Speaker 1: Hello, and welcome to another episode of the Odd LODs podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy alliwit Uh, Tracy. It
Speaker 1: really feels like, from a market's perspective, this is the
Speaker 1: closest we've been lately to uh sort of two thousand
Speaker 1: and eight financial crisis vibes well since the financial crisis,
Speaker 1: wouldn't you say? I would say so, and I would
Speaker 1: certainly say the statistics back you up. Biggest weekly sell
Speaker 1: off since the financial crisis. We've just seen, right right,
Speaker 1: massive sell off and risk assets, an extraordinary amount of
Speaker 1: repricing of expectations for central banks all around the world
Speaker 1: to come in and intervene. And we've had other periods
Speaker 1: of sort of semi crisis, um uh since the Great
Speaker 1: Financial Crisis, during periods to say the Eurozone, but it's
Speaker 1: just never felt as extremely uncertain as it does right now.
Speaker 1: I don't know, I sort of remember late two thousand fifteen.
Speaker 1: Uh yeah, I mean late two thousand and fifteen you
Speaker 1: had all the issues going on with credit and you
Speaker 1: had one big fund blow up. So I'm still waiting.
Speaker 1: I'm still waiting for the second order effects of the
Speaker 1: market sell off that we've seen to emerge. That's true,
Speaker 1: Like we haven't actually seen any sort of major liquidations
Speaker 1: or institutions of various size like truly go bust yet
Speaker 1: amid the volatility. Obviously nobody, uh, you know, we're not
Speaker 1: hoping that that happens. For now. It's mostly been like
Speaker 1: a sort of markets reaction. But as you say, there
Speaker 1: hasn't really been a second order effect just yet. Ye,
Speaker 1: very true. So obviously the coronavirus is um you know,
Speaker 1: the leer contributing factor. It's people are gripped, my panic
Speaker 1: all around the world. It started in China late last
Speaker 1: year and now it seems to be spreading to countries
Speaker 1: basically everywhere. But I also think that there is another
Speaker 1: contributor to the top. It's not just the virus that
Speaker 1: caused the top. Well, I mean, the virus didn't cause
Speaker 1: the top. The virus was the catalyst for the top
Speaker 1: to no longer be the top and for markets to
Speaker 1: sell off. But but what are you thinking about, Joe, Well,
Speaker 1: I mean, obviously it's our recent Business Week cover story
Speaker 1: that our colleague Luke Cowo wrote about when the bull
Speaker 1: market got weird and uh about all these traders and
Speaker 1: online forums making crazy big beds, and I think in
Speaker 1: retrospect many people will see the recent cover as what
Speaker 1: really did the bull market in? Yeah, it was good timing,
Speaker 1: but in the history of of market crashes, people always
Speaker 1: go back and sort of look for retail investors who
Speaker 1: start to become really overconfident. Some people actually look at
Speaker 1: retail investor participation in the market as evidence of the
Speaker 1: top coming. And so some of the behavior that we
Speaker 1: have seen embodied in places like um what Luke was
Speaker 1: talking about, Uh, you could maybe see that as an
Speaker 1: indication that markets were a little frothy. Yeah. So for
Speaker 1: those who actually haven't been paying attention to this particular subplot,
Speaker 1: which is probably most people, because there's bigger things going
Speaker 1: on in the world. Over the last several weeks, prior
Speaker 1: to this extreme bout of selling in volatility that we saw,
Speaker 1: there was a lot of attention paid to the behavior
Speaker 1: of people on a certain Internet web page or chat
Speaker 1: room or message board, whatever you want to call it,
Speaker 1: in which there was an extreme subreddit. It was on Reddit,
Speaker 1: an extreme level of speculative activity, particularly the options market,
Speaker 1: the likes of which we haven't really seen, arguably since
Speaker 1: the glory days of the Ahoo message boards back during
Speaker 1: the dot com bubble, and it's a really fascinating story.
Speaker 1: It's really uh interesting look at how the markets work,
Speaker 1: um and how retail players can really make a dent
Speaker 1: in publicly publicly listed equities. Yeah. So this is the
Speaker 1: thing that I find the most fascinating about this sub breddit.
Speaker 1: It's called Wall Street bets, and in recent months or
Speaker 1: over the past year or so, a lot of the
Speaker 1: people on it don't just think that they found good
Speaker 1: ways to make money through investing in the market. They
Speaker 1: think that they found a good way to sort of
Speaker 1: force the market into or force the market to do
Speaker 1: what they wanted to do. So they actually think that
Speaker 1: they're impacting how Wall Street functions and pushing up the
Speaker 1: stock price. And that's where it gets really really interesting.
Speaker 1: Are they in fact having this impact on the market? Right?
Speaker 1: And I remember the message boards, the Raging Bull message
Speaker 1: boards Silicon Investor Yahoo message boards from nine and two
Speaker 1: thousand and I think they were far less ambitious than
Speaker 1: what people are doing uh these days. So for more,
Speaker 1: for more on this, let's start by bringing in uh
Speaker 1: Bloomberg's own Luke Kala, who did have the cover story
Speaker 1: that cursed the market overall. Uh luke, thanks for joining us.
Speaker 1: So first of all, it just basically describe what it
Speaker 1: was that was worth covering here about this uh about
Speaker 1: this subread Well, I think for so long we've been
Speaker 1: waiting for the return of the retail investor, and you know,
Speaker 1: it's been this kind of long awaited thing that's never
Speaker 1: really happened throughout any time during this bullmarket. And this
Speaker 1: is kind of like the be careful what you wish
Speaker 1: for story, because what became quite interesting is how you
Speaker 1: were seeing retail enthusiasm get to express in the markets.
Speaker 1: And so I remember there was one day, it was
Speaker 1: January eight, and this is when Tesla was still below
Speaker 1: five hundred, if you can imagine a day in which
Speaker 1: that existed. But it was a Wednesday, and you saw
Speaker 1: a lot of bidding for the Tesla seven hundred strike
Speaker 1: call options that would expire at the end of that week.
Speaker 1: Tesla had already been up like that week, as was
Speaker 1: its want earlier this year. But it just seemed like
Speaker 1: this is this is such a ridiculous bet. Why would
Speaker 1: anyone do this? This doesn't make sense as a hedge.
Speaker 1: There's got to be a better way to express a
Speaker 1: hedge if you're you know, if you're short the stock
Speaker 1: or if you sold calls like what's going on here?
Speaker 1: And someone said, you know, this is just a yolo bed.
Speaker 1: And the second I heard, you know, yolo bed, I
Speaker 1: went to Wall Street bets and tried to see what
Speaker 1: what they were in. You only live once, why not
Speaker 1: make a huge exactly? And you know when I when
Speaker 1: I went there, I saw you know a lot of
Speaker 1: people just uh that were seemingly enjoying a lot of
Speaker 1: success on Tesla. And then that spiral to kind of
Speaker 1: other story stocks where they, you know, thought the it
Speaker 1: would do nothing but go up and up and up.
Speaker 1: And you know, Virgin Galactic is the you know, the
Speaker 1: next example. Plug Power another one that had its kind
Speaker 1: of time and the headlights, and then lumber Liquidators is
Speaker 1: one I find very interesting because it's not like it's
Speaker 1: not that fun of stock, like Lumber Liquidators compared to
Speaker 1: Virgin Galactic, compared to Plug Power, like it's it's really
Speaker 1: hard to wrap an enthusiastic you know, big story around it. Uh.
Speaker 1: And yet you know a lot of the ones of
Speaker 1: the three ones I've lastlisted, they have in common. It's
Speaker 1: relatively low float relatively high amount of short interest. So
Speaker 1: when you got a group of people together, that thought,
Speaker 1: you know, if we're all interested in the same thing,
Speaker 1: and if we are all kind of you know, combining
Speaker 1: buying power, where can it have an impact. Well, in
Speaker 1: names like this, it can. And you were seeing at
Speaker 1: least the volumes go up like crazy in it. Uh,
Speaker 1: it became too much to call it coincident, coincident timing,
Speaker 1: or coincidence after a certain amount of time, So luke
Speaker 1: to things here. Can you walk us through exactly what
Speaker 1: the options trading strategy was here, because you know, Joe
Speaker 1: and I kind of alluded to this in the intro.
