BC BUSINESS
Saved by @ThomassRichards

THREAD: The story of the week in finance is how a group of retail traders at @wallstreetbets, with assists from @ElonMusk and @Chamath, took down the establishment short sellers at GameStop.

A thread on the underlying mechanics of the $GME saga...

 1/ First, for those unfamiliar with the business, GameStop is a videogame and merchandise retailer.

It has >5,000 stores, primarily in malls, across North America, Europe, and Australia.

The business has struggled to modernize, hurting its financial and stock performance.
2/ For a variety of business reasons, a bull (i.e. optimistic) case regarding its future performance has formed.

It really came to the forefront after RC Ventures, an entity managed by Chewy founder @ryancohen, disclosed a large position and assumed three board seats.
3/ @ryancohen summarized his case, stating:

"We are excited to bring our customer-obsessed mindset and technology experience to GameStop and its strategic assets...expanding the ways in which it delights customers and by becoming the ultimate destination for gamers."
4/ At the time of that statement on January 11, $GME stock was trading at about ~$20 per share.

Since then, the stock has surged to ~$200 per share and captured the public imagination.

But how did it happen?

There are two dynamics at play: a short squeeze and a gamma squeeze.
5/ First, a short squeeze.

This occurs when short sellers (those betting against a stock, like Melvin Capital here), are forced to buy stock to exit/cover their shorts.

I wrote a primer on the short squeeze, which you can find below. https://t.co/xKDUscvQup
6/ The gamma squeeze is a bit more complicated.

As usual, let's simplify it here for everyone to understand.

A gamma squeeze is all about options contracts and their indirect impact on the underlying stock.

For a primer on options, see my thread below. https://t.co/jU7gEt9sf7
7/ When you buy a call option on $GME, someone has to sell you that option contract.

You pay them a bit of money (the premium) and they make a commitment to deliver you the underlying stock at a future date for the strike price of the option.

It's a pretty simple transaction.
8/ But in the background, the seller (often called a "market maker") has to think about their risk exposure.

If $GME rises above your strike price, they will have to buy the stock at the market price and sell it to you for the strike price, incurring a (potentially large!) loss.
9/ To hedge this risk, when the market maker sells you the option, she also goes into the market and buys a bit of the underlying stock.

The amount of stock she buys is based on the "Delta" - a ratio of how much the option price moves relative to a $1 move in the stock.
10/ "Gamma" is the rate of change of the "Delta" of the option.

As Delta and Gamma rise, the market maker gets more and more nervous!

She has to buy more stock to hedge the risk of the option being exercised in the money (i.e. with the underlying price above the strike price).
11/ So here we have the (simplified!) makings of the gamma squeeze.

As call option purchasing volumes suddenly surged (thanks to @wallstreetbets @chamath and @ElonMusk), market makers had to purchase a lot of $GME stock to hedge.

This set in motion a self-fulfilling prophecy…
12/ Market makers rushed to purchase $GME stock to hedge exposure. This drove the price of $GME up!

As the price of $GME went up, the Delta and Gamma of $GME call options rose.

This meant market makers had to buy more stock, further driving up the $GME price!

Reflexivity!
13/ So to summarize:

With $GME, we had both (1) a short squeeze - short-sellers frantically buying the stock to close/cover their shorts and (2) a gamma squeeze - call option market makers frantically buying the stock to hedge their exposure.

Result: 👇
14/ As always, I hope this thread was helpful and makes you feel more well-informed on what is happening in the crazy world of finance.

For more on this topic, I highly recommend reading @matt_levine's "Money Stuff" newsletter on the topic. https://t.co/5nxzRyTaee
15/ In addition, my friend @ShaanVP wrote an incredible/hilarious thread on the story dynamics behind the @wallstreetbets $GME moves. Check it out here! https://t.co/9z38w7fwTy
16/ If you enjoyed this, follow me for more educational threads on business, money, finance, and economics. You can find all of my threads in the meta-thread below. https://t.co/53UhhfzIcp
17/ And if you are less Twitter inclined, sign up for my newsletter here, where you can find all of my old threads and receive all of my new threads directly to your inbox. https://t.co/NEe1Tov0Xg

More from Sahil Bloom

Sahil Bloom
Sahil Bloom
@SahilBloom
10 threads to accelerate your career:

How to Win (without talent or luck)

20+ principles compiled from the most impressive leaders and thinkers in the world.


20 Ways to Stand Out in a Hiring Process (that don’t involve your resume)

You can stand out without fancy degrees or credentials—learn how.


Common Interview Questions (& how to nail them)

Interviews suck—proper preparation makes them suck slightly less.


