1/2 Short selling means borrowing shares and immediately selling them. When the price goes down, they buy them back for cents and return them to the lender. This usually speeds up companies going out of business. Redditors noticed that they tried that with Gamestop, so they…
Bear Raid is not an offensive formation now at Mississippi State, but rather capital formation of a fictitious nature. Killing one bear because you made yourself appear larger and scared it so it fell off a cliff is not killing an entire hoard still hibernating, and allowing their cubs to be shot while they sleep. The COVID pandemic has caused an alveolar bubble in the global capital market. GameStop is a cough from popcorn lung. It’s not ants swarming a predator or bees overwhelming a giant killer hornet. It’s the romance of Davids against a Goliath that remains as imaginary as all fictitious capital.
In the midst of the Great Depression, people who bet on stock-market declines were considered unpleasant, unwanted, un-American, un-something. Yet as a New York Times writer noted in February 1932, “The bearish speculator is not often reviled in healthy markets; it is when prices are declining that opprobrium is heaped upon him.”
Short-selling transactions involve a broker “lending” equity shares to an investor, who pledges to return them at a later date. Usually, the broker sells the shares, credits the investor’s account, then waits for the investor to repurchase and return them. If the buyback price is lower, the account balance, less fees and interest, represents profit; if the price is higher, the investor adds funds and takes a loss. Short sales can yield big gains when markets collapse, but analysts have long debated whether they accelerate price slides or instead help establish “fundamental” values after a bubble.
With stock prices still discouraging in early 1932 — with every upward movement seemingly followed by another slide — a House subcommittee began hearing testimony about “bear raids,” or traders driving down a target stock through extensive shorting, perhaps helped by fabricated rumors.
The governors of the New York Stock Exchange took preventive action on Feb.18. As borrowing investor-owned shares held by brokers was the crucial step in short selling, the exchange ruled that after April 1, share lending could be done only with the owners’ written permission.
Financial historians soon pointed out that shorting had been blamed for price declines at least as far back as 1610, when the Dutch East India Company’s value plummeted and the Amsterdam Bourse banned the practice.
Whitney promptly traveled to Washington to defend shorting. “If there had been no short selling,” he told the subcommittee, “I am confident that the stock exchange would have been forced to close many months ago.” After delivering a 12,000-word statement, he pledged to resign “if government regulation should take place.”
The subcommittee’s chairman, Democrat Henry Tucker of Virginia, was unconvinced by this rule: “My opinion is that if an evil exists, it should be prohibited by law not by the perpetrators,” he said, according to the New York Times.
At a press conference, President Herbert Hoover announced that he had spoken earlier with the exchange’s president, Richard Whitney, and demanded a curb. He said: “The managers of the exchange should take adequate measures to protect investors from artificial depression of the price of securities for speculative profit. Individuals who use the facilities of the exchange for such purposes are not contributing to the recovery.”
The exchange’s new rules, he added, didn’t aim to correct prior abuses, for there were none. “We merely tried to clarify what seemed to be a confusion in the minds of a great many people.”
As consoling as a divestiture protest market might be, even in the long run there may be no economy left to force institutional change. This capitalist skirmish is now being fought at an institutional level, with the agency of individual investors largely marginal. The banks still won this interesting battle, brought on by a few folks with extra cash and more than a few annoyed by greedy capitalists. It’s not going to bring capitalism down despite the need for greater regulation and its implied greater potential control of financial markets after the idiocy of the Trump administration. As Fed Chair Jerome Powell said, “people took their terminals home.”
The Reddit-fuelled GameStop short squeeze isn’t a threat to capitalism, because the rich can’t be beaten at their own game – but it does show the power of collective action to expose corrupt systems.
Pension fund socialism is based on a very appealing idea: that social change can happen slowly, iteratively, and without much overt conflict. Rather than fighting against their bosses on the factory floor, or against the capitalist state that exists to defend their bosses in the streets, workers could use their power as owners to pressure businesses into acting more responsibly.