Speaker 1: But it wasn't just that they could push the stock up.
Speaker 1: It was that they could actually exploit a loophole in
Speaker 1: the way certain financial contracts or Wall Street actually works
Speaker 1: in order to make the stock go up. And then secondly,
Speaker 1: would you say that Wall Street bets is representative of
Speaker 1: the average retail investor? So on the on the first part,
Speaker 1: the and this this relates to I'm not sure if
Speaker 1: if people actually believe this or this just becomes a
Speaker 1: you know, very happy supporting evidence and something that makes
Speaker 1: you feel a lot better about making your moon shot
Speaker 1: at the you know, the fact that someone might be
Speaker 1: there to help accentuated and help bail you out. So
Speaker 1: the thinking here is that when you like, say you're
Speaker 1: buying a call option on on the other side of that,
Speaker 1: if it's a fresh option, there's going to be a dealer,
Speaker 1: and dealers are not in the business of taking directional exposure.
Speaker 1: So when they're selling that call, what are they doing.
Speaker 1: They're also you know, buying a certain amount of stock
Speaker 1: to hedge their exposure. That's called delta hedging. And as
Speaker 1: if the stock does continue to go up from there,
Speaker 1: it you know, resetting your delta hedge your which would
Speaker 1: be kind of gama hedging, but it's really just resetting
Speaker 1: your delta hedge would entail that as the stock goes up,
Speaker 1: you would be required to kind of buy more and
Speaker 1: more to make sure that your directional exposure to the
Speaker 1: stock hasn't changed. So when we describe this dynamic, when
Speaker 1: we were talking about the Tesla calls, the testas see
Speaker 1: one thousand straight calls, and I believe late January, someone
Speaker 1: on Reddit latched onto this and said, you know, l
Speaker 1: O L. Bloomberg is admitting that the stock can only
Speaker 1: go up if we continue to buy calls because of
Speaker 1: the hedging algorithms, which is, you know, it's it's very
Speaker 1: much an overstatement of of what can actually happen. Can
Speaker 1: I just step in real quickly, because you mentioned delta
Speaker 1: hedging and gam hedging and all this stuff just for
Speaker 1: people who need a little bit of time to catch up,
Speaker 1: walk us through very simply. The idea is people buy
Speaker 1: a lot of call options. The dealer who sells it,
Speaker 1: sells the call options, are then on the hook if
Speaker 1: the call options essentially are become in the money right,
Speaker 1: and so in order to avoid that risk of having
Speaker 1: to pay out a big wager, just like a casino,
Speaker 1: they have to sort of balance their own books, and
Speaker 1: that requires them to purchase the underlying stock. Yeah, dealers
Speaker 1: are trying to make money from from the bid ask
Speaker 1: spread and making you pay both sides of it during
Speaker 1: your transaction. They're not in the business of really making
Speaker 1: sure that or or hoping that tesla goes down. They'd
Speaker 1: like to be, you know, cover their butts in all
Speaker 1: contingencies in all cases. So that's what's kind of going
Speaker 1: on there, and it's just you know, with some Greek
Speaker 1: letters surrounding it. But that's the that's the basic kind
Speaker 1: of scenario and mechanism you described perfectly. So trying to
Speaker 1: exploit the fact that dealers are big banks on Wall
Speaker 1: Street need to maintain a neutral position when they're writing
Speaker 1: all these contracts doesn't strike me as something that your
Speaker 1: average retail mom and pop investor is really doing. So
Speaker 1: is Wall Street beats a little bit different? I'd say
Speaker 1: there are a lot more aggressive about certain tactics being
Speaker 1: used and the kind of the hurting behavior. I don't
Speaker 1: think the average retail trader is really trying to think of. Okay,
Speaker 1: like if I get together with Jim down the street,
Speaker 1: and you know, Marry across the road, who I play
Speaker 1: bridge with, if we really get together and start, you know,
Speaker 1: stockpiling our potential buying power that we can kind of,
Speaker 1: you know, maybe maybe lift some bids here, maybe get
Speaker 1: some dealers offside, maybe cause some kind of a gamma chase. So, yeah,
Speaker 1: it does seem from that from that point of view,
Speaker 1: a lot more sophisticated and ambitious than you know, some
Speaker 1: people others speculating options might be. On the other hand,
Speaker 1: just because it sounds more sophisticated, doesn't mean, it's a
Speaker 1: our strategy doesn't make what's being said more true, because
Speaker 1: if we've learned anything about kind of the recent market dynamics,
Speaker 1: presuming you are the only actor in the market and
Speaker 1: able to move it is kind of it's it's a
Speaker 1: fool's errand. And that's why you know, if some if
Speaker 1: there's power out there too to buy all these options,
Speaker 1: you have to recognize it. On the other side of it,
Speaker 1: there's going to be uh, potentially a desire to sell,
Speaker 1: and we've seen you know, a lot of selling pressure
Speaker 1: come into the market that's completely overwhelmed whatever retail buying.
Speaker 1: The markets probably, I mean the markets kind absolutely clover
Speaker 1: rejuice to your article came out and presumably if you
Speaker 1: had been buying a bunch of call options ahead of that,
Speaker 1: you are one is not doing particularly well this week
Speaker 1: with that strategy. Yeah, Like we we saw a bunch
Speaker 1: of ten thousand percent updates for a lot of these
Speaker 1: mood shot options, but most out of the money and
Speaker 1: very low delta options are going to expire worthless. It's
Speaker 1: just the kind of the name of the game. Okay.
Speaker 1: So on that note, in addition to having Luke join
Speaker 1: us for our episode. Today we have another guest. Luke
Speaker 1: has said, uh set the stage, but we actually have
Speaker 1: the founder of the subreddit Wall street Bets joining us now,
Speaker 1: Jamie Ugazinski. He uh founded the page, got it launched
Speaker 1: in twelve. Jamie, Thank you very much for joining us.
Speaker 1: Thank you for having me. Okay, so I want to
Speaker 1: obviously get to everything that Luke talked about and this
Speaker 1: sort of crazy phenomenon and force in the market that
Speaker 1: Wall street Bets has become. But you started it in
Speaker 1: what was the purpose? What? What do you're like, Okay,
Speaker 1: I'm gonna start a new page on Reddit called Wall
Speaker 1: street Bets. What what were you thinking? Well, I mean
Speaker 1: back when I started it, I was looking for a
Speaker 1: forum where we can discuss high risk trades, um work
Speaker 1: into day trading, or high risk or active investing. All
Speaker 1: the forums that I found on my both on Reddit
Speaker 1: and off wridit we're traditional, diversified, long term, long time
Speaker 1: time horizon type investing, and so I since I couldn't
Speaker 1: find find it, I decided to found Wall Street Bets
Speaker 1: and has evolved a bit from what they originally intended,
Speaker 1: but that was the original idea behind it. Can you
Speaker 1: describe the Wall Street. That's demographic like who is your
Speaker 1: average user on Wall Street bets? And why are they
Speaker 1: on that subpreddit versus something like the investing subreddit. So
Speaker 1: the I don't actually have access to the specific demographics,
Speaker 1: but I'm going to take a very educated guest and
Speaker 1: say it's going to be mostly males young probably eighteen uh.
