations protect the public from corporate profiteering. If the regulations protect the profiteers, of course the Democrat face of the Establishment Party will keep them in place.
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Whoever the loser will be, is the one who will be sharing a cell with Bubba.
Re: Pump and dump? (Score:1)
Nah. Why go after a startup owned by some Old Boys, when instead you can stomp a few plebs under the iron boot? Make an example of them! Yeehaw, toss 'em all into the gulag!
Re:Pump and dump? (Score:5, Insightful)
It's like the old movie "War Games" - the only winning move is not to play.
All of that is about people who are misusing the markets as if they were casinos. Myself, I'm more of the Buffet school - you're buying fractions of a business, with an expectation of a long term payoff based on the success of that business, not a payoff based on a spin of the roulette wheel.
Only winning move is to HAVE BETTER INFORMATION!!! (Score:2)
You can beat the system from now until the end of time IF YOU HAVE BETTER INFORMATION THAN ANYONE ELSE.
The big tactical question is how you launder [and/or create] quality information without going to prison.
But if you know what's coming [even if it's just a pseudo-crisis of your own creation], and if no one else knows what's coming, then you pwn them.
BTW, that's how guys like Soros & Bloomberg & Simons got to be wort
Re:Only winning move is to HAVE BETTER INFORMATION (Score:5, Informative)
I believe that where they fall afoul of the law is in their efforts to buy or sell financial instruments together as a collective, in an explicitly stated attempt to manipulate the market prices of those financial instruments (cf. r/wallstreetbets for evidence).
Buy or sell all you want. But you can't go around claiming to have information that it will rise or fall and prop that up with your buying or selling activity... the SEC themselves say this:
Often the promoters will claim to have “inside” information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money.
Re: Only winning move is to HAVE BETTER INFORMATIO (Score:1)
"I believe that where they fall afoul of the law is in being commoners with no Ivy League connections"
FTFY
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I meant to reply to the GP, not your post, sorry about the misalignment.
We're in different situations (Score:3)
Actually if you're in a different situation, you can have a different value.
If 2 people look at the same stock, but they have different time horizons, risk tolerances, costs of capital, discount rates etc it they could end up with different valuations.
Whats right for me, might not be right for you.
There are valid reasons for options.
But if someone wants "free money" by taking advantage of someone elses bad strategy, more power to them. Squeezing inefficiencies out of the market is a good thing for most inve
Re:Pump and dump? (Score:5, Informative)
The author of the article does understand anything about the culture of wallstreetbets. None of those guys think they are market makers. That element of it is all 'shit posting.'
They are buying the options contracts for the same reason anyone else does. Leverage! I can't afford to buy more than 1000 shares of so of AMD at nearly $50 a share. Suppose I believe its going to 51. I have two choices.
Choice 1) invest 50K and potentially make 1000. Of course I could be wrong, the news tomorrow morning might be AMDs headquarters is the COVAD-19 hot site. Fundamentally there is almost always more potential downside than up looking at short term long equity bet. Which is not say the probability of gain might be higher if you have done your due diligence or (DD if you are wsb guy).
Choice 2) I could spend 2500 and buy a whole lot of slightly out of the money call options. If I am right and the stock goes up; I'll make a mint. If I am wrong the options might expire and l'll lose the entire 2500, but contrary to the scare stories your highschool business class fed you odds are pretty good if you are paying attention you can sell those contracts early if it does not look like they will hit the strike price to someone who is willing to truly take a flyer, for a fraction of what you paid of course but anything you get back is better than nothing obviously.
Re: Pump and dump? (Score:2)
Because markets generally trend downward? Because stocks can trade at negative prices but are capped on the positive side? What a strange thing to believe.
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He said:
short term long equity bet
You said:
Because markets generally trend downward?
You are talking past his point.
The long-term trends are not relevant here. In the short-term, stocks go up and down all the time.
