and why people who bought in at 200/300/400 will lose their YOLO money
Simply because the stock isn't actually worth 400.
A few players made a smart play on wallstreetbets, and they got lucky when the hedge funds were stubborn enough to keep going deep into the red while the subreddit gained 3m new subscribers and was able to keep squeezing them.
But buying in at 400 today seems like idiocy. It would be akin to joining a pyramid scheme right at the end. Maybe you are not last, but it's likely.
Because they caught only a few of them in a trap, not all of them. Even if the shorting ones end up going belly up, they'll just restructure, shift people around, and be back in business as if nothing ever happened.
> and why people who bought in at 200/300/400 will lose their YOLO money
Because the stock is not worth it, and they won't all be able to pull out in time.
That said, I can't say WSB is wrong. Many of the players don't mind losing the money - the current sentiment seems to be, at least overtly, to show a giant middle finger to established financial institutions, and make "them" suffer for 2008. I think WSB is likely to achieve that goal to some extent. At the very least, they're sending the message. Personally, I'm only worried about second-order consequences for the stock market at large (wouldn't want it to trigger the next 2008). I'm also worried if they get shut down from the top by more "uncoordinated" corporate shenanigans, this may spill over and turn violent.
*All the below are hypothetical scenarios, I have no specific reason to suspect any of them will or won't happen. This is not financial advice. Trade at your own risk.
1) Hedge funds may have been buying GME alongside WSB. Once the shorts stop out, the funds will know before WSB does. And get out ahead of them. The size of the position suggests this is a possibility.
2) GME management will announce an equity offering. This is arguably the economically/financially correct thing to do. And is also aligned with management's incentives. With more shares in the market, the shorts would no longer be squeezed.
3) GME has become too volatile to easily manage counter-party risk via daily margin posting. This makes options and cash equities much harder to transact. Which is what we saw yday. This could limit the ability of non-professionals to access the market. Killing the squeeze.
4) Robinhood could face solvency (or the perception thereof) issues. This could cause a rush to close out accounts while people still can. Generally, even having to deny you have a liquidity problem is a bad sign.
5) Some truly massive player or a group of them (Citadel and Melvin are only middle size fish) will come in and crush the longs. Gamma works in both directions.
6) The index funds that currently hold the stock will make an exception to their usual rules and sell it because the market is so clearly dislocated. Or alternatively the providers could kick out GME. This would again significantly reduce the squeeze.
7) The regulators will set the stock to liquidation only. The exchanges have the power to do this. And this is the sort of situation that said powers are contemplated for.
So there's quite a bit that could potentially go wrong. And so a good chance that the squeeze participants could lose their investments. Part of the problem is that it isn't clear just how large the short positions really are at this point. While I have zero sympathy for the hedge funds on the other end of this trade, if you live by the sword you die by the sword, the regulators may decide this presents a systemic issue. In which case they're going to shut it down.
I'm pretty sure the real situation is far more complex than the simplified story that is passed around and the final result therefore not nearly as inevitably positive for the mob. One possibility is that some lenders of the stocks may accept a guaranteed lower direct payment instead of insisting on getting the stocks back and risking that the short seller goes bankrupt and they get nothing.
> why people who bought in at 200/300/400 will lose their YOLO money
Mostly because there is absolutely no guarantee that they will be able to sell in time when the crash comes. Many of them don't even seem to understand how stock trading works.
In extreme situations, a stop loss order to sell at 500 could easily get executed at 100 because nobody is actually willing to buy anywhere in between at that time.
Not an expert or even a participant in this whole thing, but it seems to me that if there is a short squeeze (as i understand it after a week of reading the news) that is only bad if there is a limited amount of stock. If GME release new shares and the hedge funds buy up those new shares at a lower price than the WSB 300/400 buys, that could be bad for the WSB crowd.
NB - Not at all sure this is possible, or that GME would want to sell their stock for 100 when there are buyers at 300/400.
I'm not blaming WSB about this, because the issue was there before them, and I'm not an expert and maybe we're very far from this scenario, but it's something that worries me...
Energy is hard to maintain long term.