Meme 'Stonks': How Call Options & Reddit Broke Wall Street | Lily Francus

Hidden Forces

Demetri Kofinas

Business, Government

4.8 • 1.6K Ratings

🗓️ 8 February 2021

⏱️ 69 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

In Episode 178 of Hidden Forces, Demetri Kofinas speaks with Lily Francus, a 25-year-old PhD student in bioinformatics who spends her time modeling complex, dynamic systems, trading meme stocks, and writing about options, derivatives, and how stories and ideas spread on the Internet.

Unless you've been living under a rock or don't have an Internet connection you will already know that some really crazy shit happened in the last couple of weeks involving the video game retailer GameStop, a number of large, Wall Street institutions, and the online community subreddit r/Wall Street Bets, which has now grown to over 8 million users.

There have been so many competing explanations put forward for what happened here that it would be impossible to try and summarize them all. Instead, this episode attempts to explain the mechanics of how it all happened. In other words, how an online community consisting primarily of retail investors managed to pump the price of GameStop's stock to such a level that institutional investors who were short the stock were forced to cover and in the case of hedge fund Melvin Capital, get bailed out to the tune of nearly 3 billion dollars.

In this conversation, we look at how both market structure and the endogenous dynamics of the options market, combined with the proliferation of narrative in the form of Internet memes were used to organize, coordinate, and execute what was effectively a community-sourced short squeeze that caused chaos across wall street and left the financial press and the public, scrambling for answers.

While the conversation about options is specific to wall street, the memetic aspect of this story is perhaps the most fascinating, not only because understanding online culture and how narratives spread on the Internet can help you capitalize on trends and monetize momentum, but also because its application extends to pretty much any use-case you can imagine.

This week's overtime segment is a conversation Demetri had with Real Vision Senior Editor and former CNBC reporter Ash Bennington, who he invited on the program to discuss the events of the last week and what we might expect going forward.

The episode overtime, as well as the transcript and rundown to this week's episode are available through the Hidden Forces Patreon Page. All subscribers gain access to our overtime feed, which can be easily added to your favorite podcast application.

Time Codes:

9:38 Summary and update on "what happened" with GameStop, r/WallStreetBets, and institutional Wall Street

21:15 Discussion about market structure and endogenous factors related to options & positioning

41:37 Discussion about role of narrative and Internet memes in driving the price of GameStop

If you enjoyed listening to today's episode of Hidden Forces you can help support the show by doing the following:

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r/WallStreetBets Joker Meme mentioned during episode: https://www.reddit.com/r/wallstreetbets/comments/l1u036/wsb_gets_emotional_on_mad_money/

Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

Subscribe & Support the Podcast at https://patreon.com/hiddenforces

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Follow Demetri on Twitter at @Kofinas

Episode Recorded on 02/02/2021

Transcript

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0:00.0	The Hidden Forces Podcast features long-form conversations broken into two parts,
0:05.2	the second hour of which is made available to our premium subscribers,
0:09.3	along with transcripts and notes to each conversation.
0:13.1	For more information about how to access the episode over times, transcripts and rundowns,
0:18.0	head over to patreon.com slash hidden forces. You can also sign up to our mailing list at hidden
0:24.7	forces.io, follow us on Twitter, at hidden forces pod, and leave us a review on Apple podcasts.
0:32.6	And with that, please enjoy this week's episode.
0:42.8	What's up, everybody? Unless you've been living under a rock or you don't have an internet
0:58.9	connection, you will already know that some really crazy shit happened in the last couple of weeks,
1:05.6	involving the stock price of video game retailer GameStop, a number of large Wall Street
1:11.6	institutions and an online community subreddit called Wall Street Bets that has now grown to
1:17.7	over 8 million users. There have been so many competing explanations put forward for what happened
1:25.8	here, that it would be impossible for me to try and summarize all of them. Instead, I decided to
1:32.0	invite on someone who has done really interesting work trying to understand the mechanics of how it
1:38.4	happened. How, in other words, an online community of primarily retail investors managed to pump
1:45.2	the price of GameStop stock to such a level that they forced the institutional investors who were
1:51.4	short the stock to cover and in the case of hedge fund Melvin Capital to seek a nearly $3 billion
1:58.1	bailout from some of its biggest backers, including Citadel and 0.72 asset management.
2:05.2	In my conversation with Lily, we look at how both knowledge about market structure and the
2:10.8	endogenous dynamics of the options market combined with the proliferation of narrative in the form
2:16.5	of internet memes were used to organize, coordinate and execute on what was effectively a community
2:23.2	sourced short squeeze that caused chaos across Wall Street and left the financial press and the
	...

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