And when you add it all up, this power is quite substantial. According to the ONS wealth and assets survey, total private pension fund wealth in the UK is £6.1 trillion – 42 percent of total wealth, and much more than double the UK’s annual output. A substantial portion of this pot is, in one way or another, invested in the stock market. In theory, workers could use their power as shareholders to force companies to raise wages, improve conditions and reduce their carbon footprint.
Unfortunately, Druker’s Unseen Revolution failed to translate into the kind of movement that might have really posed a threat to capitalist social relations. Partly, this is because of the large costs that would be associated with collective action among those with private pension wealth.
‘If socialism is defined as “ownership of the means of production by the workers” […] then the United States is the first truly ‘Socialist’ country.’ — Peter Drucker
More importantly, it results from the fact that pensions wealth is highly unequally distributed. The wealthy have a lot, the middle classes have a little, and many have almost nothing. In other words, ‘people with pension wealth’ are not a class – they do not have a shared set of common interests that could bring them together to agitate for social change.
Enter: Redditors with stimulus cheques. Over the last few months millions of ordinary people, armed with the cash distributed by America’s successive Covid-19 stimulus programmes, developed a plan to bankrupt hedge funds that were shorting a set of stocks – including GameStop, a video game retailer.
[…]
The Redditors realised that they could screw the hedge funds if they all banded together and executed a ‘short squeeze’, pushing up the price of stocks like GameStop and leaving the short-sellers liable to cover the difference.
In ordinary times, such a strategy would have been unlikely to work: retail investors aren’t usually big or coordinated enough to have a significant impact on prices. But we’re not in ordinary times.
Redditors took on hedge funds over GameStop and AMC Theatres stock and won. So what now?
Wall Street giants are calling foul after having been beaten at their own game by a bunch of guys on the internet. It's hard not to cheer, writes @samthielman.https://t.co/wvmgG74Vq6
U/ronoron and his comrades decided to make all those shares of GameStop that Melvin had borrowed and then sold a lot more expensive to buy back. They bought call options — which is to say they bought the right to buy GameStop stock if the cost rose to a certain price — and then got their friends on the site to do the same thing. With so many people buying calls on GameStop at bizarrely high prices, the stock price started to rise … and rise, and rise some more.
Melvin Capital was a tempting villain, and it has already cried uncle, closing out its short options on GameStop at an enormous loss. It was able to do that and remain in business only because of backing by billionaires Ken Griffin — who, coincidentally, owns Citadel Securities, which bought Robinhood’s order flow — and Steve Cohen — the owner of the New York Mets and the subject of a number of discrimination complaints — both of whom paid fortunes to cover Melvin’s losses.
Robin Hood was not about its eponymous signifier because it wasn’t interested in income redistribution after unleashing social banditry on feudal lords.
The stock market isn’t the economy –– it’s a casino where billionaires exploit growing economic disparities & regulations are only called for when it’s the people on Wall Street getting hurt. The system is deeply broken & we need drastic reform. https://t.co/9k0pas62ju
In ordinary times, such a strategy would have been unlikely to work: retail investors aren’t usually big or coordinated enough to have a significant impact on prices. But we’re not in ordinary times.
Firstly, there’s no way of knowing what the real ‘value’ of any one share is because a decade of central bank asset purchasing programmes have blown equity prices out of the water. On the face of it, almost all US stocks are overvalued. And if they’re all overvalued, then none of them are overvalued.
Secondly, we’re living through hugely uncertain times characterised by substantial volatility in financial markets. In essence, everyone is making bets in a context where no one really understands what’s happening or has any good reason to expect they can predict what is going to happen tomorrow. In this context, perceptions of what’s ‘safe’ and what’s ‘risky’ become skewed.
Thirdly, the US—as the foremost imperial power with the capacity to print the world’s reserve currency—is seen as a safe harbour in a world full of uncertainty (the flip side of this has been mass capital flight out of the world’s poorest states, in some cases leading to severe debt distress).
Finally, there are now millions of retail investors with extra cash lying around thanks both to stimulus cheques and the extra savings that many better-off consumers have been able to build up over the course of the pandemic.
