The Young, Smart, Scrappy Reddit Traders Who Were Winning, Were Just F@%ked Over By The Short Selling Hedge Funds And Their Cronies

By Jack Kelly

The media loves to label people. Instead of calling someone an “investor,” they’re a Reddit or Robinhood “day trader.” The insinuation is it’s some kid smoking weed on the coach, willy-nilly.  buying stocks without any rationale.

The Wallstreetbets subreddit on Reddit boasts over three million members. It’s hard to believe that each and everyone one of them falls into this stereotype. A large number of them, as well as other young investor-traders, do their homework. Many have bought out-of-the-money call options, which is a relatively sophisticated approach.

Recently, an army of young Gen-Z and Millennials went to war with some high-end hedge funds. The story plays out like the Bad News Bears. A bunch of quirky, scrappy kids, after messing around, trying to learn how to really play baseball, finally got their acts together and made it to the championship game against the top team—the Yankees.

In this tale, the young traders were going up against the best hedge funds and were winning. The young guys brilliantly found a chink in the armor of the hedge fund bros’ suits. The big-money rich guys sold stocks short, betting companies like GameStop would go out of business. The Reddit and Robinhood traders bought the stock and options, which forced the hedge funds to cover their positions that led to an ever-increasing share price.

Things started to look awesome. There were celebrations and congratulations made to one another savoring their victory. The money was important, but many of them saw this as a “good versus evil” or “the little guy” up against the entrenched wealthy elite. The Bad News Bears looked like David slayed Goliath. If some of the returns that were posted on the subreddit were true, many made some nice returns and a few saw paper profits in the hundred of thousands of dollars and a few in the millions.

One of target hedge funds, Melvin Capital, needed to be bailed out by two larger hedge funds to stem their losses. It had seemed as if the Bad News Bears handily won the battle. Well, the story doesn’t end here.

On Thursday, Robinhood—the favored platform for these traders— added new limits to its app to restrict users from buying the stocks that were liked by the young, hungry traders. They included GameStop ($GME), AMC ($AMC), BlackBerry ($BB), Bed Bath & Beyond ($BBBY), Nokia ($NOK) and others.

The company claims that “in light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities.”

The U.S. Securities and Exchange Commision—the premier Wall Street regulator—got into the action, seemingly on the side of the rich money managers. “We are aware of and actively monitoring the on-going market volatility in the options and equities markets and, consistent with our mission to protect investors and maintain fair, orderly, and efficient markets,” the SEC wrote in a tweet.

These moves highlighted the clout held by the rich hedge fund honchos. The decision seemed like it was made to break the backs of the traders and help out the rich hedge fund guys. Members of the WallStreetBets subreddit levied accusations calling the decision “market manipulation.” After Robinhood and other online brokerages took similar actions, the traders’ favorite stocks collapsed in value. The Bears lost the championship to the Yankees. The powerful, well-connected elites beat the young upstarts.

Only in this crazy pandemic could a ragtag group of traders bring both Democrats and Republicans together on an issue. It’s not just the traders who are fuming. “The anger is bipartisan. Rep. Alexandria Ocasio-Cortez (D., N.Y.), Rep. Ro Khanna (D., Calif.), Sen. Ted Cruz (R., Texas) and even Donald Trump Jr., eldest son of the former president, have all called out the situation as unfair for individual investors,” reported Yahoo Finance.

The well-known, high-profile politicians mutually agree that it smacked of unfairness that the rich hedge fund bros could continue buying and selling wherever they pleased, the average retail investor couldn’t buy the stocks they wanted. “This is unacceptable,” AOC tweeted on the news. “Fully agree,” Ted Cruz responded. In a statement on Thursday, Democrat Rep. Ro Khannna of California also supported the small investors’ rights to buy.

“This entire episode has demonstrated the power of technology to democratize access to American financial institutions, ultimately giving far more people a say in our economic structures,” he wrote. “This also showed how the cards are stacked against the little guy in favor of billionaire Wall Street Traders.”

“While retail trading in some cases, like on Robinhood, blocked the purchasing of GameStop, hedge funds were still allowed to trade the stock,” Khanna added.

“Individual investors are being stripped of their ability to trade on @RobinhoodApp. Meanwhile hedge funds and institutional investors can continue to trade as normal. What do you call a market that removes retail investors’ ability to buy to save institutional investors’ shorts?”

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  1. March 27, 2021
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