There's so much "noise" in the short term that there's no way to know where a given stock will land on a given day, unless you know something big that will completely eclipse those normal fluctuations.
He's saying that without such knowledge (which often constitutes illegal insider trading), option 2 is the safer bet for your average daily market gambler.
I have no
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What I mean by more potential downside is out side of some IPO / Unicorn thing; talking about what the IRS will describe as short term is highly unlikely a stock will double in value - 100% return; Its unlikely that will go to zero too. However losses tend to be sharp short term - the market gets scared of COVAD-19, or a lawsuit against the company you just invested in is announced. You might see a 10% move down in a day. Rarely will you see 10% appreciation in a day.
Sure the longer term trend is virtually
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2. Unless you have the cash to exercise the option sitting in your brokerage account, brokers sell the option at expiration rather than exercise it on your behalf. If you do have the cash, they will exercise, but not sell.
3. You claim
TODAY, NOT TOMORROW MORNING (Score:1)
To beat the market, you have to be the guy who already knows today what tomorrow morning's news will be.
Bloomberg & Phuckerberg were literally reading everyone's private messages.
Simons had spies [former students] writing code for every trading firm on the planet.
And Soros was busy manufacturing the artificial crises which would be tomorrow morning's breaking news stories.
That's how you make the big bucks - you have a
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Your choice #2 has a downside potential of 100% of your investment, while in choice #1 it's very unlikely that the shares' value will go to zero, and because you're not leveraged you can just set a stop somewhere tolerable. Sure you can use stops with options too, but because of the leverage they're subject to wild swings so you have to tolerate higher loss potential and risk being shaken out of an otherwise winning trade etc. And then there's the automatic loss from time decay so even if the stock moves in
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" You can't write an option unless you own the stock (or pay to "borrow" it, like shorts)."
You mean call options I assume. You can write naked calls if your broker lets you. They are considered more dangerous than writing naked puts since there is no upper limit on the stock price. A naked put is identical to a covered call.
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How do you plan to execute your title in Generistan?
Welcome to the internet.
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Well it *is*. (Score:3, Insightful)
What else is profit, than robbery with an alibi of earned money on the side?
The part of the income that wasn't worked for. The part that's taken in exchange for nothing. Because your client doesn't have a choice.
OK, I don't wanna "insult" profit makers. Some are thieves or fraudsters too! ;)
But if everyone actually worked for their money, all the parts that capitalism is hated for, would vanish.
Re:Well it *is*. (Score:5, Informative)
Profit is robbery? Please. Profit is survival. No business venture survives unless it can produce an excess of wealth.
Re:Well it *is*. (Score:4, Interesting)
Survival and robbery are not mutually exclusive. The ends do not justify the means.
The stock market is a zero sum game, nothing is produced and "profit" is money taken from someone else. "Business ventures" can produce "an excess of wealth" without "profiting" in the stock market.
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First: just because "survival and robbery are not mutually exclusive" doesn't mean they're dependent on one another, or that profit is robbery. Businesses keep people alive, help us grow as a society, and provided needed goods and services. Eliminating profit would mean a collapse of our economy and way of life. Giving people profit incentive has motivated people to work to better themselves and their communities for thousands of years in many situations. Today, it's what animates people to go to work a
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The stock market is a zero sum game, nothing is produced and "profit" is money taken from someone else.
The stock market is where money is harvested from industries that produce goods (cars, potatoes, bricks, software).
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A company brings a product, service to the world. Thats a huge risk. People invest their own money into that new brand. Thats their own money to risk.
If that works people get to share in the wealth created due to the risk they took.
If not, no profit.
A lot of skill and work goes into a brand, selling a product and service. That skill and risk results in money made.
It's what keeps the lights on in Vegas (Score:2)
The undecided outcome is not as important as the balance in the variable.
As long as the risk mitigates itself in relative equilibrium, the genuinely savvy wager is on the vigorish.
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Did you get sidetracked reading those Dilbert comics too?