Speaker 1: I mean, obviously there are old enough to open a
Speaker 1: brokerage account and and have enough of an income so
Speaker 1: that they can, um they make the type of bets
Speaker 1: that they're trying to make. And why are they hanging
Speaker 1: out on Wall Street bets? I mean, for I have
Speaker 1: various reasons or various ideas as to why they I
Speaker 1: want to be doing it, but for uh, probably similar
Speaker 1: motivations that got me in the first place. Right, I
Speaker 1: was single at the time, out of disposable income, had
Speaker 1: a reason to be a little bit more aggressive. When
Speaker 1: when people are older and they have a family and
Speaker 1: they have to be a little bit more cautious, well
Speaker 1: defin whally they want to start taking um more of
Speaker 1: a precautious person to investing. But when they're younger, thing
Speaker 1: can afford to take the risks, and so you know,
Speaker 1: all Street Bets is a place where what we welcomes
Speaker 1: that type of behavior, and the welcome welcomes the type
Speaker 1: of you know, on some capacity it's aggressive investing, active investing,
Speaker 1: and you know, oftentimes it's straight of gambling. So um,
Speaker 1: I'd say it's people that are just in that demographic
Speaker 1: that they're looking to make some quick money. Yeah, we
Speaker 1: haven't really talked about this aspect. But in addition to
Speaker 1: the demographic, and you mentioned people who are willing to
Speaker 1: take more risk, there's a certain like Wall Street Bets mindset.
Speaker 1: And I've been reading the page off and on for
Speaker 1: several years, and it's not it's not only that it
Speaker 1: seems like there is a high degree of sort of
Speaker 1: like risk taking or thrill seeking. There seems to be
Speaker 1: also like a certain amount of nihilism associated with it,
Speaker 1: in which people seem just as excited to massochism. To
Speaker 1: people seem just as excited about posting screenshots of them
Speaker 1: losing a hundred thousand dollars or losing a fortune in
Speaker 1: a single day, um, as they are as excited about
Speaker 1: making a bunch of money. There's a lot of egging
Speaker 1: people on to take more and more risks. What talk
Speaker 1: to us about that mindset, just the sort of the
Speaker 1: thrill seeking, massochistic, nihilistic aspect that we see on Wall
Speaker 1: Street Bets and why you think that's that emerges. I'm
Speaker 1: not sure necessarily that I've people egging people on to
Speaker 1: take on more risk. I think that the peer pressures
Speaker 1: certainly exists. Uh, you know, I see where you're coming out,
Speaker 1: but I have have yet to see somebody to say, oh,
Speaker 1: I think you should increase your possession position. I think
Speaker 1: it's more of a peer PRESSU your type scenario that
Speaker 1: people try to maybe just attention. People want to impress
Speaker 1: each other, right, is that kind of what you're saying,
Speaker 1: They just want to be cool and impress each other
Speaker 1: for to who took the wildest riscue. Yeah, it would
Speaker 1: probably be more of motivation like that. But um, you know,
Speaker 1: as far as the massacre is, I think it's more
Speaker 1: it's a very honest forum. Right. If you go outside
Speaker 1: of Wall Street Bets, for you know, you go on
Speaker 1: Twitter or finn Twitter, you go any of the other areas,
Speaker 1: you have a lot of people that have just these
Speaker 1: huge egos that show these really impressive trading track records.
Speaker 1: You know, look at my fancy car that I'm driving.
Speaker 1: I know, you know, check out this impressive statistics for
Speaker 1: my uh, you know, trading history and whatnot. And so
Speaker 1: you you have these glorified people that it's almost impossible
Speaker 1: to become them, whereas in Wall Street, bets are just
Speaker 1: very honest with each other and to say no, no, houn,
Speaker 1: it's very difficult to actually recreate what they're talking about
Speaker 1: in some cases statistically very improbable. Some people obviously can
Speaker 1: do it, but most people cannot. I'm the statistics also
Speaker 1: backed that up. People who want to actively beatreud most
Speaker 1: of them to. So I think that it's more of
Speaker 1: an honest approach to it, where they say, okay, I
Speaker 1: know that I'm likely going to lose money into it,
Speaker 1: so let's just be honest about this. Let's let's not
Speaker 1: try and pretend that I'm something that I'm not. And
Speaker 1: uh and I think it's would celebrate it is more
Speaker 1: the honesty behind that more so then hey, check it out, guys,
Speaker 1: I lost a lot of money. Go ahead and give
Speaker 1: me some some up votes. In karma, it's hey, guys,
Speaker 1: look I try this. I put my money online. I
Speaker 1: said this was gonna happen, and I failed and so
Speaker 1: people celebrate that follow up honesty and they say, wow,
Speaker 1: this is a genuine conversation that we're having. So I
Speaker 1: think that's more the motivation that that you and it
Speaker 1: comes off more as the celebratory law. I mean, i'd
Speaker 1: agree totally in my in my time very good because
Speaker 1: you know, thinking about all of these stocks that were
Speaker 1: you know, going up, there's there are people on all
Speaker 1: street that's going, no, no, I'm I'm selling Tesla calls,
Speaker 1: I'm doing I'm doing this, I'm doing that, and then
Speaker 1: you'd see them come back, you know, a week, two
Speaker 1: weeks later and go okay. So yeah, all those positions
Speaker 1: I was talking about earlier, I'm getting completely completely host.
Speaker 1: If you want to know how much I'm going to
Speaker 1: get host in the future. Here's the other strikes. I'm
Speaker 1: short out of the money, have fun ruining my life
Speaker 1: type of thing. But it's it's very much a an unpretentious,
Speaker 1: honest conversation and it's, uh, it is refreshing for those
Speaker 1: who have spent uh, you know, their their lifetimes are
Speaker 1: most of their waking hours on finance Twitter. But you know,
Speaker 1: on the on the other side of things, the there
Speaker 1: the degree of you know, kind of willingness to go
Speaker 1: in with no information. On the other hand, the I
Speaker 1: think the best example would be, you know, one person posting,
Speaker 1: you know, I don't know what I don't know what
Speaker 1: options are, and I don't know what l L is,
Speaker 1: but I'm up ten thousand this morning and thank you.
Speaker 1: This is my lunch break, coming on to post it.
