1 00:00:11,119 --> 00:00:14,600 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:14,680 --> 00:00:18,799 Speaker 1: I'm Tracy Halloway and I'm Joe. Wisn't thal Joe? Remember 3 00:00:18,800 --> 00:00:21,599 Speaker 1: when you said game Stop was a value investment? Crazy, 4 00:00:22,280 --> 00:00:27,200 Speaker 1: You're you're, you're, you're skewing my words. Not really, I said, 5 00:00:27,880 --> 00:00:31,680 Speaker 1: and this was the wake of our recent interview with Rod. 6 00:00:32,240 --> 00:00:34,920 Speaker 1: It started off as a value investment, which is true. 7 00:00:35,320 --> 00:00:39,159 Speaker 1: I would not in any sense characterize the recent trading 8 00:00:39,760 --> 00:00:44,920 Speaker 1: from probably like fifteen to four eight and now back 9 00:00:44,960 --> 00:00:47,560 Speaker 1: to one seventies seven after hours last time I checked, 10 00:00:48,159 --> 00:00:53,080 Speaker 1: is a failure investing. I will admit that's not value investing. Okay, 11 00:00:53,320 --> 00:00:55,840 Speaker 1: I think we're both agreed on that point. But you 12 00:00:55,880 --> 00:00:59,080 Speaker 1: mentioned the episode we did with Rod. We talked a 13 00:00:59,080 --> 00:01:03,440 Speaker 1: lot about the business case for game Stop. He was 14 00:01:03,480 --> 00:01:06,360 Speaker 1: looking at a lot of fundamentals in the business that 15 00:01:06,480 --> 00:01:09,840 Speaker 1: made him bullish on it as a company. That was 16 00:01:10,000 --> 00:01:13,400 Speaker 1: one part of the whole game Stop saga. The other, 17 00:01:13,720 --> 00:01:16,880 Speaker 1: of course, was what was going on in technicals with 18 00:01:16,959 --> 00:01:19,920 Speaker 1: both the short squeeze and the gamma squeeze. And I 19 00:01:19,920 --> 00:01:23,080 Speaker 1: think we need to devote an entire episode to just 20 00:01:23,200 --> 00:01:27,280 Speaker 1: talking about those, yes, exactly, because the story really has 21 00:01:28,000 --> 00:01:29,520 Speaker 1: I'm kind of been thinking of it. It It has it 22 00:01:29,560 --> 00:01:33,080 Speaker 1: has like three parts. The first part is guys like 23 00:01:33,240 --> 00:01:36,480 Speaker 1: Rod and the Roaring Kitty and some of these other 24 00:01:36,640 --> 00:01:40,120 Speaker 1: Michael Burry like make the value case. Then it kind 25 00:01:40,120 --> 00:01:44,600 Speaker 1: of gets into this short squeeze, redded frenzy, gamma squeeze, 26 00:01:44,600 --> 00:01:46,600 Speaker 1: call buying and everything that that, and I think that's 27 00:01:46,600 --> 00:01:49,120 Speaker 1: what we're gonna talk about today, I noticed. And then 28 00:01:49,160 --> 00:01:52,600 Speaker 1: there is like the third part, which is everything that 29 00:01:52,680 --> 00:01:56,800 Speaker 1: this taught us about market structure and robin hood and 30 00:01:56,840 --> 00:01:58,600 Speaker 1: stuff like that. And maybe we'll get into a little 31 00:01:58,600 --> 00:02:00,200 Speaker 1: bit of that today because I think our guest knows 32 00:02:00,240 --> 00:02:02,520 Speaker 1: that stuff well. But we really like what we're gonna 33 00:02:02,560 --> 00:02:05,040 Speaker 1: do today is going from part one to part two, 34 00:02:05,080 --> 00:02:08,680 Speaker 1: which is like when it entered the Reddit retail flywheel, 35 00:02:09,320 --> 00:02:13,400 Speaker 1: what the hell happened? What does that say about the market? Overall? Right? 36 00:02:13,560 --> 00:02:15,959 Speaker 1: The squeezes are how we got to, you know, an 37 00:02:16,000 --> 00:02:18,800 Speaker 1: increase of two thousand percent in the space of less 38 00:02:18,800 --> 00:02:20,640 Speaker 1: than I think it was less than two weeks something 39 00:02:20,680 --> 00:02:23,440 Speaker 1: crazy like that. All Right, So I'm really happy to 40 00:02:23,480 --> 00:02:26,200 Speaker 1: say that we have the perfect person to talk about this. 41 00:02:26,480 --> 00:02:31,440 Speaker 1: He's a four time all thoughts guest, which might be 42 00:02:31,520 --> 00:02:35,440 Speaker 1: a record or might match another record. It's Ben Eiffort 43 00:02:35,600 --> 00:02:39,080 Speaker 1: from QVR Advisors and he has all about options and 44 00:02:39,200 --> 00:02:43,960 Speaker 1: the big Gamma squeeze. So Ben, welcome on again. Hey guys, 45 00:02:43,960 --> 00:02:45,600 Speaker 1: I'm so happy to be back. It's always a lot 46 00:02:45,639 --> 00:02:49,480 Speaker 1: of fun. I'm trying to think where to start, but 47 00:02:49,840 --> 00:02:54,120 Speaker 1: maybe just to begin, you know, in options land, how 48 00:02:54,200 --> 00:02:59,160 Speaker 1: crazy has the past week been for you? So it's 49 00:02:59,160 --> 00:03:01,880 Speaker 1: certainly been been wild. I mean, as you guys no 50 00:03:01,960 --> 00:03:06,440 Speaker 1: doubt have seen, there's been enormous amounts of option volume 51 00:03:06,480 --> 00:03:10,400 Speaker 1: going through in some of these popular retail names, you know, 52 00:03:10,480 --> 00:03:14,040 Speaker 1: gm E being an obvious one, um you know, on 53 00:03:14,040 --> 00:03:16,720 Speaker 1: on some days nearing the types of typical volumes you'd 54 00:03:16,720 --> 00:03:19,680 Speaker 1: see like in SMP Options or in you know, Tesla Options, 55 00:03:19,680 --> 00:03:22,200 Speaker 1: which is pretty spectacular for a company that. I mean, 56 00:03:22,240 --> 00:03:25,079 Speaker 1: what was the market cap of gm EU six months ago? 57 00:03:25,600 --> 00:03:29,160 Speaker 1: You know, it's it's it's been quite wild. But I 58 00:03:29,160 --> 00:03:32,960 Speaker 1: think this again that this was particularly crazy week. But 59 00:03:33,080 --> 00:03:36,240 Speaker 1: I think, as you know, we've been emphasizing, this is 60 00:03:36,320 --> 00:03:39,920 Speaker 1: really the culmination, you know, or the current state of 61 00:03:40,160 --> 00:03:42,960 Speaker 1: a trend that's really been building for for quite some time, right, 62 00:03:43,040 --> 00:03:47,520 Speaker 1: really start late from starting in late with surging volumes 63 00:03:47,520 --> 00:03:51,000 Speaker 1: across a bunch of different brokerages platforms after the you know, 64 00:03:51,120 --> 00:03:53,800 Speaker 1: Robin Hood initiated and a bunch of other brokers started 65 00:03:53,800 --> 00:03:57,240 Speaker 1: matching you know, zero commission options training. So I remember, 66 00:03:57,280 --> 00:04:00,320 Speaker 1: I think the last time we talked to you time 67 00:04:00,400 --> 00:04:03,560 Speaker 1: late last summer, maybe it was like October or something 68 00:04:03,600 --> 00:04:06,600 Speaker 1: like that, and it was kind of like taking stock 69 00:04:06,920 --> 00:04:09,960 Speaker 1: of this sort of retail options booms. And there's a 70 00:04:10,040 --> 00:04:13,520 Speaker 1: number of charts that you have showing the rise of 71 00:04:13,560 --> 00:04:16,560 Speaker 1: one week call options and the rise of call options 72 00:04:16,560 --> 00:04:21,280 Speaker 1: in general, and the rise of small orders that indicate 73 00:04:21,760 --> 00:04:23,960 Speaker 1: that so much of this option activity really has taken 74 00:04:24,000 --> 00:04:28,880 Speaker 1: place at the retail level. Just flash forward to today. 75 00:04:28,920 --> 00:04:32,880 Speaker 1: How much crazier overall is the market. You know, we're 76 00:04:32,920 --> 00:04:37,800 Speaker 1: recording this February one, February one, versus say, last September, 77 00:04:37,920 --> 00:04:42,599 Speaker 1: October whenever the last time we talked. Yeah. Absolutely, So 78 00:04:42,680 --> 00:04:45,480 Speaker 1: you know, if you think of what those charts looked 79 00:04:45,480 --> 00:04:50,279 Speaker 1: like of growth of option contract notional traded by small traders, 80 00:04:50,680 --> 00:04:54,680 Speaker 1: growth of option premium traded, you know, they looked totally 81 00:04:54,720 --> 00:04:57,640 Speaker 1: parabolic at the time, and now it's just like you 82 00:04:57,760 --> 00:05:00,440 Speaker 1: zoom out and that parable is just kept going at 83 00:05:00,480 --> 00:05:03,080 Speaker 1: the same kind of you know, exponential growth rates. So 84 00:05:03,160 --> 00:05:06,040 Speaker 1: it's been really impressive. I mean, I think there were 85 00:05:06,160 --> 00:05:08,680 Speaker 1: was lots of noise over the last few weeks. You 86 00:05:08,720 --> 00:05:10,760 Speaker 1: saw some of that data of just making new record 87 00:05:10,800 --> 00:05:14,120 Speaker 1: after new record after new record. Um, you know, seeing 88 00:05:14,680 --> 00:05:18,000 Speaker 1: just incredible numbers. You know, twenty million, thirty million, forty 89 00:05:18,000 --> 00:05:20,520 Speaker 1: million calls traded in a week by by this segment 90 00:05:20,560 --> 00:05:23,599 Speaker 1: of the market, and you know, tens upon tens of 91 00:05:23,600 --> 00:05:26,279 Speaker 1: billions of dollars of option premium and you know, very 92 00:05:26,360 --> 00:05:29,320 Speaker 1: very leverage types of types of trades. So this this 93 00:05:29,400 --> 00:05:32,640 Speaker 1: trend has continued, you know, at this to grow at 94 00:05:32,640 --> 00:05:35,680 Speaker 1: these kind of rates, you can speculate about where this 95 00:05:35,839 --> 00:05:40,120 Speaker 1: growth has to taper off, but it hasn't yet. So 96 00:05:40,240 --> 00:05:43,440 Speaker 1: let's talk about how that all that retail options activity 97 00:05:43,680 --> 00:05:47,160 Speaker 1: can actually lead to buying momentum for a stock like 98 00:05:47,440 --> 00:05:50,360 Speaker 1: game Stop. So one of the things that we saw 99 00:05:50,560 --> 00:05:53,520 Speaker 1: last week when game Stop was rising was there there 100 00:05:53,520 --> 00:05:56,200 Speaker 1: were some people out there going, oh, this possibly can't 101 00:05:56,240 --> 00:05:59,719 