Reddit traders drive historic market activity as they seek to pummel Wall Street's old guard
Reddit traders compete against Wall Street pros in their own game with their basic mantra: stocks will always go up.
Why It Matters: Your trades - stimulated on Reddit threads - have played a role in historical market activity for the past few days.
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Their influence has resulted in large swings that have so far been curbed on a handful of stocks that were largely thought to be dead.
The intrigue ... An impressive statistic sums up the trading session on Monday: There were 32 million call options or bets that certain stocks would rise in one day - the second highest ever.
How it happened: The rise of Robinhood and other royalty-free trading apps was linked to a pandemic that left millions at home with free time, risk appetites, and extra cash.
One sign of mania: GameStop, which turned out to be the poster child for the Reddit options trading frenzy. The stock has been stopped nine times by the New York Stock Exchange due to excessive volatility.
Here's how it works: If a sharply shortened stock or bets that a stock price will fall continue to rise, short sellers will have to buy back more shares to cover their trade - which will push the price up even further.
The hedge fund Melvin Capital Management has been criticized for being on the short side of the bet for stocks like GameStop.
The Wall Street Journal reported that it had received a much-needed injection of funds from other hedge funds, Point72 and Citadel.
Sell-side analysts push back: Telsey Advisory Group downgraded its rating for GameStop while another defended its decision to stop reporting on the company altogether.
The overwhelming consensus: retailers are knocking out the old guard for now (see: GameStop short sellers have lost a whopping $ 6 billion in market value so far this year), but this ends badly for the Redditors.
GameStop "is nothing more than the gamification of Wall Street by tech firms making" commerce "so available. It's shameful ... but they all have to get burned learning what they don't know." Time stock broker Kenny Polcari tweeted.
What They Say: "We see the increased interest from retail investors (especially younger investors) as encouraging, as surveys show this group is reluctant to invest," said Mark Hackett, chief of investment research at Nationwide, to Axios.
"But the risk-seeking behavior that has been seen in certain pockets lately is not healthy."
Bottom Line: The pandemic's Reddit traders are pushing Wall Street's most discerning investors.
Bonus chart: the nostalgia trade
Data: FactSet; Graphics: Axios Visuals
Some of the best-performing stocks of 2021 are brands familiar to anyone who hung around malls as a kid in the mid-2000s.
Why It Matters: The iPhone killed Blackberry and the pandemic hit suburban retail chains. But memories linger, and this is a market that day traders love nothing more than to pile into rundown stocks with much little interest - especially if they carry instantly recognizable brand names.
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