Yes Virginia, the system is clearly rigged, by Omid Malekan

Powerful and rich people will try to rig government and government regulations to their advantage. The mystery is why so many people continue to clamor for still more government. From Omid Malekan at

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Before sharing my opinion on the WallStreetBets events of last week, I want to make one thing clear: I believe strategies like the ones used to drive the price of Gamestop stock higher are reckless and dangerous. I would never participate in them. They are likely to end badly for the majority of those who get involved.

With that out of the way, let’s review something important that happened last year, when big cap tech stocks like Tesla and Apple started exhibiting unusual volatility to the upside. It turned out that Softbank, one of the largest institutional investors in the world, had been executing a dangerous strategy of buying record amounts of out of the money call options on those stocks. Their actions forced some of the options trading establishment into something called a gamma squeeze, a positive feedback loop that can be thought of as the options markets’ equivalent of a short squeeze. Here’s the FT:

The surge in purchases of call options — derivatives that give the user the right to buy a stock at a pre-agreed price — has been the talk of Wall Street, as the sheer size of the trades appears to have exacerbated a “melt-up” in many big technology stocks over the past few months. In August alone, Tesla’s share price shot up 74 per cent, while Apple gained 21 per cent, Google’s parent Alphabet rose 10 per cent and Amazon 9 per cent.

One person familiar with SoftBank’s trades said it was “gobbling up” options on a scale that was even making some people within the organization nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

As the article also points out, it was generally understood that what Softbank was doing (with billions of dollars, no less) was dangerous. Not only could it end badly for them, but it had painted other players into a corner, creating a dangerous dynamic that could reverse abruptly.

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