LogFAQs > #950027702

Ok let me know if there is something you don't get.

Melvin Capital and Citron Research were buying a lot of shorts on GameStop. Basically you buy a short expecting the stock of a company to go down. You buy a stock from someone that already owns the stock at $10. You sell it immediately, meaning you now have $10. Say that stock goes down to $5 at the agreed upon time you need to sell it back to them. You need to buy back that stock in order to give it back to them. But now, since the stock is at $5, you pocket $5 since you don't need to use the full amount to buy back the stock. That's a short.

The downside of a short is say that stock doesn't go to $5. Say it goes to $500. Now, you need to spend $500 of your own money to get that stock back because you have to give it back to the original person. The think about shorts is they can theoretically go as high as possible, so it is risky because you're losing all that money.

When big wall street firms short stocks, they're basically driving down the price of the stock because they're telling everyone "hey this company is worthless and all these stocks are actually shorts". I think GameStop was at something crazy where this huge amount of all total stocks were shorts. Someone on r/wallstreetbets noticed this. So they told everyone, "hey these garbage firms are shorting gamestop. we should all buy stocks!" This was done for a couple of reasons. First, because fuck those guys for shorting companies and fuck those guys for being rich and fuck those guys for making all this money by rigging the market for all these years." That, honestly, was the main reason. We buy the stock, it drives the price up, and all those guys are going to lose money because they need to buy back the stock at these insane inflated prices. If you go to r/wsb the biggest factor isn't "WE'RE GONNA BE RICH" but "THEY'RE GONNA SUFFER". That's what all the memes are for.

However, it has the "side" effect of making some of these people a lot of money. Some will not sell no matter what because they want the prices high because they want those companies to suffer the maximum loss possible regardless of what happens to them. r/wsb has millions of people going there, and if all of them are pumping money into the stock, it keeps going up and up. And then those two companies still need to buy back the stock they originally sold. So then you compound upon all these r/wsb people buying with the companies now needing to buy back the astronomical amount of shorts they bought earlier. And what happens when they buy back all the stocks they need to buy back all at once? The price goes even higher. It's called short squeeze and it sent GameStop prices absurdly high.

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Moops?
"I thought you were making up diseases? That's spontaneous dental hydroplosion."