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ZorbaTHut  3yr ago (text post)   47878 thread views

Culture War Roundup for the week of September 5, 2022

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Different solution would be to just throw people in jail for market manipulation. Melvin Capital is clear victim here. It’s illegal for people to act as a group to corner a market. That’s market manipulation. Instead of a few rich people in a smoke filled room organizing their play it was done on social media. People involved in the manipulation should go to jail.

Don’t censor speech. Arrest people for their actions.

Telling someone to buy a stock because you will sell is market manipulation.

Telling someone to buy a stock because it would be funny is a different beast.

shorting carries unlimited loss. this is a risk that is on every prospectus. Melvin's mistake was poor risk management, they were victims of not protecting their possible downside..

Sure but that’s because the company discovered cancer or something big and it’s worth more.

Not because trade manipulated the market and organized collective action to force trading.

People are on trial over -60 oil because the broke securities law. That Asian dude who had a bunch of hidden swaps has criminal issues because he broke securities law.

It's unclear to me that Melvin is a victim - I am biased because I made lots of money on Gamestop in January 2021, but I did so having expected it to double in three years off a long term turnaround, having bought at 18.30 in December 2020.

On WSB, before GME, there wasn't really an attempt at a corner - it was "this is a cigar butt, and the squeeze would be funny but probably won't happen". The 10m subs who joined during GME were arguably attempting a corner - but they all lost money.

GME was being led/controlled by hedge funds the entire way up and down. I think people vastly overestimate reddit's influence. The average speculator on Reddit probably has just thousands of dollars, maybe $2-10k, but we're talking many billions of dollars of daily option volume and tens of billions of dollars of trading volume. Only hedge funds can move those kind of numbers. On that Friday I recall GME momentarily still went up despite the robinhood trading freeze , which proves hedge funds were doing the buying (it was not reddit folks with the robinhood accounts).

$3-4 a share was a cigar butt. $19 was after the manipulation started.

Melvin actually wasn’t that big of position for any reasonable valuation. But positions that were .5% of your fund become 50% of your fund when they go up 100%.

My valuations from memory might be off but my guess is you were already paying full or 50% above the cigar people numbers.

Also they exited at like $300 a share. At that point it was a manipulation of market structure and nothing fundamental .

  • But positions that were .5% of your fund become 50% of your fund when they go up 100%.

You're going to want to check your math on this. I think you mean 100x not 100%

They could have bought puts , that way the max losses are capped. their risk management was shit to allow this to happen. Naked shorts are risky even if the allocations are small, precisely for this reason. See 2008 Volkswagen squeeze.

Puts have their own issue of negative carry and needing to be right on timing.

If you have a diversified short book and can theoretically hold forever then you have no negative carry and Can assuming valuations stay reasonable your max loss isn’t that much. I mean worse case for a cigar butt stock was a 3X loss for Melvin on a very small part of book. Market manipulation (which is ILLEGAL) is why the position didn’t work. Melvin wasn’t a market timing firm where puts would make more sense.

And acting as a group to acquire over X amount of a firm is ILLEGAL which theirs no lack of evidence that the market manipulators were NOT encouraging acting as a group behavior . Elon Musks broke security law by acquiring more than X% of a stock. And if he split up the order with a buddy it would be ILLEGAL.

Melvins risks management was simple. Assume the SEC enforces security law.

This is all in Dodd Frank. You can’t even put a short term bid offer in the market anymore to bluff your intentions or you go to jail.

Market manipulation (which is ILLEGAL) is why the position didn’t work.

It's not unprecedented at all for illegal manipulation of affect stock prices. It happened during the 90s and early 2000s. Maybe a heuristic as simple as closing out a short position when it doubles in relative size would have saved them . But nope. They stayed in way too long and paid for it.

That adds negative carry and that heuristic which just get owned by the 2sigma and rentech types calculating their stops and running them

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