Speaker 1: Thank you very much. And then you know one person going,
Speaker 1: you know what, what the hell can you expect? It's
Speaker 1: lumber liquid it or they liquidate lumber. It's right there
Speaker 1: in the name, and uh yeah, it's it's fun, it's entertaining,
Speaker 1: and it's definitely it's definitely a different scene from what
Speaker 1: I've been used to on the internet. Right. One can
Speaker 1: never admit on finance Twitter that they made a mistake,
Speaker 1: but on Wall Street Bets, it's almost a badge of
Speaker 1: honor if you have this big loss. Jamie, you actually
Speaker 1: wrote a book about Wall Street bets. And this is
Speaker 1: gonna sound really condescending, but I thought it was surprisingly
Speaker 1: thoughtful and kind of earnest, which wasn't what I was
Speaker 1: expecting because the subredit itself tends to be the sarcastic, jokey,
Speaker 1: macho place. But there was this one chart in your book,
Speaker 1: and it shows robin Hood account openings alongside the growth
Speaker 1: of users on the Wall Street Bets subbredit. Can you
Speaker 1: talk to us about the importance of this new crop
Speaker 1: of online brokers or the dynamics in the brokerage industry
Speaker 1: currently in fueling Wall Street bets. Yeah, I mean to
Speaker 1: be honest with you, when when I came up with
Speaker 1: that chart, I was not expecting that. I was very
Speaker 1: surprised and uh and even more so surprised when I
Speaker 1: broke down that chart a little bit further. So I'll
Speaker 1: first describe that chart. What I did is I superimposed
Speaker 1: the growth of Wall Street bets since the inception of
Speaker 1: robin Hood. Uh, you know, the growth in terms of subscribers,
Speaker 1: and then the growth of users of robin Hood, and
Speaker 1: those lines were pretty much right on top of each other,
Speaker 1: and you know, the growth right on part of the
Speaker 1: correlation was very easy to see. And the the what
Speaker 1: was even more surprising was, I think it was around
Speaker 1: two thousand eighteen, if I'm not mistaken, robin Hood introduced
Speaker 1: stock options as part of their offering, the product offering
Speaker 1: to their users, and they saw a very steep change
Speaker 1: in their growth, they ended up having a dramatic increase
Speaker 1: um and users and Wall Street bets had the exact
Speaker 1: same slope change, right, So the the adoption or increase,
Speaker 1: and so you know it does ask the questions, Okay,
Speaker 1: what is there a correlation here? And I obviously, I
Speaker 1: mean it's hard to um repeat those because both of
Speaker 1: those numbers are big enough to distally significant. I think
Speaker 1: the proliferation of not just robin Hood, but just all
Speaker 1: these low commissions now zero commission burke ridges are making
Speaker 1: lowering the barriers to entry for pretty much anyone and
Speaker 1: all the even traditional brokers. I mean I'm talking merrit
Speaker 1: Trade and Charles Schwab and even Vanguard is now offering
Speaker 1: stock options, Vanguard being the holy grail of you know,
Speaker 1: stafe ets for index fund uh the type investing. Right. So,
Speaker 1: the fact that you have all these brokers making it
Speaker 1: really cheap, lowering the barriers to entry. Have a lot
Speaker 1: of let's call them younger people, are people that have
Speaker 1: they want to enter this market with less money or
Speaker 1: or want to even experiment. Maybe they have them on
Speaker 1: even maybe they just want to play with less now
Speaker 1: that they're able to do so. Anyone that wants to
Speaker 1: play with it just by definition would want to find
Speaker 1: a way to experiment. And I think that experimenting with
Speaker 1: a place that has more aggressive or more diverse type
Speaker 1: of conversations of different types of security is more more
Speaker 1: so than just the stock stock options. We don't talk
Speaker 1: about cryptocurrencies very much on the Wall Street Bets, so
Speaker 1: it's obviously that's also part. I'm glad you mentioned cryptocurrencies
Speaker 1: because when you talked about the honesty of Wall Street
Speaker 1: bets reminded me of an important point I saw someone
Speaker 1: make with your that there are a lot of similarities
Speaker 1: between this sort of like casino options betting that you're
Speaker 1: seeing now on Wall Street Bets and the crypto craze,
Speaker 1: especially of late. But the differences, to me one is
Speaker 1: that you guys seem fundamentally more honest, because I remember
Speaker 1: and all the people going crazy for crypto, we're also
Speaker 1: trying to pretend that they like understood something about the technology,
Speaker 1: or like, oh, we're like building some really important decentralized
Speaker 1: system here, or we're gonna like run to all these Uh,
Speaker 1: this is gonna be a really important smart contract platform
Speaker 1: upon which all these apps can be built and stuff
Speaker 1: like all they're gambling was couched in the language of
Speaker 1: technological innovation, whereas it seems like you're gambling is couch
Speaker 1: to the language of gambling fundamentally just way more truthful
Speaker 1: and honest than cryptos right there in the names. But
Speaker 1: I wanted to ask you a little bit more about
Speaker 1: the sort of mentality because I think the tagline on
Speaker 1: the page is like if the if the Bloomberg terminal
Speaker 1: met forte and message boards or something like that, and
Speaker 1: there is you know, it's extremely crude. It's extremely uh
Speaker 1: politically incorrect, to say the least. Uh. There's a lot
Speaker 1: of people who like refer to each other using homophobic
Speaker 1: slurs and other things that we have to edit out
Speaker 1: whenever we do an article or talk about a comment
Speaker 1: on the page. So I'm just like sort of curious, like,
Speaker 1: could you explore or explain that aspect of it more
Speaker 1: this sort of like I don't know if it's a
Speaker 1: deep irony or profanity. I mean, it's right there in
Speaker 1: the description with the four chune aspect of it. And
Speaker 1: from whence that aspect of it emerged? Why is Wall
Speaker 1: Street that's so offensive? Yes, that's a good that's a
Speaker 1: good way to put it um all right, So the
Speaker 1: tagline itself, Yeah, I came across it when I was
Speaker 1: reading a different forum. It was the Finance Forum, many
Speaker 1: many years ago, and when people were trying to find
Speaker 1: a way to describe Wall Street bets, it was very difficult. Case.
Speaker 1: Somebody just said, hey, Wall Street bets is like a
Speaker 1: four jan or to find a Bloomberg terminal. So I like,
Speaker 1: I mean, I do really like it. There is there
Speaker 1: is a petition underway to potentially change the tagline to
Speaker 1: how can we have insider knowledge when we don't have
Speaker 1: any knowledge? And I fully, I fully endorse that one. Anyway,
Speaker 1: go on, Yeah, you have that tagline. I put it
Speaker 1: up there, and it's still true to this day. So
Speaker 1: we get that one, you know, with regards to the
Speaker 1: overall culture of it, the crudeness of it, the language. Look,
Speaker 1: anyone that's been following Wall Street beds for for a
Speaker 1: long time is realized that the the I guess there's
Speaker 1: a locker room mentality, the the instults, slurs they are
Speaker 1: they come and go and fad. I guess it's just
Speaker 1: the way that to add on to the fact that
Speaker 1: this place has you know, no filter, No, Yeah, there's
Speaker 1: there's no reason to contain the way that you're expressing yourself,
Speaker 1: the way that you're trading on the way that these
Speaker 1: people are trading. And you know, I can't really explain
Speaker 1: how or why it is that that came out that way,
Speaker 1: but what I do know is, you know, the way
Speaker 1: that these guys come off, it's very seldom offensive. So
Speaker 1: for example, recently, you know, they've been referring to anyone
Speaker 1: that's been bearished in a homophobic manner. And now that
Speaker 1: we've had a pretty rough week class week, a lot
Speaker 1: of these guys are in the form of endearing saying, hey, guys,
Speaker 1: you know now I'm part of that category, and there's
Speaker 1: an endearing passion, not in a derogatory extent. Obviously it's insulting, obviously,
Speaker 1: it is you know, offensive, um and uh and and
Speaker 1: I realized that. But I think that having watched these
Speaker 1: terms come and go, give it a year, and now
Speaker 1: it's instead of you know, referring to homophobic, it's going
Speaker 1: to be maybe you know, tall people or people that
Speaker 1: drive certain types of cars, or people with certain color eyes.
Speaker 1: You know, they they're equal opportunity insulters. And I've seen
Speaker 1: these trends come and go so often that I've no
Speaker 1: longer taken and taken it too seriously. At one point, obviously,
Speaker 1: I was like, Wow, this is really distasteful. I can't
Speaker 1: you know, I can't be associated with this. But having
Speaker 1: seen the way that it's not used in hateful fashion,
Speaker 1: it's not used in a in a way that it's
Speaker 1: means spirited, it's obviously offensive, I acknowledge that, but it's, uh,
Speaker 1: you know, it's I guess, a phenomenon that I can't
Speaker 1: really explain. So we've talked a little bit about the
Speaker 1: mentality behind Wall Street bets, and we've talked a little
Speaker 1: bit about the language used on Wall Street bets, and
Speaker 1: Luke knows very well that it has its own terminology
Speaker 1: at this point. But Jamie, maybe you could talk a
Speaker 1: little bit about why certain investments seem to be favored,
Speaker 1: or why certain bets seem to be favored over others,
Speaker 1: Like why options versus futures, Why the emphasis on stocks
Speaker 1: instead of say currency trading, which used to be where
Speaker 1: we used to get these big leveraged bets, or we
Speaker 1: still get a lot of leverage bets, but it seems
Speaker 1: like an obvious choice for for Wall Street bets and
Speaker 1: instead they've focused on some very particular types of investments.
Speaker 1: Why is that an excellent question? I want that actually
Speaker 1: blowed in the book the the I guess I'd break
Speaker 1: it down into two separate components, right, So why going
Speaker 1: for leverage versus not leverage? UM? And that's I think
Speaker 1: self explanatory. If you're going to go out and make
Speaker 1: a bet, you wanted to be leveraged. If you want
Speaker 1: to buy a lottery ticket, you want to be able
Speaker 1: to the multiplayer money by a huge percentage, so buying
Speaker 1: you know, almost impossible to do that with stocks, uh,
Speaker 1: and the leverage is the way to go. So looking
Speaker 1: at the scope, you know the tools that are available
Speaker 1: and the leveraged the universe. I've asked myself the same question,
Speaker 1: why why future specifically UM a tool that I personally favor,
Speaker 1: Why what if they want to use that as opposed
Speaker 1: to stock options? And my thesis I can't back it up.
