This is undoubtedly a sticky-worthy happening. Overview:
Louis Rossmann: Why MSM's slander of /r/wallstreetbets pisses me off regarding GME
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Yeah. So if you want to make more $$$ on a trade in terms of leverage you trade options vs the stock, which is what a lot of folks do. If you want to bet the stock goes up you can buy calls, pretty simple. Your max risk is what you buy basically (assuming you sell before expiration), but you can get assigned the stock (because you bought an option to acquire it at a future price on a future date). if you don’t indicate you want to sell it with an order you can get forced to go into the market (or they’ll do it for you) and buy how many shares your contract represents (100 usually).
Conversely some folks like to go wheels up and sell puts (aka naked out). Which is short the contract, but makes cash now because you receive the premium or what you paid for the contract. This appears to be what a lot of newbs did on margin. If they are auto executed as the contracts would be in the money they are forced to deliver, which is likely to happen. This will force the stock even higher.
If an investor writes (sells naked) a put option, that investor is obligated to purchase shares of the underlying stock if the put option buyer exercises the option.
Based on my experience with these things I’m guessing what will happen is once these stock shorts are done buying their shares back to cover this run a ton of smart money will be buying puts as the dumb money (novice Reddit traders) sell puts thinking it won’t crash and that they’ve won (essentially being short on margin). The inverse will happen, the stock will crumble before the Feb expiration and the long puts will exercise their contracts forcing the short puts to cover. Basically a giant whipsaw of epic proportions, with a ton of traders owing broker dealers hard cash and not margin or shares as they’re auto assigned the contracts.
On short puts the downside is unlimited, whereas the upside is what you received for selling the contract in the first place.
god damn.
praise be i dont have a gambling problem.
although, i might since im more towards a "novice" trader.
im like 10% autist and ill eat my fucking shoe if i dont buy 1k pizzas if i hit decent.
Lol, trade here is to buy long puts regardless of how much “premium” is on them (price rise from bettors assuming this will come down eventually) and watching it like a hawk all day long until it happens and to sell it immediately in the fastest market since the last flash crash that second it’s habbening. Basically betting it will come down as they always do. Otherwise they eventually loose their value (because time erodes the value of these contracts). It’s like betting the Bucs will lose in the beginning of the forth quarter of the Super Bowl down by 4 TDs, but Brady could come back for the win - you only loose what you bet. If you short Brady and he wins you become homeless and Vinny breaks your fucking legs when he sees you blowing Carl Icahn in a back alley for meth.