Big investors on Wall Street are losing their minds after a group of small investors with trading accounts ranging from $500 to $2,500 came together to take “down the billionaires,” Charles Payne a Fox Business host told “Tucker Carlson Tonight” on Wednesday.
The “Making Money” host talked about the sharp rise in GameStop’s stock price when a group of Reddit users decided to get together and buy up the retailer’s call options, which shot the company’s stock prices to incredible levels that hurting market short-sellers.
Here’s the thing. The hedge fund millionaires and billionaires don’t actually buy the stock. They pay for the option to sell it short. The Reddit folks were actually buying the stock while the rich guys were paying much lower amounts to sell short. For those who don’t know about it, the way it works is investors who think that a stock price could fall can borrow, not buy, shares of the stock in order to sell them when the price drops, and then they can buy them back at the lower price and make a fortune when the stock rises again.
“These hedge funds selling this stock, they don’t own the stock, so they borrow it,” Payne explained. “Imagine you borrow a stock that’s trading at $10 and then you drive the share price down and then you buy it back for a dollar. You make the difference, nine bucks.”
He continued, “They are allowed to short so much stock,” he said. “Do you know the amount of stock that was out on GameStop? Let’s just say 100% of the shares that are out, they shorted 140% of the stocks, so they borrowed the same stock over and over, and over, the same shares and sold it into the market.
“Their job, their mission was to drive GameStop to zero,” he added. “No one said a word on any financial network, particularly CNBC, which always lets the shorts come on …”
Well, small investors who got fed up with such a scumbag way to make money while harming the little guys who end up with worthless stock thanks to the shenanigans of rich Wall Street types revolted against Wall Street, they took action and drove the price up and through the roof.
Payne said the strategy is called a short squeeze, “and it’s working.”
“Wall Street is losing its mind and Wall Street now wants to change the rules of the game because a bunch of people with accounts ranging from $500 to $2,500 are taking down the billionaires.”
Well, it turns out that only the little investors must play by the rules, because Robinhood, the online broker’s trading app, has now restricted trading for certain securities, and GameStop is one of them. They’re doing this to help the rich hedge fund guys get their money back that they lost while playing the game under the same set of rules as the small investors. Meanwhile, the small investors are getting screwed and they can’t even get into the app to save themselves from losing all if not most of their investments.
Shares of GameStop Corp, along with others like AMC Entertainment Holdings, Bed Bath & Beyond Inc., BlackBerry Ltd., Express Inc., Koss Corp., Naked Brand Group, and Nokia Corp. are now restricted to “position closing only,” Robinhood announced in a blog post.
This action comes down to traders are not allowed to initiate new positions in shares for those companies and now can only sell their existing holdings. On top of that, they increased margin requirements for certain securities.
On Tuesday, in a statement given by Interactive Brokers, they said they shifted options trading in AMC, BlackBerry, Express, GameStop, and Koss to “liquidation only.” The platform also increased margin requirements for long stock positions to 100% and for short stock positions to 300%. That knocks smaller investors out of the running, and it should be 100% illegal.
GameStop Corp shares skyrocketed up 1,642 percent from January 12 through January 28. AMC Entertainment climbed 769 percent and BlackBerry gained 229 percent.
Both Interactive Brokers and Robinhood are catching hell on Twitter for their disastrous decisions.
“So are @robinhoodapp and @IBKR ending trading in #wallstreetbets stocks because they are losing their ass on these trades? Or maybe they dont have the cash to enable the trades at this scale?” asked Dallas Mavericks owner Mark Cuban “Anyone have any insight on their economics?”
Dave Portnoy, founder of Barstool Sports said, “Somebody is going to have to explain to me in what world @RobinhoodApp and others literally trying to force a crash by closing the open market is fair? They should all be in jail.”
was outraged over the decision and talked about how unfair it is.
A little over three hours later Portnoy made another video explaining what happened and giving another strong-worded opinion on how the rich protect themselves at the expense of everyone else.
Other Twitter users were none too thrilled either about losing money because of the decision made by Robinhood.
Ironically, what Robinhood did here was the polar opposite of the fairytale story by allowing the rich to take advantage of the poor. They should change their app name to Nottingham Castle.