ShareFormer poker pro Daniel Moravec has been named as the man who helped the WallStreetBets Reddit group give the hedge funds a bloody nose. The man from Minnesota came up with a cunning hack to work around restricted purchasing for GameStop stock.
Victory for the Amateurs
For those who missed this story that was covered by mainstream media all over the world, hedge funds fell victim to a vicious blow by a group of Reddit users who post in a group to discuss finance.The WallStreetBets forum banded together to fight back against hedge funds who were short-selling shares in a number of companies including GameStop. The American company’s stores aren’t making money and bankruptcy is on the horizon, so it makes sense for hedge funds to bet on the stock price falling.
The problem started when a group of hedge funds publicly declared their plan. Amateur investors thought this was Wall Street bully boys flexing their muscles and forcing an innocent company out of business. And so they decided to do something about it.
One by one the group bought shares in GameStop until momentum built up and the share price started to rise. Word got around and before long the price of one share in GameStop has risen from less than $20 up to $483. The hedge funds lost billions.
Of course it was too good to last, and then in stepped some of the brokers who then restricted the purchase of GameStop stock.
This led to cries of foul from observers who assumed it was a favour to the banks and hedge funds but in truth it was just to protect themselves from massive losses in an unusual trading situation.
Poker Players Always Find a Way
In the middle of this restricted trading Daniel Moravec posted in the WallStreetBets thread about a workaround to be able to buy more shares, and it went viral.Here’s a trick that will work.
**Update Feb 1 Loophole Closed **
Go to next nearest option expiration (Feb 5 as of today).
Scroll all the way down the call list.
Buy GME call option with the lowest +x.xx% (0% would be no premium at mark).
Immediately exercise.
The only drawback, and it is a big one for a lot of people, you must be trading with at least $30,000.
Moravec is no newbie to this game. He has 16 years experience behind him from when he started trading Apple shares when they were valued at only $2. They are worth $130 now! He’s also into bitcoin so you can guarantee that he is making a killing in that market right now.
Politicians and the SEC Keeping an Eye Out
This unusual trading situation has caught the eye of regulatory bodies, such as the US Securities and Exchange Commission (SEC) and politicians. Jordan Belfort, the Wolf of Wall Street, said in an interview that he thinks the WallStreetBets group is potentially breaking the law by banding together to pump a stock price. This is exactly what he went to jail for in 1999.
It’s unlikely that anyone will be prosecuted over this but some new regulations might be considered. Texas Attorney General Ken Paxton tweeted last week that he was starting an investigation into brokerage firm Robin Hood for interfering with what is supposed to be a free market.
Senator Ted Cruz and Representative Alexandria Ocasio-Cortez have also spoken publicly on social media about raising discussion of this matter at a high level.