Speaker 1: My thesis is straight up, it's more available. Right if
Speaker 1: you want to get approved for stock options on your
Speaker 1: robin Hood account, you can do it instantly or not.
Speaker 1: Just I don't only can pick on robin Hood, just
Speaker 1: all of the stockbrokers. You go in there and you
Speaker 1: answer a quick little survey and UH, for a lot
Speaker 1: of these guys, the answer is obvious what they want
Speaker 1: you to answer. And many cases even if they answer honestly,
Speaker 1: you know, I do have a lot of dependence on
Speaker 1: don't have a lot of income, but you know, I
Speaker 1: think that they want me to say that I don't
Speaker 1: want to lose my money. They'll get approved right away
Speaker 1: for stock options and they can instantly start treating them. Um.
Speaker 1: And so I'm going to say that it's because it's
Speaker 1: the most widely available. My guess would be if futures
Speaker 1: or if for you know, for x uh or to
Speaker 1: become just as easily available would probably also start getting
Speaker 1: more popular when when you look at the combination of
Speaker 1: you know, new retail online focus brokerage UH that combined
Speaker 1: with you know, also high nominal prices on a lot
Speaker 1: of stocks, your Amazon and your Tesla increasingly and then
Speaker 1: the potential for nonlinear payoffs. So like that's that's just
Speaker 1: the recipe for options in general. And you've you've seen
Speaker 1: it really be taken up by the market. First six
Speaker 1: weeks of twenty you had single stock options up seventy
Speaker 1: seven percent the notional volume off of record levels already
Speaker 1: at the end of so this is this is the
Speaker 1: Wall Street Bets field search. So I want to uh
Speaker 1: talk about the evolution a little bit of the page
Speaker 1: because when I first came across Wall Street Bets, maybe
Speaker 1: it was I don't know, twenty fifteen. I forget when
Speaker 1: I started really looking at it early on, Like it
Speaker 1: always had this sort of like you know, crude, offensive
Speaker 1: gambling nature, but you know, a lot of memes. I
Speaker 1: remember in the early days when I was paying attention,
Speaker 1: there were a lot of memes about say, the CEO
Speaker 1: of a m D, Lisa Sue, because that stock was
Speaker 1: doing really well and she was making everyone a lot
Speaker 1: of money, and so there was a lot of like
Speaker 1: sort of glowing memes about her and all the money
Speaker 1: they were making and stuff like that. And it is
Speaker 1: sort of, you know, just normal sort of message board
Speaker 1: chatter and so forth. When did this new phenomenon emerge
Speaker 1: where it became less about sort of just posting stuff
Speaker 1: and ideas versus what the emergent coordination where we started
Speaker 1: seeing it earlier this year maybe last year, where the
Speaker 1: idea is like, oh, we can all be a team.
Speaker 1: We can all jam the call option purchases, and at
Speaker 1: the same time it became less about just trading ideas
Speaker 1: versus let's see if we can move the market. Well,
Speaker 1: I'm not sure that I still seen that, to be
Speaker 1: honest with you. You You know, like you've had a lot
Speaker 1: of this group think mentality going back from for for
Speaker 1: a long time. Just like you just mentioned with m D.
Speaker 1: You know, that was what they referred to as a
Speaker 1: meme stock or even there was an article on market
Speaker 1: watchman years ago, uh when they covered Wall Street Pets.
Speaker 1: They were talking about the stock at the time where
Speaker 1: it was an ef the u w T I, which
Speaker 1: was like a crew A Creed early TF. You know,
Speaker 1: they mentioned a lot in that article. A couple of
Speaker 1: months ago, somebody brought that article on on Wall Street
Speaker 1: Pets and when people read it, they said, what in
Speaker 1: the world is what you w T? I've never even
Speaker 1: heard of this thing before? And how come this market
Speaker 1: Watch article is pumping that stock so much? You know,
Speaker 1: it seems like that's Allably the didn't the thing that
Speaker 1: we care Obviously the crowd that was reading this article
Speaker 1: didn't remember or wasn't a part of it. I think
Speaker 1: there's always been a kind of a group mentality, So
Speaker 1: I wouldn't go so far as connecting it as trying
Speaker 1: to come up with a coordinated um buying a tent.
Speaker 1: I think that what we you know, what we've said,
Speaker 1: what we saw this year, or you know what Lucas
Speaker 1: wrote about her has been writing about. You know, it's
Speaker 1: definitely interesting. But I've yet to see a group effort
Speaker 1: where they say, oh, gay guys, let's let's try to
Speaker 1: manipulate the market. So this phenomenon was first spotted by
Speaker 1: by him using tesla. I believe obviously Tesla had already
Speaker 1: been u somewhat of a meme or a meme stock
Speaker 1: or a focused stock of a subreddit. And so you
Speaker 1: know that one, I think inherently was already being the
Speaker 1: focus of a subreddit, and maybe it was receiving a
Speaker 1: lot of attention, a lot of additional volume on the
Speaker 1: stock options, just because I'd be curious to see if
Speaker 1: you did a similar study, like at dating back all
Speaker 1: the way am B was popular, if you find something similar.
Speaker 1: So you know the point of this is, I'm not
Speaker 1: really sure that some new campaign came out there. He says,
Speaker 1: all right, guys, this is a new name of the game.
Speaker 1: Let's try and you know, pump stocks. This This one
Speaker 1: guy that came out shortly after this article. Obviously, the article,
Speaker 1: you know, put it in their heads that they can
Speaker 1: now you know, found a new cheat code the way
Speaker 1: they like, they're referred to it as, so that that
Speaker 1: kind of became a thing. And that brought one guy
Speaker 1: that posted an article on what was the liquid Lumberjacks
Speaker 1: or whatever. I don't want to pump their name anymore,
Speaker 1: but they they put the article up there and there
Speaker 1: was whatever happened and that that post was removed and
Speaker 1: they tried again with the second stock and that was
Speaker 1: removed as well. But that wasn't a case where everybody
Speaker 1: decided to all right, this is the this is how
Speaker 1: we're going to try and and play the stocks from
Speaker 1: now on. Now. I think that it's I think it's
Speaker 1: always just been the focus. If they have a stock
Speaker 1: this a lot of focus is going to get a
Speaker 1: lot of volume, is gonna get a lot of activity.
Speaker 1: And I'm be surprised if they both put them calls
Speaker 1: depending especially right now that we're entering into a shop
Speaker 1: of your market, that they're going to see some more
Speaker 1: disagreements with regards to which direction these things are going
Speaker 1: to go on, the disagreements with regards to how to
Speaker 1: play any particular stock. Yeah, the places where I go
Speaker 1: to kind of hang my hat on this are well,
Speaker 1: lumber liquid it. This is the best example because nobody
Speaker 1: in the world was talking about it. And then there
Speaker 1: was the post from someone who had been a member
Speaker 1: of Wall Street Bests for three years but it never
Speaker 1: posted anything. And that morning you suh, you know, the
Speaker 1: equivalent of the last twenty days and call options trade
Speaker 1: in the first twenty minutes and ultimately call volumes of
Speaker 1: over seventy x the twenty day average when nobody else
Speaker 1: in the world was talking about it. That's that's where
Speaker 1: I go to hang my hat. And Microsoft is another
Speaker 1: one because it really blew my mind that uh, And
Speaker 1: this was the discovery soon after the kind of the
Speaker 1: delta hedging cheap ode was first kind of bandied about
Speaker 1: more on Wall Street Bets, was Microsoft became a target,
Speaker 1: which is odd to me because I you know, it's
Speaker 1: it's a big company and the the idea that you know,
Speaker 1: moving that would be very difficult. And the next morning
Speaker 1: you did see the unusual call activity a pre market
Speaker 1: kind of activity that was suggested as the desired tactic
Speaker 1: that people should take up. So it and mapped out
Speaker 1: a little too well. No, so I so I agree
Speaker 1: with you on percent. What my point is not, um,
Speaker 1: you know whether or not the your observations are or correct.
