Someone needs to ELI5 this to me.
Some very greedy wall street people put themselves in a ridiculously stupid position that they've been exploiting for years and nobody caught. Somebody caught it, a tonne of people jumped on it and now these companies are fecked and desperately trying every tactic they can to reduce their downside.
Imagine I have a Ronaldo Panini sticker I want to sell and it's worth like $30, but you're a bit of a cnut who wants to gamble on me failing because you're a shitty mate so you tell me you reckon it's gonna be worth $10 soon so you're willing to bet that in a week it's gonna be worth less. I say haha no way put your money where your mouth is so we make a bet. Next week if the sticker is worth $10 after all and you're right, you keep the $20 difference. If the sticker is actually worth $50, then you gotta buy it from me at $50.
That in a nutshell is the kind of plays that these hedge funds are making. Now imagine, that a group of randoms were like 'man feck this guy being a knob to that seller, let's all get together and raise the price of that Panini sticker to $100 and then he's gonna have to buy it for $100 next week'. That's what's going on right now from the Reddit side only we're talking billions.
The issue is, that the guys on Wall Street have done this so much that 140% of the companies stock is allocated to this kind of bet, more than is even available. It was spotted by a community with millions of users and they've then bought a feck tonne of stocks forcing the price to skyrocket knowing that after a certain time passes and these little bets that the guys on Wall Street made expire, they're mandated to buy those shares at whatever the price is which means $$$ for the ones selling the stock and potential bankruptcies for the fat cats who got themselves into this position. They betted the price would be down, and they're currently very very wrong to the point where one hedge fund already had to be bailed out by 2 others and there is seemingly no hypothetical limit to the downside they could endure if people hold their stocks past the date their options expire which seems to be Friday.
This is different to normal investing where it's tied to the companies performance, this instance has absolutely shit to do with the companies performance. It's just a lot of people mobilising against greedy hedge funds for putting themselves in a position where they can be fecked over. It's called a short squeeze, where pressure is put on those who have shorted (bet against the company succeeding) by raising the stock price. The bigger the margin gets between the short sellers bet and the actual stock price, the more likely the broker is to 'call the margin' and force the short seller to stump up some capital to keep their position. To avoid this, the short seller ends up buying stock themselves to cover their position but in doing so they contribute to the squeeze on them by driving up the price even more and putting themselves in a worse position. To top that off, several billionaires have posted about this on Twitter and it's gaining traction at a ridiculous rate.
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