Episode 69: Interest Rates Are Rising....Does That Mean You Should Adjust Your Bond Allocation?

Episode #62: GameStop, Gamma Vortex, and Confirmation Bias

 
In the past couple of weeks, an exciting and dramatic chain of events has been going on around GameStop Corp., where their stock price skyrocketed in a very short time. GameStop is a video game and gaming merchandise retailer. While they have been performing adequately, GameStop hasn’t come up with fascinating and innovative things in the past couple of years as other growth companies do. For that reason, this stock price surge triggered numerous headlines in the news and rumors and stories in the financial community. In today’s episode, Grant dives into what caused this situation, how things escalated, and whether there’s anything illegal going on. Stay tuned until the end of the episode, where Grant talks about what you should do if you’ve made a bunch of money in GameStop shares or options.

 

Show Notes

[02:04] The Last Two Weeks – Grant reviews the events of the last two weeks regarding the stock price of GameStop and the stories in the news.

[06:42] Reddit and Hedge Funds – How a group of traders who were communicating on Reddit about their trading activities and how some hedge funds got involved in the GameStop stocks situation.

[10:07] Selling Short – Grant explains a stock trading strategy that allows you to sell stocks without actually owning them, the way it works, and the risks associated with selling short.

[16:17] A Short Squeeze – How a drastic increase in stock price affects people who utilize the short-selling strategy and how it applies to the GameStop situation.

[21:00] Options – In stock trading, an option is a contract that allows you to buy a particular stock at a specific price for a certain period. This is somewhat an aggressive strategy, and Grant talks about how the demand for options trading added to the complexity and heavily influenced the GameStop stock price surge.

[29:13] Extreme Volatility – Grant shares his thoughts on how this situation was heavily contributed by traders who shared about their trading activities in online forums.

[31:48] Other Factors – Grant shares his take on what other factors contributed to the massive stock price increase and what they mean for investors.

[36:47] Restrictions on Trading – Some of the major brokerage firms imposed restrictions on trading  GameStop stocks due to the developing situation. Grant explains the influences behind this and how it’s different from a regular circuit breaker.

[45:20] The Legal Aspect – Grant shares his take on stock trading rules and the legality of actions of different parties involved in the situation.

[49:20] Should You Get Involved? – Grant shares his take on why it’s not a good idea to get in on this trade.

[55:44] Confirmation Bias – How confirmation bias affects your decision-making process in this type of situation and how to be mindful of market behaviors where luck plays a significant role in the success of an investment.

 

Resources

Q&A: A basic guide to the GameStop squeeze:
ft.com/content/f2929fcc-cc62-4d20-8397-2040ce3f595e

Stock Purchases and Sales: Long and Short:
www.investor.gov/introduction-investing/investing-basics/how-stock-markets-work

SEC Fast Answers – Options Trading:
www.sec.gov/fast-answers/answersoptionshtm.html

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