Speaker 1: My point is, as an overall community that says, hey, community,
Speaker 1: this is all what we're gonna do. What you found
Speaker 1: is one actor that decided to come up with one stock,
Speaker 1: as you say, is a boring stock that doesn't quite
Speaker 1: fit the thesis of what they usually like to talk about.
Speaker 1: Comes off and yes, he makes the post and and
Speaker 1: you make the argument that he had a measurable impact
Speaker 1: on the on the market. So that's that's fine. UM.
Speaker 1: My point is as a community, that's not what their
Speaker 1: efforts start to be. This is this one guy that
Speaker 1: that came on there with a shady history, like you said,
Speaker 1: o lack thereof and therefore you know, the moderator team
Speaker 1: took action, and not only with that particular guy, but
Speaker 1: now a proactive action before identifying those types of individuals.
Speaker 1: But that's that's what they are, their individuals. They're not
Speaker 1: necessarily as much as the as a collective of Wall
Speaker 1: Street Bets. You know, I think the Microsoft observation I
Speaker 1: think is more um accurate and that and that's that
Speaker 1: I don't think. You know, obviously they joke around a
Speaker 1: lot and the joke and I did see what you're
Speaker 1: talking with regards to Microsoft, like, all right, now, let's
Speaker 1: do it with Microsoft, because that one is more of
Speaker 1: a spot that fits into the Wall Street Bets portfolio
Speaker 1: of stot to like to play with. And obviously it
Speaker 1: would be a much harder stock to move if they
Speaker 1: were ready to do that, but they fail, you know,
Speaker 1: they want for it anyways, because the stocks are volatible
Speaker 1: and they're you know, oftentimes they pick these stocks because
Speaker 1: they're already on the move, and that's how they get
Speaker 1: on their reader Jamie. I've tweeted a couple of screenshots
Speaker 1: from conversations going on in Wall Street Bets, and I've
Speaker 1: had at least one instance of someone ceasing in the
Speaker 1: U S Securities and Exchange Commission, and even on the
Speaker 1: subreddit itself, every once in a while, people will joke
Speaker 1: and say, hello, Hi, the SEC is watching that sort
Speaker 1: of thing. Do you worry about the regulators coming in
Speaker 1: and seeing some of that activity and viewing it as
Speaker 1: a pump and dump scheme. Yeah, so ever since you know,
Speaker 1: we started with wall streets, we've always been conscious not
Speaker 1: just with the sec just with overall UM laws and regulations. Right,
Speaker 1: So this this goes all the way to anyone that's
Speaker 1: making any types of threats or any type of suicide
Speaker 1: threats are or any type of activities is just considered
Speaker 1: UM gray area. So this, this dates back to this
Speaker 1: is just part of the terms of service with Reddit,
Speaker 1: and it's also part of our moral obligation is is
Speaker 1: UM as moderators and we have a big moderator team.
Speaker 1: We have about fifty moderators, and many of them are
Speaker 1: very experienced, and many of them are professionals that actually
Speaker 1: do have Bloomberg terminals and they do you know what
Speaker 1: they're they're uh talking about, and they're they're helpful with
Speaker 1: trying to identify this. So they're answering your question. I'm
Speaker 1: not worried necessarily that they're they're going to come after
Speaker 1: UM walls, be bets, uh specifically if they're doing any
Speaker 1: type of investigation, Well, I guess they're gonna make whatever
Speaker 1: kind of investigation they want to make. I know that
Speaker 1: from the moderator standpoint, we do everything that we can
Speaker 1: to try and be responsible with this. We do have
Speaker 1: very clear rules listed on the subwada, which include, do
Speaker 1: not manipulate the market, do not attempt to manipulate the market,
Speaker 1: do not give any type of false information, do not
Speaker 1: try to pump any particular stops of stock, do not
Speaker 1: pump and dump, I mean all this stuff that that
Speaker 1: is clearly again the laws or against the regulations or
Speaker 1: against the rules, and we enforced those very strictly. And
Speaker 1: not only because there against the laws, that it's also
Speaker 1: against the spirit of the subreddit. You know, we're we're
Speaker 1: all out there to try and hopefully make some money
Speaker 1: or to learn and and keep the community entertaining. And
Speaker 1: um that's that's what we're there to do. And uh
Speaker 1: and so as long as we're doing our part to
Speaker 1: actively proactively handle any types of things, and look, they
Speaker 1: come up all the time, you'd be surprised a lot
Speaker 1: of a lot of them never even make out the
Speaker 1: light of day. You know. There was, for example, a
Speaker 1: couple of months ago, a situation in which somebody posted
Speaker 1: a link to a um A tour and onion site. Right,
Speaker 1: these are these underground I guess you could refer to
Speaker 1: them as websites. Really sure the league activity and these
Speaker 1: guys were trying to share inside information. And not only
Speaker 1: that that post it removed within seconds of getting up there.
Speaker 1: We change the logic of the moderator to make sure
Speaker 1: that it can automatically filter out any type of conversation,
Speaker 1: regard any links uh to these court sites or in
Speaker 1: cet information. There's a lot of stuff that never makes
Speaker 1: it out to the light of day. So if he
Speaker 1: ever wanted to make an investigation, they'd see without a
Speaker 1: reasonable doubt that we have done very much, um everything
Speaker 1: that we do uh in order to uh to keep
Speaker 1: this place, you know, fun and legal. I'm curious or
Speaker 1: what do you see as where the typical Wall Street
Speaker 1: Bets user eventually goes. Do they go broke and get
Speaker 1: so angry with the markets that they sort of walk away?
Speaker 1: Or do a lot of them sort of graduate two? Okay,
Speaker 1: this was their fun intro to the space, but they
Speaker 1: want to learn more about investing or do they invest?
Speaker 1: But this is sort of like their version of gambling,
Speaker 1: like you know, like after what what do you what
Speaker 1: do you see is the trajectory of a typical Wall
Speaker 1: Street betsh participants. Well, what I see is probably not
Speaker 1: what actually happens. Once again, I'm gonna take an educated
Speaker 1: guest just based off from my experience. Specifically speaking, most
Speaker 1: people probably lose their money. Um, it's just the name
Speaker 1: of the game. Especially with the types of trades that
Speaker 1: they're doing. They are not only going with stock options
Speaker 1: one of their favorite types of plays. Obviously, stock options
Speaker 1: aren't just unlike for X or futures where you can
Speaker 1: just put on direction, there's there's more variables to it,
Speaker 1: and they choose the types of variables that are the
Speaker 1: riskiest possible, that the highest likelihood that they lose their money. Um.
Speaker 1: And so just just given that, common sense tells me
Speaker 1: that most people probably lose money. UM. That's that's not
Speaker 1: necessarily what we get to see on the step ddit
Speaker 1: because maybe they don't post it as much, or maybe
Speaker 1: they're not as animated to give the stories, or maybe
Speaker 1: you don't get as much visibility. When somebody makes millions
Speaker 1: of dollars, they do get a lot more tension, and
Speaker 1: so it's easier to make the assumption that everyone's making money. Um.
Speaker 1: But what I have seen, which is very surprising, is
Speaker 1: a lot of people that make money, a lot people
Speaker 1: that do end up winning the lottery tickets turned out
Speaker 1: to be extremely rational people. And obviously with exceptions, but
Speaker 1: a lot of these guys. You know, there was an
Speaker 1: example that I think even Bloomberg covered it um back
Speaker 1: in October of twenty nineteen. You know, some guy put
Speaker 1: in seven hundred dollars or seven hundred sixty dollars and
Speaker 1: over a hundred thousand dollars. I spoke to him as
Speaker 1: as part of the book to see how he was
Speaker 1: doing it, to get some of his idea behind the trade.