Speaker 1: be this, I can't talk. There were some people out 102 00:05:59,720 --> 00:06:04,359 Speaker 1: there going, this can't possibly be just retail investors because 103 00:06:04,560 --> 00:06:06,400 Speaker 1: the stock is moving so much and they don't have 104 00:06:06,400 --> 00:06:09,120 Speaker 1: a lot of money. But you've spelled out quite clearly 105 00:06:09,160 --> 00:06:12,320 Speaker 1: in your research and on previous episodes with us just 106 00:06:12,520 --> 00:06:17,359 Speaker 1: how smaller amounts of retail options buying can actually translate 107 00:06:17,440 --> 00:06:20,839 Speaker 1: into larger amounts of money flowing into the underlying stock 108 00:06:21,120 --> 00:06:24,440 Speaker 1: and a lot more leverage. Could you explain exactly how 109 00:06:24,480 --> 00:06:30,599 Speaker 1: that works? Sure? Absolutely so. Well, there's a couple of 110 00:06:30,720 --> 00:06:34,920 Speaker 1: related components to this. So the first is just the 111 00:06:35,080 --> 00:06:40,040 Speaker 1: synthetic leverage that's embedded in options, and then the second, 112 00:06:40,080 --> 00:06:43,360 Speaker 1: which will come to in a bit, is the convexity 113 00:06:43,480 --> 00:06:46,159 Speaker 1: or the gamma and like the dealer hedging dynamics. But 114 00:06:46,279 --> 00:06:48,919 Speaker 1: so just focusing on the first for a minute, and 115 00:06:48,960 --> 00:06:51,360 Speaker 1: there's lots of different examples that you can go through. 116 00:06:51,839 --> 00:06:54,960 Speaker 1: But you know, backing up a month or two to 117 00:06:55,160 --> 00:06:58,640 Speaker 1: two calmer times where you know, before Jimmy implied volatility 118 00:06:58,680 --> 00:07:03,440 Speaker 1: was you know, a small investor could could buy a 119 00:07:03,440 --> 00:07:07,000 Speaker 1: call option on GM with maybe call it one week 120 00:07:07,800 --> 00:07:12,800 Speaker 1: to expiration, and it might for example, you know, GM 121 00:07:12,960 --> 00:07:15,920 Speaker 1: might have been trading at you know, around twenty bucks 122 00:07:16,080 --> 00:07:18,120 Speaker 1: and they might have been able to buy a call 123 00:07:18,160 --> 00:07:21,320 Speaker 1: option for you know, a very small fraction of that 124 00:07:21,760 --> 00:07:24,400 Speaker 1: um you know, maybe a dollar or maybe fifty cents 125 00:07:24,400 --> 00:07:26,040 Speaker 1: that was somewhat out of the money that was going 126 00:07:26,080 --> 00:07:30,160 Speaker 1: to be expiring in a week. That leverage that's embedded 127 00:07:30,200 --> 00:07:32,800 Speaker 1: the fact that they might get when but when they 128 00:07:32,840 --> 00:07:37,920 Speaker 1: buy that option, say twenty five or the sensitivity to 129 00:07:37,960 --> 00:07:41,680 Speaker 1: the underlying stock price, but for only you know, a 130 00:07:41,760 --> 00:07:45,240 Speaker 1: couple percent, one percent, less than one percent of the 131 00:07:45,280 --> 00:07:49,880 Speaker 1: actual cash outlay. That creates a big amount of leverage 132 00:07:49,880 --> 00:07:52,440 Speaker 1: to the to those kind of trades, right, So a 133 00:07:52,520 --> 00:07:55,720 Speaker 1: retail investor might get ten to one, one fifty to 134 00:07:55,800 --> 00:07:59,200 Speaker 1: one leverage effectively by speculating on the direction of the 135 00:07:59,240 --> 00:08:02,640 Speaker 1: stock using those those call options. And that's not just 136 00:08:03,040 --> 00:08:06,840 Speaker 1: you know, a theoretical concept, right, because when that retail 137 00:08:06,880 --> 00:08:09,280 Speaker 1: investor goes out and buys that call option that has 138 00:08:09,280 --> 00:08:13,000 Speaker 1: a thirty sensitivity or thirty delta to the underlying stock, 139 00:08:13,480 --> 00:08:15,520 Speaker 1: he buys it from a market maker, and that market 140 00:08:15,520 --> 00:08:17,560 Speaker 1: maker sells him that call option and then goes and 141 00:08:17,600 --> 00:08:20,280 Speaker 1: buys that stock in order to hedge the directionality of 142 00:08:20,360 --> 00:08:22,760 Speaker 1: the position. So that's real trades that go out and 143 00:08:22,800 --> 00:08:26,000 Speaker 1: are executed in the underlying stock, you know, in lieu 144 00:08:26,080 --> 00:08:28,520 Speaker 1: of in lieu of the what the investor is doing. 145 00:08:29,200 --> 00:08:31,960 Speaker 1: Now the second component of that, you know, on top 146 00:08:32,000 --> 00:08:35,240 Speaker 1: of just the huge amount of of notional dollar exposure 147 00:08:35,280 --> 00:08:37,439 Speaker 1: that that a small amount of premium out lay creates 148 00:08:38,120 --> 00:08:41,520 Speaker 1: is the fact that when those call options, as particularly are, 149 00:08:41,559 --> 00:08:43,839 Speaker 1: are brought to the upside. So let's, you know, again, 150 00:08:43,920 --> 00:08:45,839 Speaker 1: go with that case of a twenty five or thirty 151 00:08:45,840 --> 00:08:49,760 Speaker 1: delta call option that only has twenty five or sensitivity 152 00:08:49,800 --> 00:08:52,439 Speaker 1: to the underlying stock price. Right, stock goes up a dollar, 153 00:08:52,520 --> 00:08:55,880 Speaker 1: the option should only go up thirty cents. As the 154 00:08:55,920 --> 00:08:58,800 Speaker 1: stock goes up and up, it gets closer and closer 155 00:08:58,840 --> 00:09:02,440 Speaker 1: to that strike price, and the strike price the delta, 156 00:09:02,520 --> 00:09:06,200 Speaker 1: the sensitivity of the option to the underlying stock grows 157 00:09:06,240 --> 00:09:08,840 Speaker 1: and grows and grows as the stock goes up. And 158 00:09:08,920 --> 00:09:13,000 Speaker 1: so that dealer who had initially bought equity to hedge 159 00:09:13,040 --> 00:09:15,440 Speaker 1: that position is now going to buy more and more 160 00:09:15,480 --> 00:09:18,320 Speaker 1: and more equity to buy to hedge that position as 161 00:09:18,360 --> 00:09:21,720 Speaker 1: the stock rises. Right, And that's this notion of of 162 00:09:21,760 --> 00:09:25,440 Speaker 1: a gamma squeeze or an acceleration effect where if you know, 163 00:09:25,520 --> 00:09:28,760 Speaker 1: retail is buying or or anyone is buying very large 164 00:09:28,800 --> 00:09:33,840 Speaker 1: quantities of short dated upside call options that accelerates the 165 00:09:33,920 --> 00:09:36,199 Speaker 1: movement of the stock of of a stock to the 166 00:09:36,280 --> 00:09:39,520 Speaker 1: upside because of this virtuous cycle where dealers are buying 167 00:09:39,559 --> 00:09:43,920 Speaker 1: stock because the stock is going up. So someone buys, 168 00:09:44,400 --> 00:09:47,679 Speaker 1: say a hundred call options. The dealer doesn't go out 169 00:09:47,720 --> 00:09:50,880 Speaker 1: and buy a hundred shares. They buy some fraction of 170 00:09:50,920 --> 00:09:55,600 Speaker 1: that initially because of course they don't assume necessarily that 171 00:09:55,640 --> 00:09:57,360 Speaker 1: the stock is actually going to hit the strike and 172 00:09:57,360 --> 00:10:01,000 Speaker 1: that they'll be on the hook. But basically as the 173 00:10:01,040 --> 00:10:04,640 Speaker 1: stock gets closer, as the underlying gets closer to that strike, 174 00:10:05,200 --> 00:10:08,120 Speaker 1: there then on the hook. You know, the odds that 175 00:10:08,160 --> 00:10:09,920 Speaker 1: they're going to essentially have to pay out the bed 176 00:10:10,760 --> 00:10:13,840 Speaker 1: go up and they have to buy more stock to 177 00:10:13,880 --> 00:10:17,920 Speaker 1: pay to be headed. Yep, that's exactly right. Think of 178 00:10:17,960 --> 00:10:20,280 Speaker 1: it as you know once call it once the stock 179 00:10:20,320 --> 00:10:23,719 Speaker 1: has gone up so much that the probability that it's 180 00:10:23,720 --> 00:10:25,560 Speaker 1: going to be in the money by the time you 181 00:10:25,600 --> 00:10:28,800 Speaker 1: reach expiration is really high. At that point a dealer 182 00:10:28,840 --> 00:10:31,560 Speaker 1: will will be hedged on a full notional. In other words, 183 00:10:31,600 --> 00:10:35,360 Speaker 1: to your point, an option contract has a one multiplier, 184 00:10:35,400 --> 00:10:37,679 Speaker 1: So if they own a hundred contracts, that's like owning 185 00:10:37,720 --> 00:10:41,040 Speaker 1: temp that's like exposure to ten thousand shares. At that point, 186 00:10:41,440 --> 00:10:43,920 Speaker 1: the dealer would just be short ten thousand shares. Again, 187 00:10:44,120 --> 00:10:46,240 Speaker 1: I would sorry, would be long ten thousand shares against 188 00:10:46,240 --> 00:10:49,240 Speaker 1: the hundred option contracts that they're short but day one 189 00:10:50,040 --> 00:10:52,280 Speaker 1: if the delta is only twenty five. In other words, 190 00:10:52,280 --> 00:10:54,679 Speaker 1: the sensitivity of the of the option to that stock 191 00:10:54,760 --> 00:11:00,559 Speaker 1: price is there's an implied probability of percent, but that 192 00:11:00,640 --> 00:11:02,360 Speaker 1: stock is going to end up in the money. The 193 00:11:02,440 --> 00:11:05,760 Speaker 1: dealer would only be long shares and maybe buying and 194 00:11:05,800 --> 00:11:08,160 Speaker 1: buying and buying as the stock rallies up to that 195 00:11:08,280 --> 00:11:12,400 Speaker 1: maximum of ten thous So one of the reasons I 196 00:11:12,440 --> 00:11:15,240 Speaker 1: find this story so interesting, and I also think it's 197 00:11:15,520 --> 00:11:18,600 Speaker 1: different to people, you know, pumping up the stock on 198 00:11:18,679 --> 00:11:22,680 Speaker 1: message boards in the late during the tech bubble, is 199 00:11:22,760 --> 00:11:26,079 Speaker 1: because of the role of options, and specifically the fact 200 00:11:26,120 --> 00:11:28,280 Speaker 1: that there were people on Wall Street bets who were 201 