{"id":13311,"date":"2021-01-29T11:47:21","date_gmt":"2021-01-29T16:47:21","guid":{"rendered":"http:\/\/orionscoldfire.com\/?p=13311"},"modified":"2021-01-29T11:47:21","modified_gmt":"2021-01-29T16:47:21","slug":"gameplay-and-reddit-and-melvin-oh-my","status":"publish","type":"post","link":"https:\/\/orionscoldfire.com\/index.php\/2021\/01\/29\/gameplay-and-reddit-and-melvin-oh-my\/","title":{"rendered":"Gameplay and Reddit and Melvin.\u00a0 OH MY!"},"content":{"rendered":"

This morning the Fatman sent me this link to Glenn Greenwald<\/a> trying to shed some light on the meltdown that some Reddit investors inflicted on Melvin Capital for their obviously obscenely extreme short positions against Gameplay.\u00a0 And recently he had reminded me of a story I told him about the 1987 Black Monday Wall Street crash that I was involved in.\u00a0 Back in the mid-eighties photog was a young struggling engineering student working all kinds of crazy jobs to feed his family and looking at an economy that didn\u2019t particularly need engineers.\u00a0 So, I got my Series 7 license and went to work at a number of different Wall Street firms, some more and some less reputable.\u00a0 But by 1987 I had been employed at a discount broker taking orders on their options desk for a couple of years and was about to move over to a small specialty firm that handled institutional accounts.\u00a0 In fact, the week before the crash I had accepted the offer and I would be leaving that next Friday.<\/p>\n

Now back then if the Dow Jones Industrial Index dropped fifty points that was a really bad day.\u00a0 So, as you can tell on Wall Street numbers have changed orders of magnitude in term of impact on the economy.\u00a0 And the whole Black Monday drop was only 500 points but back then that was an earthquake.\u00a0 But probably what very few people remember is that the Friday before Black Monday the market dropped a hundred points.\u00a0 And that was a very big deal.\u00a0 And for one small investor that first smaller drop was even more important.<\/p>\n

Options are a way to bet on the market when you don\u2019t have the wherewithal to buy stock and certainly don\u2019t have the money in your account to be allowed to short a stock.\u00a0 Back then the equity requirements to short stocks were a lot lower than they are now but still you needed at least 25% of the value in your account to short shares of a stock.\u00a0 But options are a way to leverage changes in stock price by paying someone who does have stock to guarantee a buy or a sell at a particular price by a particular date.\u00a0 And as a consequence, a market can then be made in those options.\u00a0 But since these options expire at a certain date, on that last day if the option price is \u201cout of the money\u201d meaning that exercising the option by buying or selling the stock at that required price wouldn\u2019t make the one exercising the option any money then it is worthless and the option itself has no trading value.\u00a0 At that point the option trades for almost nothing.<\/p>\n

So, every month when various options expired, we\u2019d see the index options, the OEX options, that traded against a basket of blue-chip stocks reach down to the lowest levels they traded at like an eighth or a sixteenth before expiring worthless.\u00a0 And every month like clockwork we would have a visit from the cabbie.\u00a0 He was a Jamaican cabbie who would come in with his paycheck and put in a buy order for as many out of the money OEX put contracts as he could get for five hundred dollars.\u00a0 Five hundred dollars was his paycheck that he would deposit in his account. \u00a0And every month he would call up just before the end of the trading day and ask what they were trading at.\u00a0 And every month we would laughingly tell him that they were worth squat.<\/p>\n

But on that Friday before the crash, he bought his options for pennies on the contract and then in the last hour the market went down a hundred points.\u00a0 And the value of his puts went from virtually nothing to fifty thousand dollars.\u00a0 And everyone on the trading floor was flabbergasted that the cabbie had pulled off a home run.\u00a0 So, when he called up and asked for the quote on his OEX puts I respectfully told him.\u00a0 He told me to sell them at the market price which I did.\u00a0 But when I asked him if he wanted to have the proceeds sent to him, which I assumed he would, instead he said to buy as many contracts of out of the money OEX puts as I could get.\u00a0 So, I bought him $50,000 of out of the money OEX puts.\u00a0 And then the trading desk went wild laughing at this madman who had just flushed the biggest bonanza we had ever seen down the drain.\u00a0 Because after a 100-point loss, the market would regain the value or at worst hold steady there for a month or two before it continued its way up.\u00a0 Those puts would slowly erode before expiring worthless.<\/p>\n

That night Camera Girl and I joined a friend from the office and his wife at an off-off-Broadway play about, of all things, a stock investor who loses his shirt and kills himself and finds himself in hell.\u00a0 It was a pretty terrible play.\u00a0 My friend and his wife were struggling actors who worked other careers to enable their avocation.\u00a0 And after the play we laughed and talked about the cabbie and how foolish he was but I remember saying to my friend, \u201cYeah, but what if the market crashed on Monday and went down two hundred points, then he\u2019d have the last laugh.\u201d\u00a0 And we all laughed at how unlikely that would be.<\/p>\n

So, the market tanked Monday and went down five hundred points and the cabbie made some millions.\u00a0 I didn\u2019t get to speak to him because I was too busy with the fallout of the crash to care about anything but getting through the day.\u00a0 First, I called my new employer and made sure I still had a new job to go to next week.\u00a0 Then I slogged through thousands of calls to former investors who would have to liquidate their accounts to meet their margin calls.\u00a0 It was a crap storm of mammoth proportions that taught me many valuable lessons about the cyclical nature of human endeavors.<\/p>\n

But the story of the Jamaican cabbie was an object lesson that combining intelligence and a little luck can accomplish some remarkable results.\u00a0 I hope that guy took that pot of gold and lived a very happy and useful life.\u00a0 That kind of luck and courage deserves to be rewarded.<\/p>\n

Now back to the Reddit boys.\u00a0 Regardless of anything else this Gameplay \u201cplay\u201d means, it has highlighted just how horrible Wall Street has become.\u00a0 To relentlessly short a company out of existence is so emblematic of the bloodless inhuman nature of our financial system.\u00a0 And now that the governmental and industrial powers-that-be are rushing to the defense of one of their fellow vultures it\u2019s plain for all to see that there are two different systems available.\u00a0 One for the corporate titans that are too big to fail and one for the rest of us who are meant to fail whenever it is necessary to squeeze a little more blood for the vampires to suck.\u00a0 Maybe it\u2019s a case of the vampires deciding Melvin Capital is just one more victim for their feeding frenzy.\u00a0 I\u2019m sure honor among thieves is pretty thin.\u00a0 Or maybe it really is David vs Goliath.\u00a0 Who knows?\u00a0 But what is clear is that America is broken.\u00a0 To the Masters of the Universe in Silicon Valley and on Wall Street we are cattle and slaughtering us is just part of the business cycle.\u00a0 After all you can always get more cattle.<\/p>\n","protected":false},"excerpt":{"rendered":"

This morning the Fatman sent me this link to Glenn Greenwald trying to shed some light on the meltdown that some Reddit investors inflicted on<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[5],"tags":[2873,2694,2872],"class_list":["post-13311","post","type-post","status-publish","format-standard","hentry","category-current-events","tag-gameplay","tag-glenn-greenwald","tag-wall-street"],"yoast_head":"\nGameplay and Reddit and Melvin.\u00a0 OH MY! - Orion's Cold Fire<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/orionscoldfire.com\/index.php\/2021\/01\/29\/gameplay-and-reddit-and-melvin-oh-my\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Gameplay and Reddit and Melvin.\u00a0 OH MY! 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