The combination of all these factors is creating the perfect conditions for bubbles – or, as some have argued, one giant bubble. In these conditions, a coordinated short squeeze by a large enough group of wealthy enough retail investors has the potential to significantly impact the market. And it did – the Redditors almost bankrupted one hedge fund.
First: RH was not the only brokerage to restrict buying in $GME et al. Much of the below applies to many brokerages. I’m going to use “RH” in my writing for simplicity and because it’s the most prominent, but it’s not fair to call this a RobinHood issue, per se.
The restrictions impacted retail AND institutional players – many institutional prime brokers (“PBs”) did the same thing to their hedge fund (HF) clients.
Why?
Surely PBs can’t be trying to punish their own clients just to benefit Citadel. There must be something else happening…
Let’s talk plumbing. 🪠🪠
Most RH clients (& all HFs) use “margin” accounts, not “cash” accounts. RH’s sign up process nudges new customers into margin accounts by default.
Whether RH should do that is worthy of discussion another day.
This is a story of lending and capital.
Margin accounts are Wall Street’s way of denoting lending accounts.
Practically speaking, in margin accounts, the client does NOT own *any* securities. Rather, margin account holders “own” a promise from their broker.
Yay.
When an RH’er buys $GME, a whole bunch of things happen behind the scenes, all of which are the ugly plumbing of Wall Street.
I’m simplifying, but because the buyer does not know who the seller is, the brokers for both buyer & seller use a 3rd company called DTCC to actually match & “clear” stock transactions, moving title from selling broker to buying broker while ensuring proceeds are moved on time.
Side Note for Later:
For equity options contracts (puts and calls), the primary clearing entity is OCC (Options Clearing Corp). I’m going to refer to “DTCC” below, but know that the same story can be told for options with OTC.
Clearing for US equities is generally a “T+2” process: settlement takes no more than 2 days from the trade. But the Buyer’s & Seller’s brokerage accounts generally reflect the transaction immediately – behind the scenes, there is lending. Lending means “counterparty credit risk.”
DTCC provides its balance sheet to guarantee settlement. But its balance sheet isn’t that big, so it has to tightly manage counterparty risk to guarantee accurate settlement.
In this way, DTCC is both a central repository for Title, and also the guarantor of Title.
This guarantee is typically an extremely low risk proposition. However, “low risk” does not equal “no risk”
Generally, DTCC holds the “physical” title to your stock. This speeds up settlement: DTCC simply assigns title from one DTCC client to another, to clear the transaction.
DTCC clients are the brokers, and so the title is held in “Street name” (the broker’s name), not your name.
So, you bought $GME in your RH margin account: what’s happens behind the scenes?
1) You buy
2) At day’s end, RH nets all the money it needs to send to DTCC
3) If RH is a net sender, it generally borrows that money cheaply via interbank lending, & sends it to DTCC
4) DTCC sends net proceeds to brokers due to receive
5) Formal settlement happens within 2 days
If you look at that, there are different windows of credit risk.
1) RH vs. DTCC: Between transaction time (e.g., you buy @ 9:45am) and close of business (when net proceeds go to DTCC);
2) DTCC vs. DTCC: Between the time DTCC sends net proceeds & formally settles the transaction
3) Selling Broker vs. Selling Client: Selling Broker fronts its client credit for the proceeds immediately upon transaction;
4) DTCC vs. Selling Broker: DTCC owes the selling broker proceeds at day’s end;
5) RH vs. RH Client: (see next Tweet)
RH vs. RH Client:
You deposit $10,000 in your RH account to open it. It’s a margin account. You start buying stocks for zero commission.
You’re not paying anything, so RH doesn’t make any money on that…or do they?
It’s actually not particularly important to the story, but we all know RH’s real customer is not you – you are the product.
RH’s *real* customers are buyers of “order flow”, the largest of whom is Citadel (the same Citadel that bailed out Melvin Capital with Point72 on Monday)
Just because you aren’t RH’s real customer doesn’t mean they don’t care about you – they need you to be happy and active in order to continuously sell you to Citadel.