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I have enjoyed the Dilbert-esque tongue-in-cheek observations, but every interesting thing sidetracks me...ow.
What the hell is that random light, and how the fuck does it repeatedly escape my coordinated efforts to claw it?
Then limit the options for small buyers (Score:3)
This whole thing paints the market as the victim to WSB's whims. That's complete bullshit. The peddlers of these options want the money involved in the commission and the boys on WSB are happy to fork over and head over to Reddit to ready the brigade. The market is just pissed that they're getting out paced on the level of greed that can be exhibited. WSB found out they could use social media and online market apps to play the market at their own game. Someone needs to the remind the actual Wall Street that they need to hate the game not the player. Till then cry me a fucking river.
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The way options end up being priced, especially in lightly traded calls and puts, gives an easy way to game the system for 0.5-1% gains in the short term, especially for reasonably small orders. There are mechanisms in place that limit it— market makers seem to make sure that your trade is logical over a several-minute time span, dividing it up into individual contracts based on risk.
I guess trying to collectively game the system would work to a degree, but then you end up with the classic pump and du
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Yes and no. Obviously it depends on a number of different factors, but out-of-the-money options can be more effected by changes in volatility than actual dollar changes of the underlying shares. I wouldn’t touch day trading of them personally, but in concept you would not lose any time value by selling at the end of the day, and if you can spike the share price or volatility just a little you might win more often than you lose.
Re: Then limit the options for small buyers (Score:1)
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But I love the game!
That is, as long as I'm the player and not being played, then it's a foul!
Bloomberg trying to get more suckers in the game? (Score:4, Insightful)
So either a tiny volume of money from a bunch of reddit users has found an undiscovered arbitrage opportunity, or Bloomberg is selling fairy tales to try to get more slubs to be easy pickings for HFTs ... one of the two.
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A little bit of both. In the 90’s /. worked much the same way on pump and dump/arbitrage scams. Anything you could make a beowulf cluster of was prime pickings. Social media mining engines then became the big thing to look for trends, initially amplifying the effect and then ultimately destroying it.
There are plenty of hive-mind places where people get caught up in a singular way of thinking, and exploiting them is big money/business...
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Re:Bloomberg trying to get more suckers in the gam (Score:4, Insightful)
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They actually removed r/wallstreetbets from general circulation and r/all already.
They know the smackdown is coming.
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So your "logic" is equivalent to saying ... (Score:2)
That it is evil that you can't murder because there are others that can murder?
And instead of arresting them, you want to murder too?
Uuum ... https://youtu.be/5hfYJsQAhl0 [youtu.be] :D
Complicated gambling (Score:2)
Still, super interesting article!
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That you want to make an argument, (Score:2)
no matter what.
Nevermind reality not being black and white, you shall "win" your argument, and feel superior.
Go home and get your shine box^W^W^W^Wtake your pills.
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Not everywhere in the US is susceptible to bubbles.
What's your next guess?
-jcr
A rough guess is the Silicon Valley area. Very possibly Florida again. When I was in Tampa recently, they are quite worried about the metastatic growth going on.
Invest intelligently. Might make a lot of money with one of the above mentioned. Might lose it all too.
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Not everywhere in the US is susceptible to bubbles.
People all over the country are susceptible to Bubbles, that's why she does the road tour every year.
Oh, I know, it wasn't you, you only go there for the roast chicken.
Most Americans down own stocks (Score:4, Interesting)
That leaves people doing stuff like this, Gambling. At a small scale it's harmless enough (though it often turns out bad for the gambler). The trouble is at a large scale our economy gets held hostage by "Too Big To Fail" billionaires.
