Who remembers the commercial where an old insurance agent appears in the shot wearing a bunch of fishing gear and sporting a dollar on the end of his line? He teases his customer by pulling the dollar out of her reach at the last moment. “Oh-oh-oh! You almost had it! Gotta be quicker than that!” If you do, then you can understand when I say that stock trading platforms like RobinHood and TD Ameritrade did that to a huge amount of retail traders today.
For those of you in the dark, GameStop stock ($GME) was slowly increasing in price over the course of the last six months. Earlier this month, a company called Citron Research made public their views that GameStop would fall soon, justifying Citron’s large short position. The tweet, cited below, spark a flame in the hearts of a Reddit community, /r/WallStreetBets. The folks that are a part of that community began to excitedly buy shares of GameStop to drive up the price, which in turn would cause Citron (and others) to lose money on their short positions.
While that was happening, many other retail investors (common folks) noticed the price moving and jumped in as well. These probably weren’t done in ill will towards Citron, or a strong faith in the true value of GameStop. More likely, people saw a unicorn: a true get-rich-quick set up. And as more people jumped in, the price continued to climb. Similarly, a couple of other companies such as Blackberry ($BB), AMC Entertainment Holdings Inc ($AMC), and Nokia ($NOK) were also seeing a rising price due to people buying in quickly, as they make their rounds in online communities.
Then the dollar moved out of reach for many. When RobinHood and TD Ameritrade restricted activity for $GME and $AMC, they were not allowing people to open up new/bigger positions in those stocks. The only action left to do was sell. People who were quick on the spot were able to sell for a good price, but the price began to fall as more and more people sold. At the time of this writing, AMC is down 49% today and GME is down 28%. Red in a long investment portfolio is never good, but especially with large numbers like that.
While many retail investors are trying to recover like Charlie Brown after he tries to kick a football, others are certainly curious. Why did RobinHood and TD Ameritrade restrict buying into GME and AMC? Many folks don’t trust Wall Street—was there some outside force pushing RobinHood and TD Ameritrade to restrict us normal citizens from buying? Maybe someone at a big bank just entered in their own short option, which would probably have been very cheap at first (though the price for puts is surely increasing—just today, prices have increased anywhere from 13-41% ($GME) at the time of writing). Is it bad luck? Is it RobinHood and TD Ameritrade getting nervous because of the activity? Is it time for everyone to fasten their tin foil hats securely to their heads?
Citron Research and Melvin Capital have seen heavy losses from their massive short positions. $5 billion has been lost by those trying to short GameStop. In fact, it has been reported that Melvin Capital is going to have their losses mitigated by an almost $3 billion investment. These losses have been undoubtedly caused by a free market acting the way it wants to. Which is how it should operate. Then RobinHood and TD Ameritrade come in, throwing a monkey wrench into everything.
We are in a new era with the way people can interact online. They can make a run on the bank just as easily as they made GameStop shorts take huge losses. The retail investors should not be held accountable for the losses belonging to the Wall Street funds. The money managers at those funds should be held accountable for large, questionable positions. Hopefully they have learned that they can’t publicly release their opinions without having a public reaction. Unfortunately, the people who are really getting the short end of the stick. It’s one story when the market as a whole is unsure and doesn’t want to buy or sell. It’s a whole other story when the means of making bets won’t allow its customers to do so. Charlie Brown won’t ever get the football, and if this kind of precedent continues, the average Joe won’t ever get to enjoy a free market. They won’t ever be on winning team if the other team changes the rules every time something doesn’t go their way. And that’s messed up.
Side note: as we were so tired of 2020, I’m sure many of us were looking forward to a return to normalcy. However, if the rest of 2021 goes like January has, we will have a long way to go to get to normal.
Sources:
https://www.thestreet.com/investing/gamestop-soars-as-retail-faces-wall-street-in-epic-battle
Bayou Observant 