Citadel et al get a sneak peak at RH’s order flow (ie, pending trade activity) & use that to “provide you liquidity” (ie, front-run your trade).
Citadel makes tiny amounts on each transaction (on average), slightly reducing the quality of your execution (on average), but allowing you to pay no explicit commission.
So now you own $GME stock in the margin account.
Actually, you don’t – RH owns the stock and simply passes through many of the rights of ownership to you, crediting you with quasi-ownership.
This is important because if RH failed, you would not “own” your stocks, per se. You would be a creditor with a claim against RH. This is a key risk of margin accounts. See Lehman Brothers.
When you signed your customer agreement and terms of service, you gave RH the ability to take the stock you bought and lend it out to others to short. Depending on how “hard to borrow” that stock is, RH gets paid a variable rate for this stock loan.
While many brokers share the proceeds of stock lending w/ clients, RobinHood does not. RobinHood keeps it all.
This is a critical way RH gets paid. This payment can be VERY large on hard to borrow names.
Lending $MSFT, which is easy to borrow, pays very little.
Lending $GME, which is very hard-to-borrow may pay 50-100% (or more) per year. The “borrow rate” is set by the market and is frustratingly opaque. The rate gets reset daily as the difficulty of borrow goes fluctuates.
Shorting In practice:
Somebody wants to short $GME. Most HFs that short-sell first ping their PB to “locate borrow”.
In order to meet legal requirements, the broker has to find un-lent shares (so the same shares aren’t lent twice). The PB will “tag” those shares, indicate to the client the prevailing cost to borrow, and provide the client a “locate ID” that guarantees that client those shares.
Information in hand, the HF manager decides whether to go forward. If she wants the short, she instructs her trader to sell, and provides the trader the Locate ID (tagged to the shares that were shorted) to match with that transaction, so that everything works on the back-end.
Let’s look at the HF’s transaction:
– The PB lent the HF specific $GME shares, which the HF immediately sold, receiving cash.
– The HF balance sheet is: owes shares and has cash…
– The HF receives money market interest on the cash in its account (called “short rebate” – this is nominal in today’s ZIRP world, but can be meaningful in a high interest rate environment)
– The HF pays borrow cost on the owed shares
As you know, because the HF owes shares, and not money, its performance moves precisely inverse to the share price movement (profit on decline, lose on increase).
Behind the scenes, the PB deals with plumbing. The PB needed to find someone who owned the $GME shares with clean title. Ideally, the PB found those “in house” (from another client of the same brokerage), but often they locate them from a 3rd party (like RH or another PB)…
The PB pays RH daily for the borrow, and charges its HF client daily.
Now zoom out:
RH’s margin client (a retail investor) *thinks* he own shares. He never did, because it’s a margin account.
RH itself actually owned the shares (in Street name). RH lent those shares to a HF PB (aka “hypothecation”), in exchange for daily borrow fees.
That loan creates a debit/credit relationship between RH and PB. The PB took those borrowed shares and re-lent them to its client, who sold them to a 4th party. The RH client and the 4th party simultaneously “own” the same shares.
Summary from various perspectives:
– The RH Client has a stock *credited* to its margin acct. This is actually a promise from RH
– The HF owes GME stock + borrow interest. It owns “cash” from the short sale, which is credited to its margin account. It receives interest on that cash (even that cash is actually just a promise from its PB)
– RH has a security loan to PB, and collects variable borrow interest in the meantime
– PB owes RH stock and daily borrow interest. PB holds HF client margin account assets as collateral. HF pays PB a daily borrow rate. PB scrapes a vig off the borrow rate and pays the balance to RH
– A 4th party owns the actual shares that the RH client thinks *they* own
And
– DTCC is recording the ownership chain and ensuring cash from purchase and to sale flows through.
DTCC’s main worry is that someone mid-chain hits a problem. If that happens, the problems flow all the way up the chain to RH’s client and down the chain to DTCC.
In this way, RH is at risk to downstream problems.