Speaker 1: And you know, he immediately after making that trade closed
Speaker 1: up his brokerage account. He deposited that money into his
Speaker 1: retirement fun. I don't know if the I R or
Speaker 1: the one K or whatnot, but you know, he said
Speaker 1: he couldn't focus on work anymore and he had to
Speaker 1: keep focusing on his job. So he did, and he
Speaker 1: has not to this day, at least until last months,
Speaker 1: trading a getting or is he interested because he knows
Speaker 1: he can't replicate it? Um. That's you know, that's an
Speaker 1: extreme example if I'm straight up closing his brokerage account.
Speaker 1: But I've seen a lot of people that make it big,
Speaker 1: take that money, stash it away and uh and use
Speaker 1: that money responsibly, you know, to buy a house, to
Speaker 1: invest it into these dividend baying ets. They're well diversified,
Speaker 1: they like to make fun of and they they're able
Speaker 1: to u to be responsible with the market. So you
Speaker 1: know my thesis at this point, there's a lot of
Speaker 1: these these this demographic which there's a lot of millennials
Speaker 1: and Generation Z. You know, they may they may want
Speaker 1: to actually build the next stag and they don't have
Speaker 1: what to do it with. Maybe it's because their students
Speaker 1: that maybe it's because of wages are cost of living.
Speaker 1: I really can tell you. I'm next putting that matter.
Speaker 1: But you know they're they're looking to try and get
Speaker 1: ahead or get out of this rat race. And the
Speaker 1: ones that do and there's been a lot of them
Speaker 1: that have made hundreds of thousands and even millions. And
Speaker 1: if it started to pull back and say, all right,
Speaker 1: now I've set aside, I've accomplished what I wanted to accomplish.
Speaker 1: I don't think I can do this again. You know,
Speaker 1: I don't want to become a date trader. Uh. If
Speaker 1: they've made enough money to retire, then you know they
Speaker 1: do that even if they've made enough money of it,
Speaker 1: they can continue with their ordinary job and invest responsibly.
Speaker 1: They've done that too, So that leads me to believe
Speaker 1: that there's more to that group than with the surface
Speaker 1: leads people to believe. So one of the themes running
Speaker 1: through Luke's article is this question of whether or not
Speaker 1: the bets made by the subreddit the options trading can
Speaker 1: impact the wider market. And in your own book, Jamie,
Speaker 1: you also talk about the notion of systemic risks. So
Speaker 1: talk to us about when a bunch of people are
Speaker 1: taking these kind of levered bets on online brokerage. Is
Speaker 1: who's the loser here? Like, where does the lost money
Speaker 1: actually come from? And is there a chance that this
Speaker 1: could negatively impact the market if enough people do it?
Speaker 1: You know, if we're if we're talking specifically about these
Speaker 1: options trades that that Luke was referring to, you know,
Speaker 1: I guess the losers whoever's on the other side of
Speaker 1: this bet. But it's really difficult to measure. I mean,
Speaker 1: you guys understand it just as well as I do.
Speaker 1: It's not as easy to measure. Is just the winner
Speaker 1: a loser? Because there's a lot of things that play.
Speaker 1: You know that the market is fluid, and it goes
Speaker 1: up and it goes down, and it depends on when
Speaker 1: people enter and exit. A lot of these brokers are
Speaker 1: not necessarily just making money off the bid asked spread.
Speaker 1: They're making money off to the premium from these options.
Speaker 1: And so if they do end up buying the stocks um,
Speaker 1: you know, and the stocks go off, one could argue
Speaker 1: that they're making money as well. If the entire stock
Speaker 1: market goes up and everybody is long the stock market,
Speaker 1: you know, it's difficult to argue that anyone's losing. But
Speaker 1: it's not that simple, right, you know, It's happened last week,
Speaker 1: and anyone that had all those shares in their possession
Speaker 1: is no longer as happy as they were two weeks ago.
Speaker 1: So yeah, I'm not assarily sure who the winner the
Speaker 1: loser is, Like I suppose, it really depends what about
Speaker 1: more generally, I guess what I'm getting at is if
Speaker 1: someone takes a big levered bet, uh, and you know,
Speaker 1: they put in a thousand dollars, make some sort of trade,
Speaker 1: and they end up ten thousand or even a hundred
Speaker 1: thousand in the red, who's the loser on that one,
Speaker 1: and what happens to the brokerage that let that trade
Speaker 1: go through. So you have a huge number of people
Speaker 1: that are taking that are playing with some very sophisticated
Speaker 1: tools right um, and they're using it in ways that
Speaker 1: they don't fully understand them um and and and they're
Speaker 1: posing what I believe to be a systemic risk um
Speaker 1: and so you know that some examples of this, which
Speaker 1: I find to be extremely fascinating, which was one of
Speaker 1: the biggest motivators that I had to write this book
Speaker 1: in the first place, was the securities like the VIX
Speaker 1: that they revolve around the volatility index that then have
Speaker 1: ets on top of them, and then they have leverage
Speaker 1: dts and they have you know, stock options on top
Speaker 1: of those. Um. Those are extremely extremely complicated. People that
Speaker 1: know what they're doing don't know how to explain it
Speaker 1: to other people that also know what they're doing. So
Speaker 1: so if you have a kid that opens up his
Speaker 1: his broker account on his cellphone during his lunch break
Speaker 1: and types the U v X Y or TVIX or whatever,
Speaker 1: you know, it's just a symbol like Apple. They don't
Speaker 1: know they've just got a price that moves up and down,
Speaker 1: and it moves up and down a lot, so it
Speaker 1: looks like fun, right because it seems like it's got
Speaker 1: one of the properties that requires for them to make
Speaker 1: a trade. So maybe they'll look it up and they say, oh,
Speaker 1: something to do with alatility or whatever. I'm only gonna
Speaker 1: hold this for a few minutes or a few days,
Speaker 1: so I could care less what the what the company
Speaker 1: does or what their earnings reports BIGGS has to do.
Speaker 1: So you know, they buy options on top of that
Speaker 1: because it turns out to those as well, and then
Speaker 1: they'll just you know, lever up, you know, in ridiculous amounts,
Speaker 1: not realizing that there's a huge mechanism behind this, right,
Speaker 1: like we all well maybe you guys remember the big
Speaker 1: volmageddon February fifty think that you know, we're we had
Speaker 1: an example the the market showed a weakness in because
Speaker 1: of the existence of all these tools, right, because there's
Speaker 1: so many of these kas that they had to rebalance
Speaker 1: at the end of the day, both the ones that
Speaker 1: were There's was the ones that were leveraged long the
Speaker 1: vixit spiked so much that particular day that you know
Speaker 1: that come four o'clock they were all going to have
Speaker 1: to buy vixity cures, and so all the participants that
Speaker 1: know this, which is pretty much everyone, decided the front
Speaker 1: on this during the daytime, so they drove up the
Speaker 1: vix even further, you know, and that made part market
Speaker 1: participants even more nervously ended up buying put options on
Speaker 1: the SMP, which obviously drive the vix even higher, which
Speaker 1: you know, made people nervous, and they started to start
Speaker 1: selling some of their stocks, which you know, probably the
Speaker 1: bigger drop. And this feedback was disastrous and a lot
Speaker 1: of what happened that particular they had nothing to do
Speaker 1: with coronavirus or some you know that that maybe that
Speaker 1: was a complete systemic failure of these really sophisticated tools.
Speaker 1: And so now you have these kids that are you know,
Speaker 1: they're really is of them and millions of millions, and
Speaker 1: they're using very leverage tools to exploit these millions of
Speaker 1: millions of uh, very complex securities, and they're plugged into
Speaker 1: you know, this interconnected system. And yes, I believe that
Speaker 1: there is uh that there is a risk of play.