How to Write Cold Emails (or DMs)

Because one lucky break can make all the difference…
ALL
Sahil Bloom
Sahil Bloom
@SahilBloom
1/ An Allegory of Finance

I have been posting a lot of educational (and humorous!) threads on finance, money, and economics.

My mission is simple: to demystify these concepts and make them accessible to everyone.

All of the threads can be found below. Enjoy and please share!
ALL
Advertisement
Sahil Bloom
Sahil Bloom
@SahilBloom
Incentives are everything.

Here’s a framework for establishing incentives (that actually create desired outcomes):

Great incentives create great outcomes.

But unfortunately, humans are astonishingly bad at establishing incentives—we consistently invite manipulation and unintended consequences.

This thread shares my framework for a establishing better incentives:

Incentives are anything that drives an individual to act in a specific manner.

Intrinsic incentives are internal—created by self-interest or desire.

Extrinsic incentives are external—created by outside factors (reward, punishment).

Today, we'll focus on extrinsic incentives.

In a very simple model, extrinsic incentives typically involve two key components: the measure and the target.

The measure is the metric that the individual or group will be judged upon.

The target is the level of the measure at which a reward (or punishment) will be initiated.

The problem?

This simple model of incentives—which will feel familiar to many—often leads to undesirable outcomes and unintended consequences.

Goodhart's Law explains why:

When a measure becomes a target, it ceases to be a good measure.
ALL
Sahil Bloom
Sahil Bloom
@SahilBloom
The Cantillon Effect is the most important economic concept you’ve never heard of.

Here's a breakdown of what it is (and why you should care):


1/ Richard Cantillon was an Irish-French economist and philosopher born in the 1680s.

He achieved success as a banker—which he attributed to the formidable connections made through his family and employer.

At a young age, he had learned of the impact of proximity to power...

2/ Around 1730, Cantillon wrote a paper—Essay on the Nature of Commerce in General—which is considered a foundational work in the study of the political economy.

It was widely circulated in manuscript form, though it was not published until 1755, well after his death.


3/ In the paper, Cantillon posited that the early recipients of new money entering an economy will benefit more significantly than those it trickles down to.

In other words, the "flow path" of the new money matters!

4/ In 18th century terms, those closest to the King—the source of money/power—benefitted first when new money entered the economy.

Broadly, Cantillon observed that new money creates distributional effects based on where it enters the system.

The Cantillon Effect was born...
FINANCE
Sahil Bloom
Sahil Bloom
@SahilBloom
10 fascinating traits of highly-successful people:

1) Enjoy Being Wrong: The most successful people legitimately enjoy being wrong. They’ve learned to embrace new information that forces you to change your viewpoint—these "software updates" improve upon the old.

(read on)

2) Work in Sprints: Parkinson's Law says that work expands to fill the time available for its completion. Winners typically work like lions instead—sprint, rest, repeat.

3) Antifragile: Life is chaotic. The best aren't broken by the chaos—they build structure to benefit from it.

4) Paranoia: Highly-successful people share a surprising fear that all of the success is suddenly going to disappear. It creates a drive for continued growth.

5) Self-Awareness: The most successful people are hyper self-aware. They know their unique edge (and their weaknesses).

6) Compartmentalization: An uncanny ability to compartmentalize. They turn off outside stressors and focus exclusively on the task at hand.

7) Focus on Questions, Not Answers: They ask great questions. It allows them to aggregate insights more effectively.

8) Expert Advice Filters: Winners have learned how to filter and selectively implement advice—take the signal, skip the noise.

9) Impatient Long-Term Thinkers: Long-term thinking plus short-term impatience for action is the recipe for success.
PRINCIPLES

More from Business

Alexander Eliasson
Alexander Eliasson
@alexeliasson
Antares Vision $AV.IM is the world's leading Track & Trace (T&T) and Vision Inspection (VI) solutions provider for the life science sector.

With several catalysts ahead I've initiated a position in this insider-owned small cap 🔽

1/


Antares is the supplier to 10 of the 20 leading pharmaceutical companies in the world having installed +2000 serialisation lines at +200 production facilities in +60 countries.

2/


Antares offers - via software and hardware - the protection of products and brands through visual inspection systems for quality
control, Track & Trace solutions for anti-counterfeiting and supply chain transparency from the point of
production to the end consumer.

3/


All major governments have regulation rolling out in regards to prescription drug traceability.

Penetration, globally, is below 30% and is forecast to double by 2026.

4/


In regards to distribution of Covid-19 vaccines, IBM partnered with Antares to create a solution tracking raw materials and identify shortages. Monitor production yields across manufacturers, guarantee vaccine integrity and prevent counterfeits.