The plumbing metaphor is apt: when you flush, a downstream clog causes a mess that backs up into your toilet. Don’t handle that clog well & you end up with a mess on your floor. Handle it *really* poorly & you burst a pipe – wastewater seeps into your walls.
To avoid this, DTCC has risk-weightings based on the counterparty and the securities. When $GME became the most volatile asset in the world, it created massive risks to the system. Likewise, DTCC views transactions from margin accounts as riskier than from cash accounts.
From the broker’s perspective, its risk w/r/t margin accounts is mitigated by the broker’s ability to close clients out of positions, liquidating them when risk thresholds are breached.
Stocks that are extremely volatile increase the odds of breaches.
To mitigate the risk of a failure to get paid, DTCC requires brokers (like RH and PB) to keep collateral on deposit at DTCC (cash and Treasuries) in proportion to the risk that broker poses.
As more and more of a broker’s DTCC assets increase in risk (e.g., $GME becomes disproportionately part of RH’s assets), DTCC says to RH “you need to send us more collateral.”
Collateral means liquidity.
Liquidity is the oxygen of financial markets. Accessing liquidity is easy when you don’t need it and hard when you need it. So maintaining big buffers is important.
So far, I have skipped a MAJOR – perhaps THE MAJOR – part of the $GME story: Options.
If you’ve seen my Tweets from the past few days, I said the GME situation is no longer Retail vs. Hedge Fund – it is Hedge Fund vs. Hedge Fund.
The dollars at play are unbelievably massive in relation to the companies we are all talking about.
Everyone – both the longs and the shorts – knows that $GME, $AMC, et al are ALL shorts, in the long-run. In the meantime, they are trading footballs. The players are all punters and hunters.
The punters are gambling. Many gamblers are skilled, but most are patsies. The median punter loses money.
The hunters are trying to figure out how to capitalize on the inevitable long-run outcome, “I know GameStop will be lower in the long-run, how do I profit from that?” They tend to be choosy.
In the case of a short squeeze, the “long-run” is just the other side of the squeeze. It could be days; it’s not likely to be many months. If you look at historical analogs, the collapses are as breathtaking as the squeeze.
This is where options come into play.
Buying options is a way of borrowing money, but capping your risk of loss: you cannot lose more than you put in but you receive nearly uncapped upside.
In exchange for capping your max loss and getting exposure to huge upside, options have fairly high odds of expiring worthless.
If buying options provides nearly uncapped upside, then – tautologically – selling options has nearly uncapped downside. Sellers collect premium up front, and most of the time you keep it. But, when you lose, it can be bad.
Selling options resembles an insurance contract from the insurer’s perspective. Receive small up-front payments, and occasionally pay out big in disasters.
Selling options is the classic “picking up pennies in front of a bulldozer.”
Some people joke that when you buy options, you join a group of people throwing pennies toward a guy in front of a bulldozer. If the bulldozer runs over the guy while he’s picking up *your* penny, you get to keep all the pennies in his pocket.
As the $GME “short squeeze” took flight, anyone who had sold calls was in deep shit.
Their toilet was flooding (and flooding and flooding).
If in December, when $GME was at $15, I sold $20 strike calls on GME with a Feb expiration for $1.75, I’d have received $175/contract (each contract represents 100 shares).
Above $21.75, I start losing money.
With $GME at $300/share, that contract now sells for $280 ($28,000).
I’d have lost $27,825 per contract ($280 x 100 – $175).
That means I lost ~280x the premium I received.
No bueno. Even a TINY position could bankrupt you.
[I’m not going to go into this, but many market participants finance their option purchases (i.e., borrow on margin to buy the option).
Your head might explode if you think about that too long…]
Back to plumbing: Guess what type of account nearly all options sit in?
Hint: Margin accounts.
If I sold that call, I obviously could not wait until $300 to start managing my losses: my solvency and the market’s rationality would be at loggerheads well before that, and my solvency would lose.
I’d be desperate to get long. If I didn’t do it myself, my broker would do it for me. The broker would liquidate me as soon as I become a real credit risk to them. If they are nice, they might give me some warnings first, and let me try to cure.
