Reddit Vs Big Hedge Funds (General)

by dulan drift ⌂, Thursday, January 28, 2021, 10:49 (1182 days ago) @ dulan drift

Here's an interesting 'kicking against the pricks' story. A group of Reddit users figured out a way to mess with big hedge funds - specifically short sellers.

The user credited with inventing the scheme, Deep Fucking Value, turned a 50k investment in Game Stop into 47 mil.

The technique appears to bet against the short sellers.

"Shorting, or short-selling, is when an investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference."

That's fine if the price goes down, but if it goes up, the shorter loses. In that case the shorter is in a mad scramble to buy the stocks he/she's borrowed to pay them back and limit losses - which in turn adds to the upward price pressure.

The Reddit users strategy appears to apply upward pressure on a stock that has been shorted, which is then exacerbated by the shorter trying to get out of the position, driving it up even more.

Whereas in normal stock buying, the worst case scenario is you lose 100% of your investment if a company goes bankrupt, in shorting, however, the skies the limit for losses. If the stock goes up 1000% then you lose 1000%.

Not surprisingly, despite hedge funds manipulating share prices as a matter of course, they are now crying foul.


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