WallStreetBets vs Hedgefunds – $GME – $AMC and the end of free markets?

WallStreetBets vs Hedgefunds – $GME – $AMC and the end of free markets?

One of the craziest weeks explained…

Hedge Fund nearly bankrupt as day traders attack wall street

In case you have been wondering why you have been seeing Gamestop (GME) and AMC in the news a lot this week, it’s due to the fact that these two failing companies nearly took out one of Wall Street’s biggest hedge fund managers in a span of three days. That’s just part of the story that also includes Reddit Users, Twitter Wars,  Elon Musk, Chamath Palihapitiya, Memes, and what may ultimately be an ugly ending for stock holders, even if you weren’t involved. 

Full disclosure, I did not buy into the $GME craze. In these cases if you’re initiating this type of pump, or you’re not already in it, it’s too dangerous to just “hop on” – while there were a few millionaires, and reportedly one billionaire made this week, the truth is someone will be left holding the bag at the end, and it won’t be pretty. 

I was however in $BB, and $NOK BEFORE all this started. Both of those stocks got sucked into the frenzy. So I did benefit and sold yesterday.  I was in these stocks for my own separate reasons. When they spiked, I took my profits and will look for future entries when all this subsides.

How is started…

It’s not entirely clear to me exactly how this started, but apparently an intrepid Reddit user discovered that Melvin Capital had a huge short position on $GME. This was key, since hedge funds are not mandated to report their short positions. As this information became publicly available, a user named WallStreetBets on Reddit, started using his forum to let people know he was buying the stock, and buying it big. People followed. Both regular stock and call options were purchased in great size. This caused two types of squeezes, the short squeeze, which causes anyone who bet short to buy back their shares. It also called what’s known as a convexity squeeze. Money makers need to keep a certain amount of stock on hand as it rises. Since money makers (the middle men in the stock market) had to join in the buying, it caused an endless feedback loop.

Retail investors bought shares/calls –> shorts had to cover –> money makers had to buy shares to have on hand to remain “delta neutral” – a lot of this was knew lingo to me as I do not short stocks and I am not really well versed in that section of the market. Matthew Kratter has a good video explaining what happened below.

While all this was happening, Melvin Capital, was in real financial trouble. Two other hedge funds had to come in to save them by investing billions in Melvin. Those other hedge funds were Citadel, and Point72. Citadel also happens to be one of Robinhood’s biggest clients, if not the biggest. So when Robinhood banned these stocks from trading this morning, there was quite an uproar from the trading community.

If the point of this whole exercise was to bring the Wall Street establishment to its knees, WallStreetBets and his followers definitely succeeded. If the goal was to bring about some sort of systematic change, they may also succeed in the long run, but maybe not in their favor. It’s too soon to tell at this point. 


How it’s going…

This story is evolving quickly. As of writing this article $GME has fallen about 50%, $AMC, $BB, and $NOK also faded hard from yesterday’s highs. 

Brokers Get Involved

This morning Robinhood, a popular investing app with millenials, along with several other large brokerage houses either restricted the buying and/or selling of all these stocks, or they were down completely for a period of time, thus reducing the volume of buying and selling and in some cases only allowing people to sell. This was market manipulation at the highest level! 

The exact thing that the hedge funds were accusing WallStreetBets of doing, they did to the little guys today. A class action lawsuit was already filed against RH today. We’ll see how this goes. 

Billionaires Cry Foul

It’s not surprising that most of the billionaires that went on CNBC today or yesterday were there to demonize the retail investor.  Billionaire, Leon Cooperman, saying it was an “…attack on the wealthy”. The CEO of Nasdaq tweeting that maybe brokerages should stop trading all together to allow huge firms to reposition themselves and quote “stop the spread of profits outside of wall street.” In other words, you don’t want the little guy to make money at the expense of the big guy. EXCUSE ME?!

So when my stocks take a nose dive can I ask a brokerage to halt trading for a couple of weeks while I reposition myself?  They would laugh me off their customer service line. A hedge fund can short a stock %140 percent (meaning shorted more than the available amount of shares) and completely wreck a company, but when the little guys does it to them, they’re calling it a crime. 


What happens now…

Unfortunately, nothing in my opinion. What’s done it done. The few lucky ones that got rich…congrats. The few that will be left holding this stock all the way back down…my condolences. Hopefully you cut your losses as quickly as you can. The report is that the hedge funds have already rebought their short positions now that $GME will almost certainly return to normal levels.

One big issue that became clear to retail investors this week was how blatant the game is rigged against us. If companies can randomly stop trading in an asset (other than normal trading halts) and completely remove them from being available at the whim of hedge fund who come crying to them, then what are we doing here? It clearly isn’t the “free market” economy that so many of these billionaires want to champion. It’s a rigged economy in their favor.

Hedge funds will likely look at ways of preventing this from happening again. By one estimate hedge funds lost $90 billion dollars this week trying to cover their short positions. The effect of that was them having to sell their long positions and causing the markets to drop (see 1/27) – a lot of good deals this morning if you were hunting for entry points.

Moving forward and learning from this week’s events.

I have learned to sit back, relax, and watch these events like a reality TV show. Not participating, sticking to your plan, and not getting caught up in stories like these are your best bet to keep your money safe. Unless you were lucky like I was with $BB and $NOK to already be in those stocks when it happened, I would avoid these types of moves in the future.