I (or my broker) could mitigate this risk by
– Adding additional collateral (infuse cash: see Point72 and Citadel with Melvin)
– Closing out the sold call (buy it back at a loss);
– Buying enough stock to offset the call (but I have a margin account…
… and that would increase my use of balance sheet); or
– Buy a call with a higher strike that has the effect of capping your loss (also a use of balance sheet, but arguably more efficient)
However, for you to buy that higher call, somebody else has to sell the call. In the midst of the squeeze, option sellers can see the shadow of the bulldozer, and are no longer sanguine.
Very few people want to sell calls on something they’ve watched go up 15x in two weeks, but gamblers might. This culls the supplier of option selling down.
Conversely, everyone wants to buy options. Hunters and punters alike scour the universe to buy cheap puts (puts win if the stock declines enough). Today, because demand is so high, put pricing has skyrocketed.
Importantly, buying puts creates implied short exposure, which means the implied notional short exposure for GME can be much, MUCH bigger than it looks like.
Recall, everybody believes the collapse is coming: hunters and punters alike. The question is when.
Nobody wants uncapped exposure to losses. This means that people who are selling options at one strike are likely buying options at another strike to limit their exposure. The total amount of option notional outstanding is growing and growing and growing.
Despite the high cost, options are the preferred method for sophisticated hunters to play. Everybody wants to own options on GameStop but nobody wants to sell them. Price goes up until they entice the marginal seller.
Sellers don’t want to pick up pennies, but they might be willing to pick up hundos.
This week, the strangest thing began happening in $GME options (actually earlier, but it became very obvious on Tuesday). Even as GameStop hit moonshot phase, the price of its puts barely budged.
If you owned a Feb 19 $70 strike put on Monday, it traded for $20-$25. $GME stock closed at $77. At $20, the put price implied that the breakeven price for a new buyer of that put requires $GME stock falling by 1/3 and going to $50 by Feb 19th. A big move. Expensive options.
You will recall that on Tuesday, GameStop nearly doubled, closing at $148 and on Wednesday it more than doubled, closing +$200 at $348.
That same $70 strike put closed Wednesday at $19. The stock was up $270!!! and the put only declined one dollar!!!
The perceived risk of loss to an option seller for that $70 strike option was basically unchanged even as GME went from $77 to $370.
Crazy.
A put that is 72% out of the money and expires in 3 weeks normally trades for pennies, not $19. Arguably it was trading for 100x a more standard price for a put that far out of the money and with that little time left before expiring. Options use lots of “Greeks”: delta, theta, gamma.
It is not practical to get into implied vol and gamma in a Tweet, but suffice it to say, “something broke.”
On Thursday, as $GME’s stock price fell >$150, that put increased in value, which makes sense. But only by $2, to $21. Hardly a budge. Insane. With the stock price not behaving like anything normal, the options market basically told the stock market “I don’t believe you.”
It was as if the out of the money puts market simply ignored multi-hundred dollar stock price swings.
Go back to the broker or client: they’re using options to hedge equity positions (or vice versa), but all of the sudden there is no meaningful correlation between the two.
All the “normal” relationships shattered.
This is quantitative risk management death. You die and go to balance sheet hell. At the River Styx awaits Citadel, saying “oh, you need a ride?” So now, what?
You either have to unwind or… do more.
More exposure is the answer and the problem. You can’t do it but you feel like you can’t not do it. Instead, you de-gross. Sell anything you have that is liquid. Sell your Microsoft. Sell your Facebook. Sell it all. Get exposure down.
The amount of capital at play in $GME et al, through options, is astounding. Because the expected relationship between the equity and options markets is failing, we have what I have been calling a “Gamma War.”
Thomas Petterfy, the founder of Interactive Brokers (a better alternative to RH, IMO), said the following to CNBC (cnbc.com/2021/01/28/int…).
“We are concerned about the ability of the market and the clearing systems, through the onslaught of orders, to continue to provide liquidity. And we are concerned about the financial viability of intermediaries and the clearing houses,” he added.
