A couple of things regarding this mess. First of all the Robin Hood/Wall Street Bets crowd identified an arbitrage opportunity by recognizing that several hedge funds were short a total of 140% of the total outstanding float of shares of GameStop. So they banded together and started running up the share price on this stock, which as it soared in value forced the hedge funds to either cover their shorts at huge losses or borrow the shares for delivery at high rates in the stock loan market. In this instance, thousands of small investors caught the big boys with their pants down and crushed them, nothing wrong with that.
This works well if anyone holds their position but you cannot blame someone for taking extraordinary profits in the trade. So once the crack in the dyke started it became a flood of selling. I would imagine hedge funds were among the biggest sellers at the highs, (hey if you are going top lose your job you might as well double down.)Trapping some of the longs at ridiculous prices and wiping them out as they ran for the exit. Saw an interview with an analyst who has covered GME for 16 years. He had the most optimistic earnings call on the stock at something like 95 cents per share, which would mean the stock should be trading at $20 per share. The average earnings call from his fellow analysts was something like a loss of 19 cents a share. To justify some of the lofty prices at which GME traded would mean they would have to earn over $20 per share this year. Not gonna happen.
I will not shed any tears about hedge funds getting their lunch money stolen, they have been screwing over the general public for years, ever hear of “Frontrunning orders”? Heck Robin Hood MAKES their money by selling their stock orders to the big boys who then execute those orders in the most advantageous manner to benefit THEMSELVES, not the retail customer. If you think you are getting best order execution on your minuscule stock trades, dream on McDuff. Anyway, perhaps the SEC will limit shorting of shares to 100% of the float of any one company, might be a prudent move. But if you think that the small investor would win more than one round against the titans of Wall Street, you are delusional. The High Frequency traders are in and out of the trade before your buy order hits the tape, They have computing power and telecommunications supremacy that allows them to execute orders in milliseconds on exchanges all over the world. Even the biggest get a bloody nose once in awhile a some even get wiped out, remember Long Term Capital? Damn near took down the whole system.
Some folks made a great deal of money in this trade, good for them. When all is said and done most of the buyers of these shorted stocks will have lost their investment. I can only hope they only bet what they could afford to lose, somehow I doubt it.