This is why I like how Bernie's gonna pay for his tuition free college and loan program. Putting a modest tax on Wall Street trades means less gambling, because what makes this gambling work is the cheap cost of the trades which leads to crap like High Frequency Trading where we let folks at the top skim 10-20% off our economy in exchange for a little liquidity. Then you've got Stock Buybacks, which were illegal market manipulation until Reagan legalized them and which encourage companies to do mass layoffs for quick stock bumps. A tax on trades would slow down the pace of trading, discouraging the worst aspects of Wall Street.
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I'm not quite sure why you brought it up, but as pointed out in the article you linked:
People with below average income own stocks only 25% pf the time.
People with above average income are people who own stock - over 75% of the time.
So, if you want to be broke, don't check the "401k" box at work. People who own stock, who choose to have 401k, are the people building a little wealth, the not-broke people.
That's why I said "fudged" (Score:2)
So yes, if your grandma bought you a share of Disney when you were born as a lark you technically "own stocks" but that 1 share of Disney is essentially worthless. It's a toy, not a financial instrument. The same is true for your day trader playing around with a few thousand dollars here and there.
That's why I
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So you've just decided that most people own 1 stock?
I guess if you really want to believe that, you can. If that's what it takes to defend your excuses.
Actual facts:
Most millionaires never made more than $100K / year.
Over 90% of millionaires participated in their 401k / invested every pay day and that, along with owning their home, is how they became millionaires.
Really you have two choices:
A. Make excuses for why you can't do what most of us do, so you have an excuse to jealous of those of us who went to s
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Most Americans do own stocks, but in mutual funds and their retirement plans.
That's assuming that their retirement plan isn't playing Lotto.
Re: Most Americans down own stocks (Score:1)
My generation's retirement plan is dying in the street like dogs.
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My generation's retirement plan is dying in the street like dogs.
Kind of harsh, but okay.
Just as a reference point, way back in the early 1970's when I entered the job market, no one was going to be able to retire, according to a lot of people. At that time it was inflation and those bastards in "The Greatest Generation".
A lot of people were right, they couldn't retire, because they didn't plan, and a whole lot were laid off in their 50's, and couldn't find good jobs. So it isn't all rainbows and puppy dogs for the boomers. Me? I was too dumb to listen, and worked
Check the article (Score:2)
I technically "own" stock but thanks to two economic crashes, multiple jobs offshored and 2 major family illnesses in a country without single payer healthcare I "own" about $2000 worth, which is essentially worthless.
Comment removed (Score:5, Insightful)
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Yeah it's also easy to make money when the market has been soaring for the past 4 years. I'm guessing there will be fewer people trading next week...
Right? I'm guessing we're hearing about this because they hit two good days this week. I wonder how many losses they collectively had before that.
Margin trading, casino gaming, and oil wells........three things where you lose 9 out of 10 times. But the win on the 10th is enough to cover the losses and keep the degenerates coming back for more.
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Yeah, but 1,000 option contracts priced at $0.10 are only going to cost you $10k and is leverage on 100,000 shares. If the price moves enough that the options might become valuable and the strike price is 700, you are looking at a potential $70,000,000 dollar trade, which will move almost all stocks. (Berkshire A shares wouldn't move on a $70,000,000 dollar trade, but normal sane stocks do.)
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If you're buying 10-cent options on something that's anywhere near $700 a share, it's going to be so far out of the money that there's no liquidity. It will be difficult to buy that many contracts in the first place and when you try to sell them you'll find no bids. The bid/ask spread will be huge.
I fail to see the problem (Score:1)
Move to VOAT (Score:2)
Voat seems to support freedom of speech, however.
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I joined Free Republic (when that was still a thing) and got banned three times in three posts just for correcting misinformation with links to authoritative sources. Then I ran out of throwaway email accounts and quit that game.
authoritative sources. (Score:2)
Oh you sweet hopless summer child ...
Aside me agreeing that Reddit is cancer...
You should really look up "argument from authority (fallacy)". (Who said it, is completely unrelated to the validity of a statement. The arguments are what give a statement validity, even if they came from $literallyHitler himself.)