“The broker stands between these customers and the clearing house,” said Peterffy. “So when some option holders make money, the clearing house has to give us the money to give it to our customers…
“…while other option holders, sellers or buyers on their own side lose money we have to collect money from them and give it to the clearing house. If our customers are unable to pay for their losses we have to put up our own money.”
Interactive Brokers has $10 billion in equity to cover these payments if need be, but Peterffy said he can’t say the same about other brokers with full confidence.
[end quote]
If you made it this far, you will realize it is those last few sentences that say it all.
Worse yet, if you are a brokerage where your clients are:
a) zooming in on the same small set of securities that, all of which are correlated (e.g., GME, AMC, BB); and
b) all taking the same side of the trade,
then with each new trade, your brokerage is onboarding more of the same risk. The capital required for the broker to fulfill more and more of the same, without risking the business, is large.
Your clients are all taking the same side – collateral is flowing one way. You aren’t receiving enough of the expected netting benefits from some of your clients taking the opposite side of the same trade.
It’s almost like a casino’s sports book where all the customers are betting the same team. Even as the line moves gets worse and worse, theoretically incentivizing bets on the other side, your clients just keep taking more of the same.
The House’s risk is building & building.
At a *systemic* level, this all basically nets out. But, at any given counterparty, it may not. That counterparty might be the client (a HF or individual) or the broker (RH or PB). Depending on where you are in the chain, you have different worries.
This is what Risk Management processes and systems are designed to mitigate. However, if your system did not consider this type of event, and you did not override with commonsense early on, you can be caught offsides.
Badly. Lethally.
There have been huge winners already. But if you are only a winner on paper, your story is not yet finished. The game is not over until the whistle blows. You need to ultimately be a winner in *realized* gains held in a safe brokerage.
Sophisticated players know this. They care about the quality of their counterparties and risk-manage their own portfolios.
…and that all brings us back to RobinHood.
Questions abound. Answers will be revealed in the fullness of time.
[End – phew]
Addendum: it’s also PB’s desperately managing their delta-adjusted nationals. These combine to create tons of risk-management driven buying and selling.
See the famous article by Anti-Hayek, "The Uselessness of Knowledge in Society"
The Dutch East India Company was established as a charter company in 1602, when it was granted a 21-year monopoly by the Dutch government for the spice trade in Asia. The company would eventually send over one million voyagers to Asia, which is more than the rest of Europe combined.
However, despite its 200-year run as Europe’s foremost trading juggernaut – the speculative peak of the company’s prospects coincided with Tulip Mania in Holland in 1637.
Widely considered the world’s first financial bubble, the history of Tulip Mania is a fantastic story in itself. During this frothy time, the Dutch East India Company was worth 78 million Dutch guilders, which translates to a whopping $7.9 trillion in modern dollars.
This is according to sources such as Alex Planes from The Motley Fool, who has conducted extensive research on the history of very large companies in history.
Tulips grow from bulbs and can be propagated through both seeds and buds. Seeds from a tulip will form a flowering bulb after 7–12 years. When a bulb grows into the flower, the original bulb will disappear, but a clone bulb forms in its place, as do several buds. Properly cultivated, these buds will become flowering bulbs of their own, usually after a couple of years. The Tulip breaking virus spreads only through buds, not seeds, and propagation is greatly slowed down by the virus. Cultivating the varieties that were most appealing at the time therefore takes years. In the Northern Hemisphere, tulips bloom in April and May for about one week. During the plant’s dormant phase from June to September, bulbs can be uprooted and moved about, so actual purchases (in the spot market) occurred during these months.[32] During the rest of the year, florists, or tulip traders, signed contracts before a notary to buy tulips at the end of the season (effectively futures contracts).[32] Thus the Dutch, who developed many of the techniques of modern finance, created a market for tulip bulbs, which were durable goods.[22]Short selling was banned by an edict of 1610, which was reiterated or strengthened in 1621 and 1630, and again in 1636. Short sellers were not prosecuted under these edicts, but futures contracts were deemed unenforceable, so traders could repudiate deals if faced with a loss.[33]