00:11:28,320 --> 00:11:33,120 Speaker 1: targeting specific options contracts that they thought could have the 202 00:11:33,160 --> 00:11:38,119 Speaker 1: biggest impact on the underlying stock. And that's, from my perspective, 203 00:11:38,160 --> 00:11:41,880 Speaker 1: really sophisticated behavior and probably something that we're more used 204 00:11:41,920 --> 00:11:45,880 Speaker 1: to seeing from, for instance, a hedge fund than a guy, 205 00:11:46,040 --> 00:11:48,480 Speaker 1: you know, trading out of his basement or something like that. 206 00:11:49,240 --> 00:11:51,920 Speaker 1: How how surprised were you by that or how much 207 00:11:51,960 --> 00:11:57,479 Speaker 1: did that play a role in forcing the squeeze. Absolutely, 208 00:11:57,720 --> 00:12:00,280 Speaker 1: So you know this, I think a lot of people 209 00:12:00,880 --> 00:12:05,520 Speaker 1: perhaps underestimated the sophistication of at least, you know, some 210 00:12:05,559 --> 00:12:08,520 Speaker 1: of the folks within a Redditt Wall Street bets type 211 00:12:08,520 --> 00:12:10,560 Speaker 1: of community, you know, that are that are leading this 212 00:12:10,640 --> 00:12:14,439 Speaker 1: type of charge because of how unfamiliar their language sounded, right, 213 00:12:14,520 --> 00:12:17,320 Speaker 1: because of the the you know, the rocketship emojis and 214 00:12:17,360 --> 00:12:18,760 Speaker 1: all of this kind of stuff. But if you go 215 00:12:18,800 --> 00:12:22,640 Speaker 1: in and read some of the original posts about the 216 00:12:22,679 --> 00:12:25,760 Speaker 1: potential for example, for a short squeeze in g M 217 00:12:25,840 --> 00:12:28,320 Speaker 1: e um, you know, some of the long form you 218 00:12:28,320 --> 00:12:31,839 Speaker 1: know writing there, Um, these are very sophisticated people, right. 219 00:12:31,960 --> 00:12:35,679 Speaker 1: They understand the dynamics of you know, short interest and 220 00:12:35,760 --> 00:12:39,400 Speaker 1: float and how shares have to be covered. They understand 221 00:12:39,480 --> 00:12:43,120 Speaker 1: the mechanisms you know of option delta hedging by dealers, 222 00:12:43,160 --> 00:12:45,440 Speaker 1: and they understand you know, the short data options have 223 00:12:45,720 --> 00:12:47,760 Speaker 1: you know, by far the highest you know gamma and 224 00:12:47,760 --> 00:12:51,680 Speaker 1: the most convexity have that it makes this acceleration effect largest, 225 00:12:52,080 --> 00:12:54,560 Speaker 1: you know, and and other little cues, I mean, just 226 00:12:54,559 --> 00:12:58,120 Speaker 1: just silly stuff. But for example, that original short squeeze 227 00:12:58,160 --> 00:13:01,400 Speaker 1: post had a little mentioned of something about you know, 228 00:13:01,920 --> 00:13:05,800 Speaker 1: I love z Mass and that's that's that's something that 229 00:13:05,920 --> 00:13:09,440 Speaker 1: only an institutional derivatives trader would say because the you know, 230 00:13:09,520 --> 00:13:12,040 Speaker 1: the the inside joke and derivatives markets is that they're 231 00:13:12,120 --> 00:13:14,959 Speaker 1: run by French quants and that's kind of a little 232 00:13:15,000 --> 00:13:19,040 Speaker 1: ha ha about about you know, coming back to that 233 00:13:19,080 --> 00:13:22,200 Speaker 1: dig right, So again, that's not that's not somebody who 234 00:13:22,280 --> 00:13:25,320 Speaker 1: that's somebody who's been in the markets in an institutional role. 235 00:13:25,559 --> 00:13:28,520 Speaker 1: I I missed that whole thing. So I guess what 236 00:13:28,640 --> 00:13:31,760 Speaker 1: you're Another way of saying this is if you're a 237 00:13:31,800 --> 00:13:35,880 Speaker 1: short seller, like I don't know, Citron Research, you may 238 00:13:36,160 --> 00:13:38,679 Speaker 1: not want to, like rate wave the red flag in 239 00:13:38,720 --> 00:13:41,040 Speaker 1: front of that community thinking that they're just going to 240 00:13:41,160 --> 00:13:46,160 Speaker 1: fold at the first mentioned that this dog is overvalued. Yeah. Absolutely, 241 00:13:46,200 --> 00:13:49,679 Speaker 1: I mean I think that you know, one thing, uh, 242 00:13:49,720 --> 00:13:53,360 Speaker 1: that one one little little discussion that we had must 243 00:13:53,400 --> 00:13:55,200 Speaker 1: have been six months or eight months ago at this point, 244 00:13:55,240 --> 00:13:57,440 Speaker 1: and I think it was about Tesla actually at the time, 245 00:13:57,960 --> 00:13:59,959 Speaker 1: you know, was that you know, there were some folks 246 00:14:00,040 --> 00:14:03,640 Speaker 1: who are making fun of the of the Tesla lawnss right, 247 00:14:03,679 --> 00:14:05,600 Speaker 1: and of some of the video videos that you know, 248 00:14:05,679 --> 00:14:09,240 Speaker 1: some of the enthusiastic fan base of of Tesla was 249 00:14:09,480 --> 00:14:12,360 Speaker 1: describing what they thought about the stock and my point 250 00:14:12,360 --> 00:14:15,560 Speaker 1: what and they were saying, Oh, this is the perfect counterparty, right. 251 00:14:15,800 --> 00:14:18,640 Speaker 1: That is not That is not how a smart how 252 00:14:18,640 --> 00:14:21,800 Speaker 1: a trader thinks. Right. The perfect counterparty is someone who 253 00:14:21,880 --> 00:14:24,880 Speaker 1: is weak hands and can be pushed out, squeezed out, 254 00:14:25,040 --> 00:14:27,720 Speaker 1: can is leveraged, can be forced out of their position. 255 00:14:28,080 --> 00:14:31,880 Speaker 1: The worst counterparty in the world is a big kind 256 00:14:31,920 --> 00:14:36,040 Speaker 1: of ignorant or or otherwise right, but unleveraged counterparty that 257 00:14:36,120 --> 00:14:38,480 Speaker 1: doesn't that's not going to be pushed out of their position, 258 00:14:38,560 --> 00:14:41,120 Speaker 1: and that's really excited about their position. Right. So I 259 00:14:41,160 --> 00:14:43,120 Speaker 1: think that this is actually really important. You wave a 260 00:14:43,120 --> 00:14:44,800 Speaker 1: red flag in front of those folks, you get them, 261 00:14:44,840 --> 00:14:46,760 Speaker 1: get them mad at you. You're the you're the weekends 262 00:14:46,880 --> 00:14:49,480 Speaker 1: right when you're short of when you're short of stock 263 00:14:49,560 --> 00:14:52,480 Speaker 1: because of a stock. You know, we talked about gamma. 264 00:14:52,560 --> 00:14:55,960 Speaker 1: A short position in the stock is a short gamma position, right, 265 00:14:56,000 --> 00:14:58,720 Speaker 1: because you have if you short a billion dollars of 266 00:14:58,760 --> 00:15:00,800 Speaker 1: the stock and it doubles, now your short two billion 267 00:15:00,880 --> 00:15:03,120 Speaker 1: dollars of it, and your risk has doubled. And then 268 00:15:03,160 --> 00:15:05,120 Speaker 1: if it doubles again from there you're gonna lose twice 269 00:15:05,160 --> 00:15:07,280 Speaker 1: as much money as the first time that it doubled. Right, 270 00:15:07,480 --> 00:15:10,360 Speaker 1: so you have unlimited loss. You're the week, You're the 271 00:15:10,400 --> 00:15:29,520 Speaker 1: week the week you know, party at the table. So 272 00:15:29,640 --> 00:15:31,880 Speaker 1: one thing I've been curious about is when you were 273 00:15:31,880 --> 00:15:36,440 Speaker 1: watching the flows around jim last week, how much of 274 00:15:36,480 --> 00:15:42,320 Speaker 1: it was fundamental buying and selling versus the gamma or 275 00:15:42,360 --> 00:15:44,520 Speaker 1: the short squeeze. Is there a way of measuring that? 276 00:15:46,560 --> 00:15:49,640 Speaker 1: It's hard to say exactly what fundamental what is fundamental 277 00:15:49,680 --> 00:15:52,360 Speaker 1: buying and selling in that in that kind of environment, Right, 278 00:15:52,440 --> 00:15:57,200 Speaker 1: you can certainly model how much of stock volume do 279 00:15:57,240 --> 00:16:00,440 Speaker 1: you think is dealer hedges on new option position and 280 00:16:00,600 --> 00:16:04,880 Speaker 1: dealer hedges on existing option positions? Um, it's certainly material, 281 00:16:04,960 --> 00:16:08,280 Speaker 1: you know, in the double digit percentages. But so many 282 00:16:08,360 --> 00:16:11,080 Speaker 1: different things were happening last week, right, I mean, I 283 00:16:11,120 --> 00:16:14,760 Speaker 1: think it's worth mentioning. First of all, of course, volumes 284 00:16:14,760 --> 00:16:18,920 Speaker 1: were off the charts. Second UM last week, even though 285 00:16:18,960 --> 00:16:21,800 Speaker 1: it was the culmination of this you know, of this 286 00:16:21,960 --> 00:16:25,400 Speaker 1: parabola in GM ME in both in Gimmy and the 287 00:16:25,440 --> 00:16:27,880 Speaker 1: other you know m C and n b U, I, 288 00:16:29,320 --> 00:16:33,920 Speaker 1: you actually saw relatively balanced flows from the retail community. 