WallStreetBets

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Champagne ($180), Yacht ($650K), Trophy Wife ($1.2M) — Realizing life was better YOLOing on $RAD alone with bottom shelf vodka (Priceless)

I sometimes spectate on this online community known as “wallstreetbets.” The above was today’s central wit; securities markets are closed on Sundays. It’s a sub-culture, with vocabulary and rules of behavior that are very different than what most people are used to. One of the hardest things to get past with this particular subculture is the apparently unrepentant use of otherwise horrific slurs. It’s a fine line, but you’ll notice it’s a parody of something else; probably only a small number within the community are seriously using these slurs and making certain statements, the rest are part of the parody. Also notably, these slurs are limited in scope and number, if you were to branch off to the N-word you’d probably find real backlash.

YOLO’ing on RAD is a meme in and of itself within this culture, although every 6 months the stock ticker will change to the newest “meme stock” – and it helps if the ticker is catchy or if someone bets extra big money on it (you must show a screenshot).  Rad was the target of an acquisition, which means there was a merger arbitrage opportunity to make money.

To truly have the respect of WSB’s you must put your life savings into an illiquid-high-risk financial derivative, in this case something like “call” contracts on rite-aid’s stock. A “call” is an contract you can buy where the owner of the call is granted the right to buy at a pre-agreed price on a specific date. If the price in the marketplace is lower than specified in this contract (in units of 100 shares usually), your contract could expire worthless.

This is the opposite of a “put” contract. If I buy such a contract, I may sell 100 shares of something on a date in the future. Thus if the price in the market I could get selling it was higher, my contract is worthless. Every week such contracts expire on Friday, and if very close to being valuable on a Friday could suddenly race up and down from 10 dollars to 100 dollars, given just a small movement in stock price that most people wouldn’t notice.

In a bull market, much of the money flowing into “hedge funds” comes from selling these “put” contracts. They expire worthless because stock prices went up, and every week they sell more of them. Even if the stock price doesn’t move, the person who first sold these contracts will make money. Really, a “hedged” fund is hedging against the fact that the market might be going nowhere. When they sell these kinds of contracts, they don’t actually have to sit on any stocks. On the other side of the contracts, most put-buyers simply want to limit risk, not bet against the market. On wall-street-bets, though…

It’s a bit of sadistic voyeurism to see people betting large amounts on such risky propositions. There’s a running gag about suicide that most people would find disturbing, but there’s also relief in comedy. This community is less pretentious about finance than others, and in many ways is more honest. There are big risks in the equities markets, and not enough people are appreciative of that, thus the recent market “euphoria” leading to a shiller-PE of over 30. I find this odd, in an anthropological and economic/psychological sense because within the last 20 years there were two significant corrections in those markets. Typically those kinds of crashes means as much as 30+ years before people are betting their life-savings on the hope that they won’t fall 90%.

I was re-reading the wikipedia page on the milgram experiment because of my short story, and there was some discussion there about how people are used to being told that something is OK by an expert, even if it seems to them that it is not OK. This is sort of how I see the equities market lately – people are quite a bit uncomfortable with valuations, but money keeps pouring in, and supposedly smart people keep telling you it’s ok. Price doesn’t matter in these kinds of environment, only feelings do. Feels good. Right?

 

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