GameStop And Reddit’s Organized Trading Could Spark A Stock Market Bloodbath

GameStop And Reddit’s Organized Trading Could Spark A Stock Market Bloodbath

GameStop



GME

will probably go down in textbooks as the biggest "assault“ on Wall Street in history.

And because you've probably already read a dozen articles about it, here's just a quick recap to get into today's topic:

And GameStop could be just the beginning. Reddit traders are plotting new "attacks.“ Meanwhile, hedge funds are throwing in the towel. They're trimming their positions the most they've done since the 2008 financial crisis.

And as I'll explain, this organized Reddit trading could lead to a wild roller-coaster ride in the broader stock market. But first, let's talk about a few little-known forces that let Reddit traders shake up the market. They are key to grasping the destructive power behind this war.

Options and "delta hedging“

First, we have to talk about the power of options. Because individual investors didn't just buy GameStock stock. A lot of them also raised the stakes with options, which gave them more "muscle“ to move the market.

Here's a human explanation of how this works from a recent Meanwhile in Markets newsletter:

For those who don't know, call options are contracts that give you a right to buy a stock for an agreed price until a certain