289 00:16:34,000 --> 00:16:38,520 Speaker 1: In share transactions in most stocks. So there was probably 290 00:16:38,560 --> 00:16:41,320 Speaker 1: a lot of new buying from you know, new enthusiastic 291 00:16:41,600 --> 00:16:43,960 Speaker 1: you know, members of the of the group. But there 292 00:16:44,040 --> 00:16:47,680 Speaker 1: was also a lot of selling, uh, you know, probably 293 00:16:47,720 --> 00:16:51,480 Speaker 1: some combination of profit taking and other things, um, which 294 00:16:51,520 --> 00:16:54,160 Speaker 1: tells you that a lot of the big explosive price 295 00:16:54,200 --> 00:16:57,040 Speaker 1: action to the upside um, you know, in combination with 296 00:16:57,080 --> 00:17:00,400 Speaker 1: when you look at the rapid deleveraging and deep grossing 297 00:17:00,400 --> 00:17:02,200 Speaker 1: and the headpund community, a lot of that was forced 298 00:17:02,200 --> 00:17:06,399 Speaker 1: shortcovering and then cascades of of forced shortcovering by by 299 00:17:06,480 --> 00:17:09,440 Speaker 1: big institutions. So you know, I think if you were 300 00:17:09,480 --> 00:17:13,560 Speaker 1: to look at you combine forced short covering and degrossing 301 00:17:13,600 --> 00:17:17,480 Speaker 1: among hedge funds and forced in some sense or mechanical 302 00:17:17,520 --> 00:17:21,040 Speaker 1: trading of dealers in the underlying stock, you know, some 303 00:17:21,040 --> 00:17:24,879 Speaker 1: some very significant percentage of underlying share volume you know, 304 00:17:25,000 --> 00:17:28,120 Speaker 1: was being driven by those technical factors. You know, we're 305 00:17:28,160 --> 00:17:33,080 Speaker 1: talking about ways that this particular market is different from 306 00:17:33,240 --> 00:17:37,800 Speaker 1: the late nineties, and Tracy mentioned um. You know, of 307 00:17:37,800 --> 00:17:40,680 Speaker 1: course we've been talking about the call options buying that 308 00:17:40,880 --> 00:17:43,600 Speaker 1: is very new. You know, it also seems like a 309 00:17:43,680 --> 00:17:48,200 Speaker 1: new dynamic or an emerging dynamic that might not go away. 310 00:17:48,320 --> 00:17:52,560 Speaker 1: Is just like the way social media encourages um like 311 00:17:52,600 --> 00:17:57,199 Speaker 1: buying impacts, Like suddenly everyone is just focused on Jimmy 312 00:17:57,320 --> 00:18:02,160 Speaker 1: or everyone's just focused on jimy AMC and Nokia. How 313 00:18:02,280 --> 00:18:05,960 Speaker 1: new is this not just the explosion of options trading overall, 314 00:18:06,400 --> 00:18:09,600 Speaker 1: and not just the leverage that comes with options trading, 315 00:18:09,640 --> 00:18:14,040 Speaker 1: but in so much potentially concentrated in a very short 316 00:18:14,080 --> 00:18:17,080 Speaker 1: period of time, in just one name or a small 317 00:18:17,119 --> 00:18:21,960 Speaker 1: handful of names. Yeah, I mean, certainly the extent to 318 00:18:22,080 --> 00:18:24,399 Speaker 1: which that is true or seems to be true in 319 00:18:24,400 --> 00:18:26,600 Speaker 1: this environment I think is new or it's really it's 320 00:18:26,640 --> 00:18:28,640 Speaker 1: taken it to another level. I mean there there are 321 00:18:28,680 --> 00:18:31,520 Speaker 1: elements of it, you know, which which go back a 322 00:18:31,560 --> 00:18:33,760 Speaker 1: long way, is right? I mean you think of how 323 00:18:33,800 --> 00:18:38,560 Speaker 1: did what were the coordinating factors behind retail investing trends 324 00:18:39,160 --> 00:18:41,000 Speaker 1: over the last ten or twenty years, And you could 325 00:18:41,000 --> 00:18:43,720 Speaker 1: point to like, you know, Cramer on CNBC or something 326 00:18:43,800 --> 00:18:46,040 Speaker 1: like that, right where like what were there the really 327 00:18:46,080 --> 00:18:48,680 Speaker 1: cool things and the really cool themes? And Cramer would 328 00:18:48,680 --> 00:18:50,640 Speaker 1: be up there saying he loved the stock and you'd see, 329 00:18:50,960 --> 00:18:55,560 Speaker 1: you know, huge retail flows for the time retail flows 330 00:18:55,600 --> 00:18:57,879 Speaker 1: you know, are obviously much bigger in the over the 331 00:18:57,920 --> 00:19:00,840 Speaker 1: last couple of months, but you know, so so part 332 00:19:00,880 --> 00:19:02,800 Speaker 1: of that element was was always there. But I think, 333 00:19:02,840 --> 00:19:06,040 Speaker 1: you know, social media has been uniquely powerful in coordinating 334 00:19:06,400 --> 00:19:10,639 Speaker 1: rapid action across abroad, you know, a large community of people, 335 00:19:11,119 --> 00:19:13,800 Speaker 1: you know, not just within finance obviously, and in other 336 00:19:13,880 --> 00:19:16,960 Speaker 1: areas as well, and I think that's going to be 337 00:19:17,040 --> 00:19:21,159 Speaker 1: part of the landscape going forward. For sure. There's all 338 00:19:21,240 --> 00:19:24,240 Speaker 1: manner of you know, it raises all manner of questions 339 00:19:24,280 --> 00:19:26,679 Speaker 1: from a regulatory perspective that I don't think it I 340 00:19:26,720 --> 00:19:29,359 Speaker 1: don't think anybody has very clear answers too, and I 341 00:19:29,359 --> 00:19:31,840 Speaker 1: don't think you know, the regulators have very clear answers 342 00:19:31,840 --> 00:19:34,399 Speaker 1: to either. Right, This is a it really is a 343 00:19:34,400 --> 00:19:37,400 Speaker 1: new dynamic for the SEC to look at and understand 344 00:19:37,400 --> 00:19:39,040 Speaker 1: how they think about it in the first place. And 345 00:19:39,080 --> 00:19:42,080 Speaker 1: you know, I've I've I've had conversations with you know, 346 00:19:42,160 --> 00:19:44,840 Speaker 1: with friends in regulatory seats you know, who look at 347 00:19:44,840 --> 00:19:47,520 Speaker 1: this type of thing closely, and I don't think it's 348 00:19:47,720 --> 00:19:50,280 Speaker 1: there's any simple and obvious answers as to you know, 349 00:19:50,280 --> 00:19:51,720 Speaker 1: where where this is going to go in the near 350 00:19:51,800 --> 00:19:55,880 Speaker 1: term from a regulatory perspective. So I mean, on that note, 351 00:19:55,880 --> 00:19:58,120 Speaker 1: I know you just said there aren't any easy answers, 352 00:19:58,200 --> 00:20:00,800 Speaker 1: but um, some of the comment area we've seen over 353 00:20:00,800 --> 00:20:05,159 Speaker 1: the past week has been suggesting that this could pose 354 00:20:05,280 --> 00:20:09,200 Speaker 1: some sort of threat to the stability of financial markets. 355 00:20:09,200 --> 00:20:12,920 Speaker 1: So if we see this type of swarming behavior that's 356 00:20:13,000 --> 00:20:15,840 Speaker 1: capable of knocking out a hedge funder two and maybe 357 00:20:15,880 --> 00:20:19,399 Speaker 1: causing problems for brokerages at robin Hood and making us 358 00:20:19,440 --> 00:20:22,159 Speaker 1: all think about you know, settlement issues and collateral and 359 00:20:22,200 --> 00:20:25,520 Speaker 1: things we haven't thought about since the financial crisis, really 360 00:20:26,280 --> 00:20:29,560 Speaker 1: that maybe that's a bad thing that would probably fall 361 00:20:29,680 --> 00:20:33,359 Speaker 1: under Joe's definition of a bad take. But certainly that 362 00:20:33,400 --> 00:20:36,360 Speaker 1: conversation has been out there. How are you thinking about 363 00:20:36,400 --> 00:20:40,520 Speaker 1: the financial risks or the systemic risks of this new behavior. 364 00:20:42,680 --> 00:20:44,800 Speaker 1: So so it's a very good question, I mean, and 365 00:20:44,840 --> 00:20:48,040 Speaker 1: I think that's where that's where it becomes. There's there 366 00:20:48,040 --> 00:20:51,640 Speaker 1: really are two separate issues, right, One is securities laws 367 00:20:51,640 --> 00:20:55,520 Speaker 1: and regulation around trying to protect retail investors and so forth, right, 368 00:20:55,600 --> 00:20:58,080 Speaker 1: and then the other and around manipulation and the other 369 00:20:58,119 --> 00:21:02,679 Speaker 1: set of issues around around financial financial stability. And you know, 370 00:21:03,200 --> 00:21:07,440 Speaker 1: I think that ultimately when you look at for example, 371 00:21:08,160 --> 00:21:11,400 Speaker 1: what happened in a lot of the retail brokerages, especially 372 00:21:11,440 --> 00:21:15,400 Speaker 1: the smaller, less well capitalized private brokerages like robin Hood 373 00:21:16,520 --> 00:21:20,160 Speaker 1: this week. You know, you saw the whole modern regulatory 374 00:21:20,200 --> 00:21:25,360 Speaker 1: apparatus and apparatus of collateral and credit management you come 375 00:21:25,359 --> 00:21:28,800 Speaker 1: into play right where there was this huge surge in 376 00:21:29,000 --> 00:21:32,600 Speaker 1: dollar volume traded net dollar volume traded by clients of 377 00:21:32,640 --> 00:21:35,640 Speaker 1: brokerages like robin Hood in these particular stocks that we're 378 00:21:35,640 --> 00:21:38,840 Speaker 1: moving in a very volatile fashion, and so the you know, 379 00:21:38,920 --> 00:21:41,240 Speaker 1: systems that we put in place as part of Dodd 380 00:21:41,280 --> 00:21:46,760 Speaker 1: Frank right where there are central clearing houses that unsettled 381 00:21:46,880 --> 00:21:50,680 Speaker 1: trade risk lives at in the charge of credit haircut 382 00:21:50,920 --> 00:21:54,120 Speaker 1: on you know, on that dollar risk that turned into 383 00:21:54,160 --> 00:21:56,240 Speaker 1: these huge margin calls you know to robin Hood that 384 00:21:56,240 --> 00:21:59,200 Speaker 1: they had to meet. Um, it was a scramble because 385 00:21:59,240 --> 00:22:03,240 Speaker 1: this all holded so quickly. But ultimately, you know, robin 386 00:22:03,240 --> 00:22:05,400 Speaker 1: Hood went out and raised three billion dollars of new 387 00:22:05,440 --> 00:22:08,520 Speaker 1: capital plus right in a couple of days, and most 388 00:22:08,600 --> 00:22:11,560 Speaker 1: other you know, most of the other brokerages have also 389 00:22:11,600 --> 00:22:14,359 Speaker 1: been able to reopen trading in these names. And like 390 00:22:14,440 --> 00:22:16,840 Speaker 1: the purpose of that system right is to put guard 391 00:22:16,960 --> 00:22:21,240 Speaker 1: rails around around the collateralization of brokerages so that you 392 00:22:21,280 --> 00:22:24,320 Speaker 1: don't have unexpected failures and to have an insurance pool 393 00:22:24,320 --> 00:22:27,639 Speaker 1: that's large enough across the brokerage system. Right, and you know, 394 00:22:27,680 --> 00:22:30,480 Speaker 1: this was a good stress test, right what you know? 395 00:22:30,520 --> 00:22:33,560 Speaker 1: The the question is how much crazier could it? Could 396 00:22:33,560 --> 00:22:36,280 Speaker 1: it be? And could it happened too quickly? Right? But 397 00:22:36,720 --> 00:22:38,560 Speaker 1: the I think those are the kind of issues regulators 398 00:22:38,560 --> 00:22:40,320 Speaker 1: are going to be thinking about. I don't think that 399 00:22:40,480 --> 00:22:42,960 Speaker 1: regulators in of itself, I don't think that they would 400 00:22:43,000 --> 00:22:46,639 Speaker 1: have great concerns about some particular microcap stocks having you know, 401 00:22:46,720 --> 00:22:51,080 Speaker 1: some crazy, some crazy activity. The question is, you know, 402 00:22:51,760 --> 00:22:54,800 Speaker 1: what if this kind of activity became much much broader, 403 00:22:54,840 --> 00:22:58,040 Speaker 1: what if it was affecting you know, the creating huge 404 00:22:58,040 --> 00:23:01,720 Speaker 1: swings and currencies or commodity or you know other things 405 00:23:01,720 --> 00:23:04,640 Speaker 1: that have major knock on effects on on economic policy. 