GameStop Is Proof That Stock Markets Are Just Giant Casinos


"There's no point in being a grifter if it's the same as being a citizen."

—Henry Gondorff

It's taken me all day, and repeated viewings of the last scenes of Trading Places, but I think I have a handle on this whole GameStop/hedge fund story. From The New York Times:

Traders on the Reddit message board, WallStreetBets, a community known for irreverent market discussions, made GameStock their cause du jour and rushed to buy out-of-the-money GameStop options. (A sample comment on the board: “PUT YOUR LIFTOFF DIAPERS ON ITS ABOUT TO START.”) Both Elon Musk and Chamath Palihapitiya also egged on the crowd via Twitter. The frenzy has forced market makers who sold the options to buy the underlying shares to hedge their risk. As more traders snap up options, the brokers have to buy up more shares. That’s driving the astounding rise in the company’s stock price, which began the year at $19 and at the time of writing was around $230.

OK, so some Internet gamesters worked things so that GameStop's stock became worth many more quatloos than it was a while back. And this in turn caused some of the hedge-fund cowboys to lose many quatloos they had risked on the proposition that GameStop's stock would not go to Pluto.

Gabe Plotkin, the hedge fund trader whose Melvin Capital was shorting GameStop — and who recently raised a $2.75 billion bailout from Citadel and his former boss, Steve Cohen, amid the short squeeze — confirmed to CNBC this morning that he was throwing in the towel and had exited his position. Though Mr. Plotkin’s other short bets appear to be suffering, possibly because they are being targeted by traders (Melvin and Mr. Plotkin are often pilloried on the message boards), he said that his firm had plenty of capital.

Right. I've heard that one before.

Officials at the S.E.C. and elsewhere are closely watching internet chat rooms for signs of potential market manipulation, though they can do only so much without clear signs of fraud. If a big group of traders simply decides to buy options on a stock at the same time, out in the open, for the heck of it, proving malfeasance may be difficult. Still, “it suggests that there is something systemically wrong with the options trading on this stock,” William Galvin, Massachusetts’ securities regulator, told Barron’s, referring to the GameStop craze.

Up until Wednesday, GameStop was one of those places in the mall that just blended into the essential mall-ness of all malls, like Auntie Anne's or Cinnabon. I woke up this morning and it was the armored vehicle busting in through the front gates of American capitalism. If we ever needed more proof that The Market is just a bookie joint with aspirations, this was it. And I still think if you unwrap a Bitcoin, there's a chocolate coin inside.

This story originally appeared on Minor edits have been made by editors.

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Charles P. Pierce
Charles P. Pierce, lead for Esquire Politics US, has been a working journalist since 1976. He is the author of four books, most recently 'Idiot America.' He lives near Boston with his wife but no longer his three children.
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