Speaker 1: Once again, I'll struggle to define the winner and a loser,
Speaker 1: but you know, but I do worry, um with the
Speaker 1: fragility of the of the system. Jamie. Uh. Before we
Speaker 1: wrap up real quickly, I have to note the sort
Speaker 1: of poetry or perfection of this moment that we're interviewing,
Speaker 1: because literally, while we're talking and recording this podcast, I
Speaker 1: see that Robin Hood is experiencing an outage. Uh So
Speaker 1: amid this extraordinary volatility that we're seeing in the market.
Speaker 1: I'm sure there are a lot of frustrated Wall Street
Speaker 1: Bets users. They have a thing on their status page
Speaker 1: saying right now we're experiencing a system wide outage. We're
Speaker 1: working to resolve this issue as soon as possible, So
Speaker 1: presumably a lot of people not to trade frustrated that
Speaker 1: they can't take advantage of the volatility one way or another.
Speaker 1: Kind of perfect timing. Final question, just in terms of
Speaker 1: I have two very quick questions for you. Is one,
Speaker 1: have you yourself made money overall trading options? And to
Speaker 1: where do you want to take Wall Street Bets? What
Speaker 1: do you see is it's a future or you're just
Speaker 1: going to sort of let the people do their thing
Speaker 1: um with options. I have not made money. Uh. I
Speaker 1: guess that's that's probably the first of it. I've said
Speaker 1: that the options are really tricky, um and uh uh
Speaker 1: and I I lost a fair amount of money with them,
Speaker 1: but you know, I also learned a huge amount about
Speaker 1: the market with that, and I've since moved on to
Speaker 1: different instruments that have there's being more profitable. But but
Speaker 1: now the stock options are appreciate thing to make money with. Um.
Speaker 1: And with regards to the direction of Wall Street bets,
Speaker 1: I guess there's twofold number one. You know, it has
Speaker 1: to some extent of life of us. Uh. So I
Speaker 1: haven't directed Wall Street Bets into what it is now,
Speaker 1: you know, I have uh let the community take it
Speaker 1: wherever it wants to go, and the moderator teams take
Speaker 1: it to where it wants to go. And so we'll
Speaker 1: see what that means for the future. And as far
Speaker 1: as what I might want to do with it, well,
Speaker 1: you might be hearing about some ideas here in a
Speaker 1: couple of weeks. I have no doubt about it. Okay, great, Well, Jamie,
Speaker 1: really appreciate you joining us. It's obviously sort of a
Speaker 1: fascinating experiment window into a psyche of uh at least
Speaker 1: a handful of market participants, and I really appreciate you
Speaker 1: taking your time to uh explain the history and perhaps
Speaker 1: the future Ball Street Bets. I'm I'm problem. Thank you
Speaker 1: very much for having me, Thanks Jamie, Thanks so much, Shamie.
Speaker 1: And we want to thank Luke Kawa of course for
Speaker 1: coming on and walking us through the technical details a
Speaker 1: lot of a lot of this options trading as well
Speaker 1: as for his great bus this week cover story. So
Speaker 1: thank you to Luke Kawa as well. Oh my pleasure,
Speaker 1: My pleasure. So one thing I was thinking about is this, um,
Speaker 1: this difference between our investing and our Wall Street bets.
Speaker 1: And on the one hand, you have a group of
Speaker 1: people who are sort of playing by the rules and
Speaker 1: investing a little bit of money in you know, passive
Speaker 1: stuff like s SMP five hundred funds and sort of
Speaker 1: eking out little returns every once in a while. And
Speaker 1: then you have the our Wall Street bets people who
Speaker 1: are making this big money and sort of well big
Speaker 1: money and big losses and also trying to find cheat
Speaker 1: codes to exploit the system. And I guess the big
Speaker 1: question that I'm thinking now is which one of those
Speaker 1: should the stock market be Like? There's an argument that
Speaker 1: the stock market or the market in general should be
Speaker 1: about efficient allocating companies capital or capital to companies, And
Speaker 1: I don't know, I could sort of argue it both ways. Yeah, absolutely,
Speaker 1: I think both need to exist. And you know, there's
Speaker 1: always been this spectrum in any given market, right between
Speaker 1: the sort of pure speculation short term gambling mentality and
Speaker 1: the longer term fundamental investing mentality. And we did a
Speaker 1: some episodes recently looking at how the sort of pure
Speaker 1: long term passive investing mentality has been gone to a
Speaker 1: very large extreme, with people not taking any risks of
Speaker 1: individual stock selection or market timing and just blindly buying
Speaker 1: the entire index every paycheck. And so it's not surprising
Speaker 1: that if the sort of long term passive approach is
Speaker 1: getting more and more extreme, more and more vanilla, that
Speaker 1: you have then see the sort of mirror image happening
Speaker 1: on the other end. And so then you see the
Speaker 1: people who do try to like quote beat the market
Speaker 1: or take idiosyncretic security risk going absolutely to the extreme
Speaker 1: the other way. And what you get is you sort
Speaker 1: of hollow out that middle of the old days of like,
Speaker 1: you know, people buying thirty stocks for their portfrait value
Speaker 1: of investment seems really quaint. Yeah, stuff like that. Yeah,
Speaker 1: it's sort of two extremes um at the end of
Speaker 1: a sort of barbell. I guess the other thing I'm
Speaker 1: wondering is, you know, it's fine to see people taking
Speaker 1: these sorts of bets and blowing up their robin Hood
Speaker 1: accounts as long as it's their own money and as
Speaker 1: long as it doesn't affect the wider market. But then
Speaker 1: the point that Jamie touched on at the end, which is,
Speaker 1: we do have some instances where options trading has impacted
Speaker 1: the underlying index, such as x I V and the
Speaker 1: vix back and form and ged in and uh again,
Speaker 1: we mentioned the robin Hood blowout at the end, and
Speaker 1: you so would have to think whether or not a
Speaker 1: lot of the brokerages and the zero commission trading are
Speaker 1: encouraging a race to the bottom when it comes to
Speaker 1: enabling these sorts of levered bets. A yes, But B
Speaker 1: I'll just say, you know, for as big as they are,
Speaker 1: you know, there are institutions that are ten times bigger
Speaker 1: throughout history, established serious, respectable institutions where people have PhD
Speaker 1: s and right equations and they all wear a tidal
Speaker 1: work that have caused far more damage than anything on
Speaker 1: the message board. So while I'm sure that that is
Speaker 1: a potential phenomenon, uh, if Wall Street Bets did create
Speaker 1: some sort of endogenous volatility, they would not be the
Speaker 1: first buy any stretch. No, that is totally a fair point,
Speaker 1: and no ties or PhDs, presumably on Wall Street Bets.
Speaker 1: I gotta say it's probably a few now to be fair.
Speaker 1: Well yeah, okay, Well that kind of brought me to
Speaker 1: my last point, which was in Jamie's book The Guy
Speaker 1: that lost bunch of money on X I V who
Speaker 1: was on Wall Street Bets. I think this was the
Speaker 1: biggest loss ever on Wall Street Bets. Jamie says he
Speaker 1: ended up working for a unnamed financial institution, so there
Speaker 1: is some overlap between professionals. He wouldn't be the first
Speaker 1: person who made his name and career by losing a
Speaker 1: lot of money or so. Somehow, I feel like in finance,
Speaker 1: if you if you lose a little bit money or
Speaker 1: in trouble, if you lose a lot of money, you
Speaker 1: could probably uh you know, find a new job and
Speaker 1: do something else. Yeah, so weird and yet so true. Okay,
Speaker 1: this has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Wisn'tal. You can follow me
Speaker 1: on Twitter at The Stalwart, and you should follow our
Speaker 1: colleague Luke Colla on Twitter at l J Cola and
Speaker 1: follow Jamie on Twitter. He has the handle at Wall
Speaker 1: Street Bets. And be sure to follow our producer on Twitter,
Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg
Speaker 1: head of podcasts, Francesco Levi at Francesca Today, and for
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Speaker 1: at podcasts. Thanks for listening