406 00:23:05,400 --> 00:23:07,280 Speaker 1: I think those are the kinds of things that regulators 407 00:23:07,320 --> 00:23:09,240 Speaker 1: are going to be thinking about. I made a joke 408 00:23:09,280 --> 00:23:12,400 Speaker 1: a little while ago about you know, about Wall Street 409 00:23:12,440 --> 00:23:15,000 Speaker 1: bets going after you know, the dollar via you know, 410 00:23:15,080 --> 00:23:16,679 Speaker 1: via some of the E T E T f s 411 00:23:16,680 --> 00:23:19,080 Speaker 1: that are around there. I mean, if Wall Street Bets 412 00:23:19,119 --> 00:23:21,399 Speaker 1: was actually able to move the value of the dollar 413 00:23:21,480 --> 00:23:23,280 Speaker 1: by thirty pc by trading a bunch of out of 414 00:23:23,320 --> 00:23:26,080 Speaker 1: the money call options that would probably get um, you know, 415 00:23:26,200 --> 00:23:29,239 Speaker 1: attractive crackdown in a hurry. But these are those are 416 00:23:29,280 --> 00:23:32,160 Speaker 1: much bigger, Those are much larger, much deeper, much more 417 00:23:32,200 --> 00:23:34,919 Speaker 1: liquid markets. Right, And I think part of what the 418 00:23:34,920 --> 00:23:38,600 Speaker 1: Reddit community knows and understands again, you know, coming back 419 00:23:38,640 --> 00:23:41,600 Speaker 1: to the sophistication of the ringleaders of this kind of operation, right, 420 00:23:41,800 --> 00:23:44,560 Speaker 1: they understand that they can have a hugely outsized effect 421 00:23:44,800 --> 00:23:49,080 Speaker 1: in thinly traded you know, small caps and microcaps, right, um, 422 00:23:49,160 --> 00:23:52,280 Speaker 1: and they can potentially have some impact over a longer 423 00:23:52,320 --> 00:23:55,160 Speaker 1: period of time and in larger asset classes, but but 424 00:23:55,600 --> 00:23:59,440 Speaker 1: nothing nearly as dramatic because ultimately, you know, global financial 425 00:23:59,480 --> 00:24:01,800 Speaker 1: markets in currencies are are measured in the trillions, not 426 00:24:01,880 --> 00:24:06,400 Speaker 1: in the you know, towns of billions. So presumably, I mean, 427 00:24:06,480 --> 00:24:09,880 Speaker 1: this current episode will fade into some of these popular 428 00:24:10,119 --> 00:24:12,879 Speaker 1: yolo squeeze names aren't going to be in the news 429 00:24:13,000 --> 00:24:15,720 Speaker 1: as much. But I'm still like really interested in what 430 00:24:15,840 --> 00:24:19,160 Speaker 1: the sort of long term effects on just market pricing 431 00:24:19,240 --> 00:24:22,840 Speaker 1: is and I'm curious to start like shorting. So there's 432 00:24:22,840 --> 00:24:24,480 Speaker 1: been a lot of questions now, like what is the 433 00:24:24,560 --> 00:24:27,240 Speaker 1: future of short selling, Like the whole thing of someone 434 00:24:27,359 --> 00:24:31,720 Speaker 1: coming out advertising is short that might be totally dead 435 00:24:31,880 --> 00:24:34,280 Speaker 1: for a while unless they're ready to you know, leg 436 00:24:34,480 --> 00:24:36,800 Speaker 1: total fraud. And honestly, I'm not even sure that would 437 00:24:36,840 --> 00:24:39,359 Speaker 1: do it because that might just be still acute for 438 00:24:39,480 --> 00:24:42,760 Speaker 1: the yolo buyers. Could you see, um, you know, in 439 00:24:42,880 --> 00:24:45,520 Speaker 1: terms of taking a directional negative bet, could there be 440 00:24:45,560 --> 00:24:48,560 Speaker 1: more with options and puts and sort of like what 441 00:24:48,560 --> 00:24:51,400 Speaker 1: what do you see is the effect if shorting itself 442 00:24:51,880 --> 00:24:58,040 Speaker 1: becomes a perceived is just too risky to do right now? Yeah, 443 00:24:58,480 --> 00:25:01,879 Speaker 1: I think that's exactly the right questions. So, you know, 444 00:25:01,960 --> 00:25:05,080 Speaker 1: one of the things that we saw last week, right 445 00:25:05,119 --> 00:25:09,359 Speaker 1: in very big size um, even in names which there's 446 00:25:09,359 --> 00:25:11,879 Speaker 1: no reason to think we're directly targeted by you know, 447 00:25:11,920 --> 00:25:16,439 Speaker 1: Wall Street, Beths, right, was very aggressive shortcovering across names 448 00:25:16,520 --> 00:25:19,359 Speaker 1: that were small cap or micro cap that had a 449 00:25:19,359 --> 00:25:22,520 Speaker 1: reasonable amount of short interest out there. Right because hedge 450 00:25:22,520 --> 00:25:25,840 Speaker 1: funds and hedge fund risk managers were very proactively assessing 451 00:25:26,080 --> 00:25:27,560 Speaker 1: the state of the game, of the state of play 452 00:25:27,600 --> 00:25:30,879 Speaker 1: and their portfolios and where was this risk and where 453 00:25:30,920 --> 00:25:33,359 Speaker 1: could there be you know, this risk manifesting itself right 454 00:25:33,400 --> 00:25:37,080 Speaker 1: and proactively covering that risk. Um, I think that you're 455 00:25:37,119 --> 00:25:42,080 Speaker 1: you're going to see much more hesitation to have certainly 456 00:25:42,280 --> 00:25:46,680 Speaker 1: any kind of meaningful risk position in an outright short 457 00:25:47,400 --> 00:25:50,159 Speaker 1: within you know, low liquidity stocks. Right. I think you 458 00:25:50,240 --> 00:25:52,680 Speaker 1: had a you know something that that's a bit of 459 00:25:52,680 --> 00:25:55,560 Speaker 1: an unusual circumstance here, right, which is many of these 460 00:25:55,600 --> 00:25:57,639 Speaker 1: hedge funds that you read about having lost a lot 461 00:25:57,680 --> 00:26:00,119 Speaker 1: of money are were very large and had me ning 462 00:26:00,160 --> 00:26:03,399 Speaker 1: full short positions and pretty small companies right GM me 463 00:26:03,800 --> 00:26:07,440 Speaker 1: at the time when when these positions would have been initiated, 464 00:26:08,119 --> 00:26:12,159 Speaker 1: was you know, a billion dollar company or less. And 465 00:26:13,160 --> 00:26:15,880 Speaker 1: the liquidity and the float and the volume, it makes 466 00:26:15,920 --> 00:26:18,360 Speaker 1: it very hard to support, you know, like a three 467 00:26:18,720 --> 00:26:21,480 Speaker 1: million dollar short position, an aggregate short position across the 468 00:26:21,520 --> 00:26:24,040 Speaker 1: market of billions of dollars. So I think you're going 469 00:26:24,080 --> 00:26:26,280 Speaker 1: to see much more reluctance to to engage in that 470 00:26:26,320 --> 00:26:29,240 Speaker 1: type of activity, right. That You're also going to see 471 00:26:29,400 --> 00:26:33,159 Speaker 1: I think much more much more demand for optionality on 472 00:26:33,240 --> 00:26:35,800 Speaker 1: those kind of names. So if you really believe that this, 473 00:26:36,160 --> 00:26:38,080 Speaker 1: you know that that there's a company that's a great short, 474 00:26:38,119 --> 00:26:40,320 Speaker 1: and you have a catalyst and you think that you 475 00:26:40,359 --> 00:26:42,920 Speaker 1: know makes sense to be in this bet um. You're 476 00:26:42,920 --> 00:26:45,919 Speaker 1: going to look to structure, structure those trades with puts 477 00:26:46,000 --> 00:26:49,680 Speaker 1: or put spreads or some type of limited loss um, 478 00:26:49,800 --> 00:26:51,679 Speaker 1: you know, positions that give you, you know, give you 479 00:26:51,720 --> 00:26:54,840 Speaker 1: staying power to give you, give you, make you strong hands, 480 00:26:54,840 --> 00:26:58,120 Speaker 1: and not weekends. Right. As a result, you're going to see, 481 00:26:58,600 --> 00:27:02,199 Speaker 1: you know, significant difference is in option pricing in that 482 00:27:02,240 --> 00:27:04,960 Speaker 1: whole segment of the market, right the upside you know, 483 00:27:05,080 --> 00:27:07,640 Speaker 1: upside options are just going to be bid because that's 484 00:27:07,680 --> 00:27:11,160 Speaker 1: your hedge against a short position. The wings and options 485 00:27:11,160 --> 00:27:13,119 Speaker 1: speak sort of the deep out of the money. Calls 486 00:27:13,160 --> 00:27:15,960 Speaker 1: and puts you know are going to be much more 487 00:27:16,000 --> 00:27:18,800 Speaker 1: symmetrically bid. I would think, whereas you know, you typically 488 00:27:18,800 --> 00:27:22,200 Speaker 1: think of skew in most equity and the most most 489 00:27:22,200 --> 00:27:25,120 Speaker 1: stocks as being you know, it's more expensive to buy 490 00:27:25,119 --> 00:27:27,320 Speaker 1: that that those downside puts than it is to buy 491 00:27:27,320 --> 00:27:29,879 Speaker 1: those upside calls. Because there's this trend. You know you 492 00:27:29,880 --> 00:27:32,439 Speaker 1: want to buy insurance, and insurance is expensible. You need 493 00:27:32,480 --> 00:27:35,160 Speaker 1: insurance on the upside against your against your shorts. Right, 494 00:27:35,440 --> 00:27:37,359 Speaker 1: So I think that that's going to be a long 495 00:27:37,440 --> 00:27:42,680 Speaker 1: lasting impact. So the implication here is that the types 496 00:27:42,720 --> 00:27:45,879 Speaker 1: of options that have been deployed by a lot of 497 00:27:45,880 --> 00:27:48,240 Speaker 1: people on Wall Street bets with great effect in the 498 00:27:48,240 --> 00:27:50,040 Speaker 1: case of Game Stop, those are going to get more 499 00:27:50,080 --> 00:27:54,920 Speaker 1: expensive and possibly harder to use. I think that's probably right. 