5/
BUSINESS
a h
a h
@alexharfouche1
#irrationalebullience If you want to understand the nature of this asset bubble and the epic capital mis-allocation at it’s heart, look no further than rates. CB’s only tool to push an uber-levered financial system that is highly interconnected through derivatives
(1/N)

away from it’s natural convergence path towards collapse is to create opposing forces to push it towards divergence. Meaning: force, through financial repression, market participants to rely on price continuation, in a way that makes it self-fulfilling.
(2/N)

The tool used is rates as it is the basis off of which all other financial assets are priced. Today any buyer of $UST across the curve up to 30Y is guaranteed a loss given reals are negative throughout. So the only hope of escaping this GUARANTEED loss
(3/N)

is to angle for capital gains, i.e a continuous move downwards in real rates to push for some capital gains in real terms. The longer the financial repression lasts, the further investors are pushed out the maturity and credit risk curves.
(4/N)

Here are examples to understand what exactly is happening. If an investors buys a 5 Y UST he is guaranteed to lose almost 2% in real terms, so making that up in capital gains is much harder given the v short duration.
(5/N)
BUSINESS
Advertisement
Nick Huber
Nick Huber
@sweatystartup
If you're new to real estate twitter this is a must-read.

A thread on how most real estate folks structure deals with outside investors.

Most GPs utilize the "preferred equity" structure when they raise money from outside investors. They "syndicate" deals.

Here's the basics:

The person (or team of people) putting the deal together is the "sponsor". Also called general parter. Referred to on twitter as the GP.

They find the property, do all the work, hire the management company and take fees. They often co-sign debt and always secure the financing.

The investor is generally passive, doing no work and putting in cash. This is the "limited partner". Referred to on twitter as the LP.

They don't co-sign debt. They simply read reports and ask the sponsors questions and cash checks every month (if the deal is going well).

There are two equity classes.

"Preferred equity" belongs to the LPs. Cash talks, so this is a higher class of shares. They are first in the "capital stack" behind the debt (bank loan).

"Common equity" belongs to the sponsor. They are generally last in the capital stack.

Sponsors generally co-invest. That means they hold both equity classes. A 10% co-invest is standard.

That means the GP has skin in the game. His 10% co-invest makes him both an LP and a GP.
BUSINESS
Shreyas Doshi
Shreyas Doshi
@shreyas
If you’re a Startup trying to compete with a Megacorp—the 800-pound Gorilla in the space—you need to understand the tax inherent to being a Gorilla

And then you need to make that tax work against the Gorilla—with your product's positioning & features

A thread on Gorilla taxes👇🏾


1/
Collaboration Tax

Getting two or more product groups at a megacorp to collaborate on creating a seamless end user experience is the hardest problem in computer science.

(I am not joking)

Examples of Collaboration Tax:

Calendly exists because the Gmail team & Calendar team haven’t worked together on creating a more seamless experience for that use case.

Loom might succeed because the Gmail, Video, Meet teams at Google are probably too busy with their own goals.

The takeaway for startups:

If you can create meaningful value by seamlessly integrating features of two or more distinct Gorilla products, you will typically have a lot of runway before the Gorilla can get its act together and eliminate its Collaboration Tax.

2/
Denominator Tax

Once a Gorilla’s product reaches massive scale (i.e. the denominator for its metrics gets very large), the pressure of OKRs & incentives will often force the Gorilla’s product teams to prioritize breadth of usage more than depth of usage.
BUSINESS
Brandon Zhang
Brandon Zhang
@brandonthezhang
CEOs interviewing other CEOs, Public Dating Shows, @sriramk + @aarthir becoming the next great show hosts.

I cannot read 2 tweets without seeing something on Clubhouse. A new room, a thread on Elon, a bull case on their $1B eval.

Let’s take a look at the rise of Clubhouse.

Clubhouse is a live-voice chat app.

People can join different rooms, where predetermined topics are set by hosts who help moderate the discussion.

With quarantine, it gave people the space to shoot the shit and listen to high-quality conversations.

Clubhouse was founded by @pdavison and @rohanseth .

Davison’s past projects show a bias towards products based on spontaneity:

Highlight: People-meeting location app
Shorts: Reveal your whole camera roll (Acq. Pinterest 2016)
Talkshow: Instant radio call-in shows

2 weeks ago, Elon made waves by appearing on the app. With hundreds of Clubhouse rooms created beforehand to pregame the conversation like a UFC fight.

However, Clubhouse has already attracted stars to the platform, with Drake, Oprah, and Virgil Abloh all making appearances.

However, star power alone cannot be the sole explainer for Clubhouse's rise.