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I tried 4Chan, but I got banned in less than twelve hours.
Voat seems to support freedom of speech, however.
Ok, I'll bite. How did you manage to get banned from 4Chan?
Works until it doesn't (Score:4, Insightful)
From a practical standpoint, you probably shouldn't put much belief into the notion that some randos on Reddit have found themselves a get rich quick stream that has no real risk exposure. If this could be done in a riskless manner, then you could be sure there would be big players in the financial markets would already be doing it in a heavily automated manner with very low latency, and that would cause the "free money" to almost immediately dry up or some greater breakdown to happen. More realistically they are making some money on their small bets, not thinking too hard about what could possibly go wrong, and that small money they put forward buying calls will suddenly become a lot smaller when there is a downward spike in stock prices for whatever reason while they are exposed.
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This.
If you look at the market over the past six months, it's up-up-up. If you look at it over the past three years, similar. Except for the two or three days ago with 2-4% drops, twice and late last year when it did two 4% drops in succession... the market is going up.
All these guys have to do to succeed is be in the market. Up, up up. By using options, they can leverage their money -- they can make 40x the profit on a small stock movement vs owning the actual stock, and they risk 100x losses two days ago
Re:Works until it doesn't (Score:4, Interesting)
That's what I was thinking.
The thing most people don't realise is the level of intricate math and study that goes into working the markets. Average Joe thinks traders and portfolio investment managers just put a pin in the financial papers and take a risk. At one company I worked at they had a team of around 20-30 math Phd's on staff paid to look at ways to write algorithms using systems trying to second-guess market movements, most finance companies hire math Phd's to try to get an upper hand.
A bunch of random yahoos in an online forum have found a short-term/min-risk ploy and are milking it for now, eventually the balance will come as the market bends back into shape and the ploy pays less and less. Even on the markets, "the game is rigged to suit the bookie" and although you may fleece the bookie in the short term, once they learn and adapt to your wrinkle it pays out less until it's useless.
Every few years a new "miracle system" comes out that will offer gauranteed wins on the market, we'll I've worked in finance companies for over 30 years ( IT techie ) and if any of them had any secrets or great ploys they'd be milking the markets for their clients like crazy, I'd have a fat bonus cheque every year , my pension pot would be bulging and I'd be retiriing before I'm 50! Instead right now in private investment, at least in the UK, most companies are hunkering down as pickings are lean and a potential recession is on the horizon and investors will do what they normally, put their heads in the sand and wait.
Re: Works until it doesn't (Score:2)
+1
Anyone who can consistently beat the market will in a handful of years own the whole thing. If you have a guaranteed win then you can scale up the leverage as high as it will go, and then compound interest does the rest.
There is no such single owner, so nobody has been able to do it.
QED
Re: Works until it doesn't (Score:4, Insightful)
+1
Anyone who can consistently beat the market will in a handful of years own the whole thing. If you have a guaranteed win then you can scale up the leverage as high as it will go, and then compound interest does the rest.
There is no such single owner, so nobody has been able to do it.
QED
True. More to the point if you could do that, you wouldn’t tell anyone and risk your advantage disappearing.
Hi Frequence Traders suck all profit out of it (Score:2)
Note that these deliberate market manipulations are predictable. They're having most of the profit of their efforts stolen from them by the high-frequency traders engaging in arbitrage as the prices shift.
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Bernie will fix it (Score:2)
He has proposed a stock transaction tax. That will make it uneconomical to trade at a high frequency. So jobs for computer programmers on wall street are going to dry up. But never mind when they are unemployed at least they wont have to make their student loan payments as Uncle Bernie will amnesty their student debt.
That sounds dangerous (Score:2)
If you're not too big to fail, who's gonna bail you out when you place your bet on the wrong horse?
This is nothing new (Score:1)
It's not a gamble... (Score:1)
It is a fair way to manage the market makers, who will gouge you when thay can.
Seems like a leveling tool to me!