500 00:27:54,960 --> 00:27:58,879 Speaker 1: I mean we've seen really over the last seven or 501 00:27:58,920 --> 00:28:04,240 Speaker 1: eight years, especially um before the Wall Street Pets phenomenon, 502 00:28:04,359 --> 00:28:06,000 Speaker 1: you know, on the retail side, and then also on 503 00:28:06,040 --> 00:28:09,560 Speaker 1: the institutional side, you know, being common wisdom that you know, 504 00:28:10,160 --> 00:28:13,040 Speaker 1: buying options is for suckers, right, because you pay this 505 00:28:13,119 --> 00:28:16,480 Speaker 1: insurance premium, you pay this risk premium. Right, You're supposed 506 00:28:16,520 --> 00:28:19,600 Speaker 1: to sell options in order to make money. If you 507 00:28:19,640 --> 00:28:22,720 Speaker 1: think that the stock you know is overvalued, maybe you 508 00:28:22,720 --> 00:28:24,840 Speaker 1: don't short and maybe you just sell calls on it, right, 509 00:28:24,880 --> 00:28:27,480 Speaker 1: And you've seen you have call over writing and put 510 00:28:27,560 --> 00:28:29,800 Speaker 1: under writing and iron condor selling, and this kind of 511 00:28:29,840 --> 00:28:32,320 Speaker 1: common wisdom that you're just supposed to sell options. And 512 00:28:32,560 --> 00:28:37,480 Speaker 1: I think that that really led to, especially after where 513 00:28:37,480 --> 00:28:40,320 Speaker 1: which saw I think a huge surgeon that that phenomenon, 514 00:28:40,480 --> 00:28:43,959 Speaker 1: you know, options just being far too too cheap and underpriced. 515 00:28:44,320 --> 00:28:45,920 Speaker 1: I think this is going to generate, you know, the 516 00:28:47,920 --> 00:28:50,680 Speaker 1: one so far have generated very strong pushback against that 517 00:28:50,720 --> 00:28:53,720 Speaker 1: in a very strong repricing of options to become much 518 00:28:53,760 --> 00:28:57,320 Speaker 1: more expensive. Um. But you know, because of the value of, 519 00:28:57,760 --> 00:28:59,880 Speaker 1: for example, being able to put on a short position. 520 00:29:00,080 --> 00:29:02,120 Speaker 1: And as we were talking about earlier today, you know, 521 00:29:02,160 --> 00:29:05,760 Speaker 1: if you bought puts on GM a couple of weeks ago, 522 00:29:05,840 --> 00:29:08,480 Speaker 1: you'd um, you'd be up a lot as opposed to 523 00:29:08,520 --> 00:29:10,400 Speaker 1: having gotten blown out of the water on your on 524 00:29:10,440 --> 00:29:14,400 Speaker 1: your shorts. Right, that's a bit of an odd phenomenon 525 00:29:14,480 --> 00:29:16,800 Speaker 1: of of just how incredibly volatile the stock has gone. 526 00:29:16,840 --> 00:29:19,760 Speaker 1: But forgetting about that for a second worst case scenario, 527 00:29:19,800 --> 00:29:21,640 Speaker 1: you would have just lost the premium, right and that 528 00:29:21,880 --> 00:29:24,520 Speaker 1: and that's incredibly valuable in a world where the alternative 529 00:29:24,800 --> 00:29:27,959 Speaker 1: is that maybe you're actually down ten x on your position, 530 00:29:27,960 --> 00:29:30,480 Speaker 1: maybe you're down fifty x on your position, cutting off 531 00:29:30,480 --> 00:29:49,479 Speaker 1: that tail is incredibly important, you know, speaking of short selling, 532 00:29:50,080 --> 00:29:51,920 Speaker 1: you know, one of the things that the Wall Street 533 00:29:51,920 --> 00:29:55,440 Speaker 1: bit crowd has really been focused on is like when 534 00:29:55,520 --> 00:29:57,080 Speaker 1: is the when are the shorts going to cover? And 535 00:29:57,160 --> 00:30:00,600 Speaker 1: so they're sort of these crude metrics of how many 536 00:30:01,000 --> 00:30:05,480 Speaker 1: shorts there are outstanding? How useful are those measures of 537 00:30:05,520 --> 00:30:08,080 Speaker 1: aggregate shorts and especially when you think of how short 538 00:30:08,640 --> 00:30:12,160 Speaker 1: can be combined with options trade such that such such 539 00:30:12,240 --> 00:30:16,400 Speaker 1: that the holder of the short is not necessarily directly negative. 540 00:30:16,480 --> 00:30:19,239 Speaker 1: Like how useful are those measures? And how can you 541 00:30:19,600 --> 00:30:22,840 Speaker 1: how well do we really know short interest out there 542 00:30:22,840 --> 00:30:27,080 Speaker 1: in any name? You know, it's certainly indicative, but it's complicated, 543 00:30:27,120 --> 00:30:29,120 Speaker 1: and there's a lot of different factors going on, right, 544 00:30:29,120 --> 00:30:31,840 Speaker 1: and you alluded to some of these. So one way 545 00:30:32,040 --> 00:30:34,560 Speaker 1: that you can see a bunch of short interest is 546 00:30:34,600 --> 00:30:36,800 Speaker 1: because you know, somebody's borrowing a bunch of shares and 547 00:30:36,840 --> 00:30:39,480 Speaker 1: shorting them, and that certainly has been the case in 548 00:30:39,760 --> 00:30:43,760 Speaker 1: these names. Another another reason you can see short interest 549 00:30:44,480 --> 00:30:49,080 Speaker 1: is if, for example, clients are selling calls, customers are 550 00:30:49,080 --> 00:30:51,760 Speaker 1: selling calls to a dealer, dealers are buying those calls, 551 00:30:51,800 --> 00:30:54,600 Speaker 1: and then they're hedging them with short stock. Right, that's 552 00:30:54,640 --> 00:30:56,960 Speaker 1: a very different phenomenon. Of course, the customers do in 553 00:30:57,000 --> 00:30:59,920 Speaker 1: that case have some have a similar risk risk thing. 554 00:31:00,360 --> 00:31:02,840 Speaker 1: Those shares that are short could be hedges of all 555 00:31:02,920 --> 00:31:06,200 Speaker 1: kinds of different derivatives positions, They could be hedges of 556 00:31:06,520 --> 00:31:10,920 Speaker 1: futures positions in in certain kinds of products. Also, you 557 00:31:10,960 --> 00:31:15,240 Speaker 1: know the understanding, you know the dynamics of rehypoblication and 558 00:31:15,360 --> 00:31:18,120 Speaker 1: in shorts where you have you know, a daisy chain 559 00:31:18,160 --> 00:31:22,200 Speaker 1: of shorts where you know, someone borrows borrows of share, 560 00:31:22,360 --> 00:31:25,200 Speaker 1: it's lent out and then it goes into somebody else's account. 561 00:31:25,280 --> 00:31:29,200 Speaker 1: Someone borrows that share, um, and so they just looking 562 00:31:29,240 --> 00:31:31,760 Speaker 1: at aggregate short interest and that's all. You know. It 563 00:31:31,800 --> 00:31:34,000 Speaker 1: doesn't tell you a precise picture, right, And it also 564 00:31:34,040 --> 00:31:36,720 Speaker 1: doesn't tell you who are the shorts in the sense 565 00:31:36,760 --> 00:31:39,280 Speaker 1: that you know. One thing that we hear about last week, 566 00:31:39,360 --> 00:31:43,000 Speaker 1: for example, is that, um, there was a very large 567 00:31:43,000 --> 00:31:47,120 Speaker 1: amount of covering from those initial shorts, the original shorts 568 00:31:47,120 --> 00:31:49,200 Speaker 1: who were in the newspaper and who lost a whole 569 00:31:49,240 --> 00:31:53,360 Speaker 1: bunch of money on this. They were replaced. In many cases, 570 00:31:53,760 --> 00:31:56,280 Speaker 1: a lot of those shorts were replaced by folks initiating 571 00:31:56,320 --> 00:31:59,520 Speaker 1: new shorts, folks who hadn't been short before, right, And 572 00:31:59,640 --> 00:32:02,120 Speaker 1: so um, you know, those are still shorts, and maybe 573 00:32:02,120 --> 00:32:05,280 Speaker 1: you can squeeze them. But now you're talking about squeezing 574 00:32:05,320 --> 00:32:07,520 Speaker 1: somebody who put on their short at three hundred bucks 575 00:32:07,760 --> 00:32:09,760 Speaker 1: as opposed to somebody who put on their short at 576 00:32:09,840 --> 00:32:12,360 Speaker 1: you know, thirty bucks, right, And they're in a much 577 00:32:12,360 --> 00:32:14,920 Speaker 1: stronger position because they haven't lost any money yet, and 578 00:32:15,080 --> 00:32:17,080 Speaker 1: you know, they might have a pretty deep wallet, and 579 00:32:17,120 --> 00:32:18,959 Speaker 1: maybe if you blow those guys out, then some other 580 00:32:19,000 --> 00:32:20,560 Speaker 1: guys who haven't touched it are going to come in 581 00:32:20,560 --> 00:32:22,920 Speaker 1: and short at six hundred bucks, right, you know the 582 00:32:23,000 --> 00:32:26,200 Speaker 1: overall picture. You know, you can have a plan, which 583 00:32:26,240 --> 00:32:27,600 Speaker 1: is I'm gonna buy a whole lot of this stuff. 