If you are itching for that excitement, in which case I would avoid the stock market altogether if I were you, you could hop on with a small amount to scratch that itch. Just don’t invest more than you are willing to lose. Way too much risk for me.


Nasdaq CEO Tweet
Humorous meme
WallStreetBets vs Hedgefunds – $GME – $AMC and the end of free markets?

Today’s Trading Day Recap: January 25, 2021

Crazy Volatile Day – Ends Green

$BB, $GOGO, $TSLA, more…

Today was one of the most volatile days I can remember since I have started trading, and I wasn’t even in $GME! Congrats to those winners, and my condolences to those holding the bag near $160…yikes! I think I have seen other days like today, but it was when I was trading much lower volume, and likely not in as many positions as I am in now. 

I woke up this morning, just like most weekday mornings, around 6am. After waking up, brushing teeth, and settling down I am usually at my computer by 6:15am and I start looking at my holdings in the pre-market as well as my watchlist, and other scans I have running. When the bell rings I watch any stocks that I was only meaning to hold overnight (if I have any), and sell as needed. Then I turn my attention to my swing trades and just monitor them along with my scanners. 

Today however, I woke up to my account up about $3,000 from the previous day! If that had held it would mark the highest single day increase for one account in my trading career. Pretty exciting stuff! Typically if I end the day up $300-500 I am happy, and it wasn’t too many months ago that a $100 day was amazing to me. So of course, I was excited. The market came roaring to life right out the gate. It seemed everything I was holding had gapped up. 

I decided to watch a little while, and then sell 1/4 to 1/2 positions on some stocks. However, the internet had other plans. Schwab Street Smart Edge seemed to be down…NO!!! I logged off, and logged back in. Nope. I quickly turned to Twitter where it seemed Schwab was not the only platform experiencing outages. Meryll Lynch, E-trade, and RH for a moment were having trouble as well. 

I tried the schwab website instead of Street Smart Edge (which is their trading tool I use) – but nope, website wasn’t allowing trades either. AAARGH!

By the time I was finally able to trade, the high of day for most of the stocks had passed. Bummer…and at one point I was only up $100 on the day. Double bummer! I decided to say “Kumbaya” (sp?) and let it go. I kept tabs the remainder of the day as stocks swung wildly. 

By early afternoon (PST) stocks had recovered and stablized. In the end I closed partial positions on $GOGO (25% gain), and partial position on $SOLO (20% gain). The only stock I was able to sell near HOD was $FUBO, but unfortunately it was my smallest position. A win is a win though. 

Through all the volatility I ended the day up $1500 in my IRA, and break even in my brokerage account. Not bad considering the swings. The realized gains from the sales today put me over $5000 in realized gains for the month. That’s a new milestone for me! I think my previous best month was about $2500 in realized gains. Overall I am up about $7500 on the month. 

Today was a rollercoaster ride for sure, made only bad by the fact that I couldn’t sell my positions when stocks were blasting off this morning.  I am still holding some mostly winners, and my few losing positions right now are only down a few percent, with potential for upside. So I am still sitting in a good spot. 

How as your day today?


WallStreetBets vs Hedgefunds – $GME – $AMC and the end of free markets?

How To Start Investing: How to trade in an IRA vs Brokerage Account

IRA vs Brokerage Account

The other day as I was flipping through my Twitter feed I came across a tweet from @alphatrends (great guy to follow for trade ideas and general knowledge) that made me stop and think about how I had structured my investments in my portfolios. I have two accounts (three if you count my crypto account), one is my IRA, where I am of course, saving for my retirement. The other is a regular brokerage account where I can pull money out if I needed, but still trade and grow the account more then say, a savings account. 

The way I have been trading/investing to date is mostly swing trades/day trades. However, I do have a couple of long term holds (Dividend ETFs) that I plan to just add and let grow in my IRA. My brokerage account is smaller than my IRA at the moment, and I only swing trade in that account. 

This made sense to me. I hold my long term investments in my IRA, since I am not touching that for 25-30 years, and my short term investments in my brokerage account since I hope to have easy access and pull money from it when needed. Makes sense, right? At least to me it did.


Tweet from @alphatrends

@alphatrends on Twitter

The tweet I read flipped that whole idea upside down. One of the main benefits of having an IRA is that your taxes are deferred until you withdraw (hopefully not until you’re retired). Which means that you don’t have to worry as much about holding investments over a year to avoid capital gains taxes. That would lend itself to be used better as a swing trading account. 

My brokerage account on the other hand is not a tax deferred account. I will be taxed on every transaction I profit from at either the capital gains rate or the long term investment rate. Since the long term investment rate is lower, it would make more sense to have my brokerage account setup to hold mostly long term holdings. 

Mind blown…I have been doing this wrong. But I also can’t believe I didn’t think of it sooner. So thank you to @AlphaTrends for bringing up this good point. 

So as of this month I am starting to reallocate some of my investments. I will shift my brokerage account to more low cost ETFs, Bonds, and maybe a couple of individual stocks I want to hold longer term. In my IRA I will start to focus more on swing trades, while maintaining some longer holds as well.

Taxes are often the most overlooked aspect of investing and trading for newbies. It’s something that I have been learning more about in the past year. My investment journey is still relatively young, so making changes now will have a huge impact 20-30 years down the road. 

Hope this helps some of you think about how you have allocated your own investments. Remember, do your own research. Good luck!