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GME and AMC stock action (out of main)
- Thread starter Electroman
- Start date
And credit risk is a real problem for RH. I just had a conversation with an experienced stock broker (not mine) whose own son got in over his head on a RH margin account on these trades. His stock broker dad had to bail him out (couple of thousand, no huge deal). And that was a stock broker's son! That story is playing out a millionfold across the industry...
lol
https://www.reddit.com/r/wallstreet.../?utm_source=share&utm_medium=web2x&context=3
https://www.reddit.com/r/wallstreet.../?utm_source=share&utm_medium=web2x&context=3
RH gives out margin to anyone. It's crazy. I had more margin at RH than I did at IBKR with 4x the portfolio.
Final note this morning. How can a stock be shorted more than 100% of float? Easy and it isn't naked short selling:
Company founders and executives will typically hold "unregistered" shares of the company. Elon's TSLA shares, for instance, are unregistered. He can't sell his shares until he files a form 144 with the SEC registering them (it's a formality, but read on).
A company's "float" does NOT include these unregistered shares. So something like 20% of TSLA shares help by Elon are not included in the "float" number.
BUT, these unregistered shares can still be loaned out to short sellers. Yep, a company's founders unregistered shares not included in the float number can be used by the stock broker where they are held to be lent out to short sellers. Now, the share owners or their broker can request that their shares not be lent out, but whether that happens all depends on the integrity of the broker and the wherewithal of the founder.
Company founders and executives will typically hold "unregistered" shares of the company. Elon's TSLA shares, for instance, are unregistered. He can't sell his shares until he files a form 144 with the SEC registering them (it's a formality, but read on).
A company's "float" does NOT include these unregistered shares. So something like 20% of TSLA shares help by Elon are not included in the "float" number.
BUT, these unregistered shares can still be loaned out to short sellers. Yep, a company's founders unregistered shares not included in the float number can be used by the stock broker where they are held to be lent out to short sellers. Now, the share owners or their broker can request that their shares not be lent out, but whether that happens all depends on the integrity of the broker and the wherewithal of the founder.
It just occurred to me:
Couldn't these idiot funds drastically reduce damage by going long calls? It caps extra damage from runups on the underlying.
I have GME, GME call spreads for this week, the next and added some AMC.
Also bought protective puts on TSLA earlier in the day. So far paying off BIG. I HOPE I go negative on my TSLA long puts next week for the sake of all of us - but covering my ass for risk management.
Couldn't these idiot funds drastically reduce damage by going long calls? It caps extra damage from runups on the underlying.
I have GME, GME call spreads for this week, the next and added some AMC.
Also bought protective puts on TSLA earlier in the day. So far paying off BIG. I HOPE I go negative on my TSLA long puts next week for the sake of all of us - but covering my ass for risk management.
Exactly! RH is a house of cards. First, they make money by allowing hedge funds to front run your trades. Then they also make money by charging margin interest to people that really aren't good for the credit. It works, until it doesn't.
Wooo, let's go AMC. I told my Dad and brother that if AMC hits 100 I'll buy them each a model Y. What I didn't mention is that I'll also buy myself a plaid +. (it won't...I think)
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GrandEnigma
Member
My RH account has margin equal to 100% of the value of my holdings. It's crazy. AND on top of that interest is only 2.5%. During the TSLA run up last year it allowed me to effectively double my exposure, similar to what I would have had with options, but without the worry of expiration.
I don't think the hedge funds are in any danger. They're probably licking their chops while shorting further in the 2, 3 and 400s. They know they have deeper pockets than the WSB horde and all they have to do is be patient and wait to cash in. The share price of GME is sure to crash back below 20.
The people hurt by this are RH because they are going to lose customers in droves and face all kinds of law suits, short report publishers because people will be afraid to use their research, and the retail investors who are going to be left holding the bag.
The biggest winners though are long term holders and insiders at Gamestop. Man did they get a gift from heaven.
Everybody still enjoying themselves with TSLA tanking? Samson was very strong, yet he didn’t survive bringing down the temple.
jeewee3000
Active Member
I sold my one share of GME at $362 today. I did enjoy picking up some Tesla shares at $780.
