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by manfredo
1941 days ago
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New leadership prompting a 5-10x increase in valuation? Dubious. And Robinhood didn't shut down trading at $40. They shut it down in the $300-$400 range. To be frank, anyone that thought this price was driven by people who genuinely thought gamestop was worth that much is just willful ignorance. There was no good option for Robinhood. Keep trading open? Be complicit in a pump and dump. A pump and dump that may be legal by virtue of the fact that it's decentralized, but it's still a pump and dump and Robinhood probably doesn't want to take it's chances. Ban both buy and sales, and people lose money because they can't sell their positions. This is worse. Doing what they did was the best option. Not a good option, and one that still left a lot of people unhappy. Sometimes the best option is still a bad option, it's just the least-bad option. |
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When a stock is shorted 140% of its outstanding shares it's simply a supply/demand math problem. Eventually those short positions come due via whoever owns them paying too much interest or a margin call and they have to buy actual shares. This demand for shares makes the stock go temporarily up when there aren't enough shares to go around. This happened with VW in 2008 and they temporarily became the most valued company on the planet via a short squeeze [1]. It is a simple supply/demand market correction.
Retail traders, and I'm certain other large investment firms with huge amounts of capital, tuned into this and bought shares knowing that the situation would resolve itself. There are a half-dozen other stocks with similar but smaller short percentages.
Robinhood is doing the opposite of their name, they give people an outlet to dump their money and risky features to lose it quickly. They have been fined by the SEC [2] for not disclosing revenue sources and "provided inferior trade prices that in aggregate deprived customers of $34.1 million" they take deposits from the ignorant, let them do risky things which give their money to Wall St.
[0] https://www.investopedia.com/terms/p/pumpanddump.asp
[1] https://www.autoweek.com/news/industry-news/a35340727/heres-...
[2] https://www.sec.gov/news/press-release/2020-321