584 00:32:27,600 --> 00:32:29,520 Speaker 1: I'm gonna roll these calls up until the shorts are 585 00:32:29,560 --> 00:32:31,600 Speaker 1: forced to cover, and I'm gonna sell to them. But 586 00:32:31,720 --> 00:32:35,080 Speaker 1: you don't really know exactly when that's happening, and actually 587 00:32:35,120 --> 00:32:37,400 Speaker 1: that short mix may just be rotating as you push 588 00:32:37,480 --> 00:32:42,800 Speaker 1: the stock higher. So when we're talking about possible changes 589 00:32:43,160 --> 00:32:45,400 Speaker 1: to the way the market works as a result of this, 590 00:32:45,560 --> 00:32:49,880 Speaker 1: there's also the whole sort of retail brokerage dynamic, which 591 00:32:49,880 --> 00:32:52,800 Speaker 1: you've touched on a couple of times. But one of 592 00:32:52,840 --> 00:32:55,080 Speaker 1: the big points of drama in the entire game Stop 593 00:32:55,080 --> 00:32:59,800 Speaker 1: phenomenon was when Robin Hood restricted trading on Jimmy and 594 00:33:00,160 --> 00:33:02,280 Speaker 1: a few of the other meme stocks. Can you walk 595 00:33:02,360 --> 00:33:05,960 Speaker 1: us through that decision and whether or not this might 596 00:33:06,080 --> 00:33:10,080 Speaker 1: end up being a more common occurrence if we continue 597 00:33:10,120 --> 00:33:15,400 Speaker 1: to get these social media fuel squarms over stocks. You know, 598 00:33:15,440 --> 00:33:19,560 Speaker 1: I think we first heard on Wednesday night Thursday morning 599 00:33:19,600 --> 00:33:24,040 Speaker 1: about Robin hood having maxed out its lines of credit, 600 00:33:24,520 --> 00:33:27,239 Speaker 1: you know, across several different banks. A bunch of us 601 00:33:27,240 --> 00:33:30,720 Speaker 1: were discussing kind of the plumbing issues here on Thursday. 602 00:33:31,240 --> 00:33:34,200 Speaker 1: So just to walk through step by step here, right, 603 00:33:34,240 --> 00:33:37,160 Speaker 1: the way a brokerage works is when when a brokerage's 604 00:33:37,160 --> 00:33:40,680 Speaker 1: customers buy and sell stocks, those trades don't settle until 605 00:33:40,840 --> 00:33:43,560 Speaker 1: two business days later, when the buyers and sellers are 606 00:33:43,720 --> 00:33:47,560 Speaker 1: matched up and the cash is exchanged for securities. If 607 00:33:47,600 --> 00:33:51,840 Speaker 1: a brokerage's customers are buying and selling an equal amount 608 00:33:51,840 --> 00:33:54,640 Speaker 1: of shares on a given day, then that's really just 609 00:33:55,080 --> 00:33:58,160 Speaker 1: internal accounting transfers within the brokerage. Right, Hey, I've got 610 00:33:58,240 --> 00:34:00,680 Speaker 1: you know, these guys bought fifty million shares, these guys 611 00:34:00,720 --> 00:34:03,280 Speaker 1: sold fifty million shares. We just kind of reshuffle around 612 00:34:03,280 --> 00:34:07,560 Speaker 1: everything among the accounts. But if that brokerage, as customers are, 613 00:34:07,560 --> 00:34:11,279 Speaker 1: are big net buyers of a stock, then that brokerage 614 00:34:11,280 --> 00:34:15,239 Speaker 1: has a big net unsettled position in buys on that 615 00:34:15,360 --> 00:34:19,160 Speaker 1: stock facing the clearing house, right, And those trades don't 616 00:34:19,200 --> 00:34:22,520 Speaker 1: settle for two days, and that's counterparty credit risk, right, 617 00:34:22,600 --> 00:34:26,040 Speaker 1: And so what the clearing house does under the modern 618 00:34:26,120 --> 00:34:30,560 Speaker 1: Dodd Frank regulations there's a specific sets of formulas that 619 00:34:30,719 --> 00:34:34,319 Speaker 1: generate how much collateral does you know, Robin Hood, the 620 00:34:34,320 --> 00:34:37,160 Speaker 1: brokerage need to post to the clearing house as a 621 00:34:37,200 --> 00:34:40,360 Speaker 1: function of the risk of those outstanding unsettled trades that 622 00:34:40,400 --> 00:34:42,680 Speaker 1: they have, and that's going to be a function of 623 00:34:43,000 --> 00:34:46,000 Speaker 1: how large those trades are and a function of what's 624 00:34:46,040 --> 00:34:49,839 Speaker 1: the risk on that particular security. Uh. And you know 625 00:34:49,880 --> 00:34:53,759 Speaker 1: what we heard this week, right was DTCC raised its 626 00:34:53,760 --> 00:34:56,959 Speaker 1: haircuts on the clearing house raised its haircuts on these 627 00:34:56,960 --> 00:34:59,840 Speaker 1: popular meme stocks that were trading, you know, doubling or 628 00:35:00,160 --> 00:35:03,640 Speaker 1: cutting a half every day, which is a very reasonable, 629 00:35:03,800 --> 00:35:06,680 Speaker 1: you know, thing to do given the risk of those securities. 630 00:35:06,920 --> 00:35:08,920 Speaker 1: And so what happened was robin Hood got a margin 631 00:35:09,000 --> 00:35:11,279 Speaker 1: call for three plus billion dollars at three thirty in 632 00:35:11,320 --> 00:35:14,520 Speaker 1: the morning on on on Thursday morning. Right, I'm sorry, 633 00:35:14,560 --> 00:35:18,320 Speaker 1: on Wednesday morning, I said, Thursday morning. And that's again, 634 00:35:18,680 --> 00:35:20,880 Speaker 1: that's the way that the system is set up in 635 00:35:20,960 --> 00:35:24,240 Speaker 1: order to be resilient to uh, you know, to credit 636 00:35:24,360 --> 00:35:26,240 Speaker 1: risk and shocks in the in the in the system, 637 00:35:26,360 --> 00:35:29,840 Speaker 1: right where brokerages have to be adequately capitalized to support 638 00:35:29,880 --> 00:35:32,640 Speaker 1: the volume of trading that they're doing. And you know, 639 00:35:32,760 --> 00:35:34,279 Speaker 1: Robin Hood did go out and then and raise a 640 00:35:34,320 --> 00:35:36,520 Speaker 1: whole bunch of money. I mean, certainly, one thing that's 641 00:35:36,520 --> 00:35:38,480 Speaker 1: going to happen now is all of the brokerages are 642 00:35:38,480 --> 00:35:41,440 Speaker 1: going to be rewriting all of their stress tests for 643 00:35:41,680 --> 00:35:44,319 Speaker 1: you know, increases in volume and increases in risk. Right, 644 00:35:44,600 --> 00:35:46,680 Speaker 1: you can argue it would have been hard to see 645 00:35:46,800 --> 00:35:49,920 Speaker 1: to foresee a spike in volume and risk this big, 646 00:35:50,000 --> 00:35:52,440 Speaker 1: this fast, you know happening. You can go back and 647 00:35:52,440 --> 00:35:54,520 Speaker 1: forth about how extreme your stress tests should be, but 648 00:35:54,520 --> 00:35:57,759 Speaker 1: you better believe that across the street, everyone's going to 649 00:35:57,840 --> 00:36:00,960 Speaker 1: be you know, dramatically increasing those kind of thresholds, right, 650 00:36:01,000 --> 00:36:03,080 Speaker 1: And as a result, you're going to be seeing capital 651 00:36:03,120 --> 00:36:05,000 Speaker 1: plan and going through. You're going to be seeing you know, 652 00:36:05,040 --> 00:36:08,160 Speaker 1: fundraising get done and more lines of credit put in place. 653 00:36:08,640 --> 00:36:11,719 Speaker 1: So I think that you know, that's certainly well, you know, 654 00:36:12,160 --> 00:36:15,120 Speaker 1: how capitalized does you know the banking system and the 655 00:36:15,120 --> 00:36:17,839 Speaker 1: broker system have to be to support this type of 656 00:36:17,920 --> 00:36:19,719 Speaker 1: you know, this type of activity, And like what we're 657 00:36:19,760 --> 00:36:22,000 Speaker 1: we're finding out, it kind of seems like I mean, 658 00:36:22,040 --> 00:36:25,160 Speaker 1: I know a bunch of politicians, Elizabeth Warren and others 659 00:36:25,160 --> 00:36:27,880 Speaker 1: have criticized it, but it kind of seems like the 660 00:36:27,920 --> 00:36:30,759 Speaker 1: system worked. Yeah, I mean I would I would agree 661 00:36:30,760 --> 00:36:33,160 Speaker 1: with that. I think that people, um, you know, you 662 00:36:33,160 --> 00:36:36,359 Speaker 1: you have to make some choices ex anti certainly as 663 00:36:36,360 --> 00:36:39,440 Speaker 1: a business in um, you know, in forecasting. Okay, how 664 00:36:39,520 --> 00:36:42,000 Speaker 1: much capital do I need and what kinds of access 665 00:36:42,040 --> 00:36:44,200 Speaker 1: to capital the short term do I need to manage 666 00:36:44,200 --> 00:36:47,719 Speaker 1: the expected fluctuations in the nature of my business? You know, 667 00:36:47,800 --> 00:36:50,880 Speaker 1: this was a very very large increase in capital requirements 668 00:36:50,920 --> 00:36:53,799 Speaker 1: over a very short period of time. And you know, 669 00:36:53,920 --> 00:36:57,200 Speaker 1: Robin Hood I think did a total disaster on the 670 00:36:57,200 --> 00:36:59,719 Speaker 1: pr side. But being able to being able to get 671 00:36:59,760 --> 00:37:02,120 Speaker 1: out there and raise three billion dollars in a couple 672 00:37:02,120 --> 00:37:04,560 Speaker 1: of days and you know, get this stuff, you know, 673 00:37:04,640 --> 00:37:08,799 Speaker 1: back open again. I think it's pretty reasonable. Ultimately, it's 674 00:37:08,840 --> 00:37:12,080 Speaker 1: hard to say that what the system is designed to avoid, 675 00:37:12,200 --> 00:37:15,800 Speaker 1: right is cascading failures of brokerages and you know, people 676 00:37:15,840 --> 00:37:19,719 Speaker 1: losing tons and tons of money in systemic implications. Um, 677 00:37:20,000 --> 00:37:23,160 Speaker 1: you know, I don't think the primary objective of the 678 00:37:23,239 --> 00:37:26,080 Speaker 1: regulations governing the way our brokerage is work and post 679 00:37:26,080 --> 00:37:29,440 Speaker 1: collateral is you know, is the hot stock of the 680 00:37:29,520 --> 00:37:32,640 Speaker 1: day always available to trade on demand, you know, at 681 00:37:32,640 --> 00:37:36,320 Speaker 1: any at any level for any customer. So we touched 682 00:37:36,360 --> 00:37:39,040 Speaker 1: on this in a previous episode a little bit. But 683 00:37:39,719 --> 00:37:44,880 Speaker 1: if we're saying that ultimately the requirements around clearing and 684 00:37:45,040 --> 00:37:49,400 Speaker 1: collateral and posting collateral in order to protect robin Hood 685 00:37:49,440 --> 00:37:52,640 Speaker 1: customers is a good thing, how how would robin Hood 686 00:37:52,680 --> 00:37:56,479 Speaker 1: actually go about changing that narrative because it seems really 687 00:37:56,520 --> 00:37:59,959 Speaker 1: really tough at this point. I think I think that's 688 00:38:00,120 --> 00:38:02,880 Speaker 1: the tough things, right when you look at the narrative. 