I don’t know how this plays out. I don’t think anyone does really, other than these stock will go back to prior valuations ultimately. My hope is it results in better oversight and regulation of the industry, particularly the institutional shorts. That result would make the volatility worthwhile.
I don’t know how this plays out. I don’t think anyone does really, other than these stock will go back to prior valuations ultimately. My hope is it results in better oversight and regulation of the industry, particularly the institutional shorts. That result would make the volatility worthwhile.
Good answer, but too detailed
TL;DR: When you buy or sell a stock, you have two days to settle. ie. I buy GME today, but I don't have to pay for it until two days from now. The broker is on the hook to make sure you pay. In a normal stock, the broker has a bunch of cancelling buy/sells so their net exposure is minimal and the volatility in the stock is reasonable. GME and others broke that mold since brokers like RH mostly had buy orders and volatility was through the roof. So RH absolutely needed more liquidity to manage their credit risk. More importantly, they should have done things like demand 100% margin for buying/selling rather than restrict buying.
RH CEO, Vlad, on CNBC yesterday was a disaster. I got the distinct impression he doesn't know how market mechanics works. Not a good look for a CEO. Trust, gone.
great summary. the contrast between the WeBull CEO and the RH CEO was very apparent yesterday in interviews.
one key point you miss, it doesn't matter if the trade is on margin or not, RH still has to pay whatever the collateral is on the trade for two days. it is now coming out that DTCC at one point (they were criticized post 08 for not doing this to Lehman etc then and cascading the failure) raised collateral on the meme stocks from a normal 1-3% to 100% to make sure firms didnt fail and cascade due to volatility. Frankly it looks more and more like this is the regulatory system working the way it was designed to work post 08.
However the DTCC should've made a statement yesterday as well clarifying what they raised rates on and why.
I just sold GBTC and bought TSLA with that money and all the other scrap money I could find. Then, what was leftover in each account that wasn't enough for a share of TSLA, I bought ABML. Kinda fun, hope the pillars hold.
I only bought a few shares but I am in it for the long term to screw the shorts I don't care if I lose all the cash I put in. Plus its FUN!!
Good answer, but too detailed
TL;DR: When you buy or sell a stock, you have two days to settle. ie. I buy GME today, but I don't have to pay for it until two days from now. The broker is on the hook to make sure you pay. In a normal stock, the broker has a bunch of cancelling buy/sells so their net exposure is minimal and the volatility in the stock is reasonable. GME and others broke that mold since brokers like RH mostly had buy orders and volatility was through the roof. So RH absolutely needed more liquidity to manage their credit risk. More importantly, they should have done things like demand 100% margin for buying/selling rather than restrict buying.
RH CEO, Vlad, on CNBC yesterday was a disaster. I got the distinct impression he doesn't know how market mechanics works. Not a good look for a CEO. Trust, gone.
100%
theres no way RH was able to manage and vet that kind of volume (options not stock), volatility, and price action, while remaining risk-neutral
i dont think theyve been around long enough to develop that sophisticated an automated real-time solution to handle that. therefore the processes that calculate the capital requirements were lagging the real time trading ...they probably got a call from NSCC/OCC and were like, ok..we have to do something to slow this down and submit the capital required.
its either they do it themselves, or the clearing house shuts it off for them....if you opt for the latter...you may not exist for long
im not a fan of RH, but at the same time, that can happen to any e-broker that runs loose or has a major system bug/error exploited at the wrong time
Robinhood is really having a hard time. I was going to do a quick deposit to buy the TSLA dip but it wouldn't let me transfer any money, in effect locking me out of the trade. Fortunately, I just got my new Fidelity account setup, added my bank account and was very pleased to see that they gave me instant access to the money while the deposit clears. Bought the dip at $790. 
Still HODL on GME.
Still HODL on GME.
"What we have here is a failure to communicate."
Yes indeed. And the CEOs weren't any better. The RH CEO was awful, seemed he didn't really understand what was going on. The IB CEO did understand, but he understood it too much. He gave highly technical answers that assumed you knew how market operations worked. He didn't explain it so a lay person could understand.
This is how conspiracy theories start...
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