What are some of the other factors that have played a role in their growth?
BUSINESS

You May Also Like

Corey Haines \U0001f4a1
Corey Haines 💡...
@coreyhainesco
I think I'm giving up on mainstream marketing content.

I'm giving up on social media consumption too.

So little substance.

Need to devote more time doing. More time creating.

Who needs another "5 ways to boost growth" post? I click and am disappointed every time. Not again.

I don't want to poop on content marketing, but marketers need to step it up.

Or at least, founders need to know that doing something is not always better than doing nothing.

Why is content marketing not as effective as it used to be? An innumerable amount of factors...

But one things for damn sure.

Things have to change.

Two of the chief sins:
1. Unoriginal research/story/study/etc
2. Not having anything more to add that's meaningful

Why blog/podcast/vlog/etc about something that's already been said? Already been done?

Do we really need another interview with founder of x hot startup? Do we really need another ultimate guide about facebook ads?

Not all content is like this...

Sometimes, you get an occasional piece that truly leaves you better off than you were before. That doesn't make you want to skim.

An original case study. A first time interview with a founder. An honest account of an experiment. An explanation of a change, shift, or realization.
LIFE
Pat Walls
Pat Walls
@thepatwalls
And here they are...

THE WINNERS OF THE 24 HOUR STARTUP CHALLENGE

Remember, this money is just fun. If you launched a product (or even attempted a launch) - you did something worth MUCH more than $1,000.

#24hrstartup

The winners 👇

#10

Lattes For Change - Skip a latte and save a life.

https://t.co/M75RAirZzs

@frantzfries built a platform where you can see how skipping your morning latte could do for the world.

A great product for a great cause.

Congrats Chris on winning $250!


#9

Instaland - Create amazing landing pages for your followers.

https://t.co/5KkveJTAsy

A team project! @bpmct and @BaileyPumfleet built a tool for social media influencers to create simple "swipe up" landing pages for followers.

Really impressive for 24 hours. Congrats!


#8

SayHenlo - Chat without distractions

https://t.co/og0B7gmkW6

Built by @DaltonEdwards, it's a platform for combatting conversation overload. This product was also coded exclusively from an iPad 😲

Dalton is a beast. I'm so excited he placed in the top 10.


#7

CoderStory - Learn to code from developers across the globe!

https://t.co/86Ay6nF4AY

Built by @jesswallaceuk, the project is focused on highlighting the experience of developers and people learning to code.

I wish this existed when I learned to code! Congrats on $250!!
MAKERS
Advertisement
SK
SK
@sk_diary1
Margatha Natarajar murthi - Uthirakosamangai temple near Ramanathapuram,TN
#ArudraDarisanam
Unique Natarajar made of emerlad is abt 6 feet tall.
It is always covered with sandal paste.Only on Thriuvadhirai Star in month Margazhi-Nataraja can be worshipped without sandal paste.


After removing the sandal paste,day long rituals & various abhishekam will be https://t.co/e1Ye8DrNWb day Maragatha Nataraja sannandhi will be closed after anointing the murthi with fresh sandal paste.Maragatha Natarajar is covered with sandal paste throughout the year


as Emerald has scientific property of its molecules getting disturbed when exposed to light/water/sound.This is an ancient Shiva temple considered to be 3000 years old -believed to be where Bhagwan Shiva gave Veda gyaana to Parvati Devi.This temple has some stunning sculptures.
ALL
Emma Hilton
Emma Hilton
@FondOfBeetles
This is Kuinini ‘Nini’ Manumua, the woman who was ultimately displaced by inclusion of Laurel Hubbard.

She’s 21, and it would have been her first Olympics.
ALL
f1talks.pl
f1talks.pl
@f1talks
Oleg Karpov pisze, że gdyby Siergiej Sirotkin zdobył w pierwszej części sezonu więcej punktów od Strolla, to jego kontrakt z automatu zostałby przedłużony na kolejny sezon. Tak się nie stało i Williams ma możliwość szukania innych opcji i to właśnie robi. #F1pl

Czego w artykule brakuje, to informacji, że SMP prawdopodobnie przekazało Williamsowi część środków na sfinansowanie sezonu 2019. W przypadku zakończenia współpracy ekipa z Grove będzie musiała zwrócić te środki. #F1pl

To tłumaczy wysokie kwoty jakich Williams ma oczekiwać za fotel od nowego kierowcy. Jest pewnie próg opłacalności i dopóki nie zostanie osiągnięty, to zmiana z finansowego punktu widzenia nie będzie się zwyczajnie opłacała. #F1pl

Tyle można znaleźć w oświadczeniach prasowych... 😂😂😂
SPORT