689 00:38:02,880 --> 00:38:06,960 Speaker 1: On Thursday, lad was very tight lipped and and you know, 690 00:38:08,440 --> 00:38:10,919 Speaker 1: went on television and said didn't really say very much. 691 00:38:11,440 --> 00:38:15,040 Speaker 1: And I think that's understandable in a sense, right, because 692 00:38:15,560 --> 00:38:18,920 Speaker 1: the concern there is if we if we go out 693 00:38:18,960 --> 00:38:20,719 Speaker 1: there and we tell the world on Thursday that we 694 00:38:20,840 --> 00:38:22,920 Speaker 1: just got a three billion dollar margin call and we 695 00:38:23,000 --> 00:38:25,680 Speaker 1: haven't really figured that out yet, we don't have the money. 696 00:38:26,480 --> 00:38:28,960 Speaker 1: The concern, right is that causes a run on the brokerage. 697 00:38:28,960 --> 00:38:32,200 Speaker 1: Everybody freaks out, everybody pulls all their money. Banks are 698 00:38:32,200 --> 00:38:33,880 Speaker 1: worried that everybody's going to pull all their money, and 699 00:38:33,920 --> 00:38:35,839 Speaker 1: they pull their lines of credit and there's some kind 700 00:38:35,840 --> 00:38:39,000 Speaker 1: of cascading failure, right. So you can see and that's 701 00:38:39,040 --> 00:38:41,120 Speaker 1: probably the advice that you know he was getting and 702 00:38:41,440 --> 00:38:44,839 Speaker 1: you can understand that, um, but I think that when 703 00:38:44,840 --> 00:38:47,960 Speaker 1: you look at how fast the narrative got away from them, 704 00:38:47,960 --> 00:38:49,920 Speaker 1: and you look at the anger in you know, the 705 00:38:49,960 --> 00:38:53,799 Speaker 1: general public that isn't necessarily that hyper focused in their 706 00:38:53,800 --> 00:38:57,080 Speaker 1: dinner conversation around you know, clearing collateral requirements, right, it 707 00:38:57,160 --> 00:39:00,000 Speaker 1: created a big backlash and a big, big brand damage 708 00:39:00,160 --> 00:39:02,200 Speaker 1: for them. And I don't know, you know, it's not 709 00:39:02,239 --> 00:39:04,000 Speaker 1: obvious that they're going to be able to get that, 710 00:39:04,719 --> 00:39:07,319 Speaker 1: you know, to shift that narrative back among really their 711 00:39:07,360 --> 00:39:11,480 Speaker 1: core client based this notion of democratizing, democratizing trading and 712 00:39:11,560 --> 00:39:14,080 Speaker 1: democratizing brokerage. I think that's going to be be a 713 00:39:14,120 --> 00:39:17,400 Speaker 1: big challenge for them. Well, we'll have to have you 714 00:39:17,440 --> 00:39:21,600 Speaker 1: back when retail options trading triples again from here in 715 00:39:21,680 --> 00:39:26,400 Speaker 1: three months to see what to see what even weirder 716 00:39:26,440 --> 00:39:30,480 Speaker 1: stuff happened in the market. Exactly, we're gonna be we're 717 00:39:30,480 --> 00:39:33,600 Speaker 1: gonna be doing call options on on the Euro, trying 718 00:39:33,640 --> 00:39:35,560 Speaker 1: to tank the dollar, and it's going to be working, 719 00:39:35,640 --> 00:39:37,719 Speaker 1: and we're gonna be like, don't tell Wall Street bets 720 00:39:37,760 --> 00:39:41,320 Speaker 1: about the Hong Kong dollar peg stuff like that. Yeah, exact, 721 00:39:41,640 --> 00:39:44,080 Speaker 1: I'm sure I'm sure Kyle is A is really hyper 722 00:39:44,120 --> 00:39:47,120 Speaker 1: focused on that. Sorry. Sorry, Tracy, I probably shouldn't even 723 00:39:47,160 --> 00:39:54,640 Speaker 1: said said that into existing Yeah what are you doing? Okay? Well, 724 00:39:54,760 --> 00:39:59,040 Speaker 1: um then it's yeah, it's lovely having you on for 725 00:39:59,080 --> 00:40:01,680 Speaker 1: a fourth time, and we'll get you that all box 726 00:40:01,760 --> 00:40:05,279 Speaker 1: tote bag in the mail soon. Awesome. I definitely need one, guys. 727 00:40:05,320 --> 00:40:07,279 Speaker 1: It's always it's always fun. Sorry if I was a 728 00:40:07,280 --> 00:40:30,400 Speaker 1: little distracted sitting here in the park, So Joe, Yeah, 729 00:40:30,800 --> 00:40:33,000 Speaker 1: I think that was a really important conversation to have. 730 00:40:33,280 --> 00:40:37,120 Speaker 1: I know we've spoken about the amazing story, which is 731 00:40:37,360 --> 00:40:41,040 Speaker 1: some people who made a bullish thesis on Game Stop 732 00:40:41,760 --> 00:40:43,600 Speaker 1: and then ended up making a lot of money. But 733 00:40:43,800 --> 00:40:46,160 Speaker 1: I don't think you can talk about that story without 734 00:40:46,200 --> 00:40:49,200 Speaker 1: discussing the technical factors like the short squeeze and the 735 00:40:49,239 --> 00:40:52,359 Speaker 1: gamma squeeze that went into it. Totally right. I mean, 736 00:40:52,360 --> 00:40:56,879 Speaker 1: I'll say this that the short squeeze element was at 737 00:40:56,920 --> 00:41:00,800 Speaker 1: least part of the thesis from the early at least 738 00:41:00,960 --> 00:41:06,040 Speaker 1: late last year I talked about with Rod, but the Gamasquez, 739 00:41:06,400 --> 00:41:10,359 Speaker 1: the swarm, the effect that options buying had the sort 740 00:41:10,360 --> 00:41:13,600 Speaker 1: of flywheel effect where more and more buying led to 741 00:41:13,640 --> 00:41:17,919 Speaker 1: this upward vortex and price that is its own distinct thing, 742 00:41:18,400 --> 00:41:20,920 Speaker 1: and no one like talks about the mechanics better than 743 00:41:22,080 --> 00:41:25,879 Speaker 1: no one talks about it better than betting period absolutely. 744 00:41:25,960 --> 00:41:27,759 Speaker 1: But this is also I think I said this, but 745 00:41:27,840 --> 00:41:31,080 Speaker 1: this is why it's so interesting to have seen people 746 00:41:31,320 --> 00:41:36,160 Speaker 1: like deep effing Value, as we keep referring to him, 747 00:41:36,160 --> 00:41:39,920 Speaker 1: people like Deep effic Value who were making the crowded 748 00:41:40,040 --> 00:41:44,439 Speaker 1: short position part of their fundamental case and then going 749 00:41:44,520 --> 00:41:48,040 Speaker 1: after the gamma squeeze through options contracts. That mingling of 750 00:41:48,120 --> 00:41:51,839 Speaker 1: the sort of fundamentals with the technicals I find really 751 00:41:51,840 --> 00:41:54,440 Speaker 1: really interesting, and it's one reason why when you see 752 00:41:54,920 --> 00:41:58,600 Speaker 1: the game stop strategy rolled out to other companies or 753 00:41:58,640 --> 00:42:02,239 Speaker 1: to other markets, people are looking for places or for 754 00:42:02,280 --> 00:42:06,160 Speaker 1: companies with sizeable short positions where they could maybe affect 755 00:42:06,320 --> 00:42:09,200 Speaker 1: a squeeze of some sort. Yeah, and I am like 756 00:42:09,440 --> 00:42:13,040 Speaker 1: really fascinated by this angle because you've talked about it 757 00:42:13,280 --> 00:42:15,600 Speaker 1: message boards. They've probably been around for like a quarter 758 00:42:15,680 --> 00:42:18,520 Speaker 1: century if not longer, people talk about stocks, but like 759 00:42:18,680 --> 00:42:21,399 Speaker 1: so I've been every day after the market ends, like 760 00:42:21,640 --> 00:42:26,680 Speaker 1: um DFV posts his daily gm E YOLO update, like 761 00:42:26,680 --> 00:42:28,680 Speaker 1: how many millions he's lost? If you look at the 762 00:42:28,760 --> 00:42:32,200 Speaker 1: comments and they're all if he's still and I'm still 763 00:42:32,200 --> 00:42:34,520 Speaker 1: and if he's still in they all it's all that. 764 00:42:35,000 --> 00:42:36,680 Speaker 1: So not only do you have this, you have this 765 00:42:36,800 --> 00:42:40,960 Speaker 1: sort of like cult of the trade itself where everything 766 00:42:41,000 --> 00:42:44,640 Speaker 1: gets amplified furtherest. You have the short squeeze, you have 767 00:42:44,880 --> 00:42:47,880 Speaker 1: the gamma squeeze because everyone's using options, and then you 768 00:42:47,920 --> 00:42:51,080 Speaker 1: just have this culture of everyone around the world. I'll 769 00:42:51,120 --> 00:42:53,760 Speaker 1: talk about this one trade. And so you just really 770 00:42:53,800 --> 00:42:57,960 Speaker 1: see how hundreds of thousands of individual traders can just 771 00:42:58,080 --> 00:43:01,400 Speaker 1: incredibly amplify they're buying power in a way that I 772 00:43:01,440 --> 00:43:04,279 Speaker 1: just don't think we saw in the late nineties or 773 00:43:04,320 --> 00:43:11,120 Speaker 1: prior periods of marketing enthusiasm. Yeah, and wait till deep 774 00:43:11,160 --> 00:43:15,040 Speaker 1: effing value gets on a copy trading platform like e Toro. 775 00:43:15,320 --> 00:43:18,480 Speaker 1: Like imagine that if people were able to follow his 776 00:43:18,520 --> 00:43:20,239 Speaker 1: trades with just the click of a button. I think 777 00:43:20,239 --> 00:43:24,520 Speaker 1: that'd be pretty interesting. Um, shall we leave it there? Yeah, 778 00:43:24,640 --> 00:43:27,800 Speaker 1: let's see it there? All right. This has been another 779 00:43:27,840 --> 00:43:30,799 Speaker 1: episode of the All Thoughts podcast. I'm Tracy Alloway. You 780 00:43:30,800 --> 00:43:33,839 Speaker 1: can follow me on Twitter at Tracy Alloway and I'm 781 00:43:33,920 --> 00:43:36,520 Speaker 1: Joe Wisn't Thought. You can follow me on Twitter at 782 00:43:36,560 --> 00:43:40,520 Speaker 1: the Stalwart Follow our guest on Twitter, Ben Effort. He's 783 00:43:40,560 --> 00:43:42,560 Speaker 1: so good. He talks about this stuff all day. He 784 00:43:42,680 --> 00:43:47,600 Speaker 1: learned so much. He's at Ben with Two Ends, Ben P. Eiffort. 785 00:43:48,040 --> 00:43:51,880 Speaker 1: Follow our producer Laura Carlson. She's at Laura M. Carlson. 786 00:43:52,239 --> 00:43:56,319 Speaker 1: Follow the Bloomberg head of podcast Francesco Levi at Francesco Today, 787 00:43:56,440 --> 00:43:59,439 Speaker 1: and check out all of our podcasts at Bloomberg under 788 00:43:59,480 --> 00:44:02,120 Speaker 1: the handle at podcasts. Thanks for listening.