He really should have been concentrating on the student he was tutoring in physics – a job he did in his spare time when he was enrolled in an undergraduate prep course – but Omar’s eyes remained on the Robinhood app on his phone.
Omar had invested $6,000 in Beyond Meat options; just days before this tutorial, he saw the value of that investment skyrocket to nearly $15,000. What he saw now was torture.
Two thousand dollars less.
By lunchtime, the stock options Omar bought had fallen about $7,000 from their peak.
So Omar knew he had to sell the options before they became worthless. But he followed the mantra of the place where he first learned to trade options, subreddit r/wallstreetbets, and persevered.
“They were diamond hands,” said Omar, who used the term “site” to refer to holding the option even after extreme losses or gains. “It was all or nothing.”
In two days, Omar lost not only his profits, but also his entire original investment.
Desperate to get the money back, Omar, 23, the child of working-class immigrants, took the rest of the money he could muster – money from his side job, a stock market check, part of his new student loan intended to pay his living expenses (which were virtually non-existent after he moved during the epidemic of the 19th century crisis) – and deposited it all, $22,000, into his Robinhead account. Then he opened WallStreetBets.
“I was really scared,” Omar said in an interview with CNN Business in August. “All I wanted was to get my original money back and pay it back.”
By the end of the week, he had lost it all again.
Omar, who spoke under a pseudonym to ensure the legality of the exchange of his student loan money, said he blamed himself for his losses, but lamented having stumbled upon one of Reddit’s most active communities.
“I wouldn’t be trading options,” Omar admits, “if I hadn’t found WallStreetBets. ”
Last January, with the inevitable presence of WallStreetBets, Omar came back on board. Back in business.
The stock market responds to the culture of Internet applications
Last week was an important week for investors in Reddit Island.
WallStreetBets has exploded into the mainstream, from the front page of Reddit to the front page of the New York Times and almost every other major news site. One click on the GameStop button in the subdirectory allowed the video game vendor’s share price to soar an incredible 1 700% from early January to Wednesday (before falling again on Thursday), captivating the minds and portfolios of investors – both informal and institutional – and financial regulators.
But while millions of people discovered WallStreetBets in the beginning, the movement has grown over time. The epic rise can be attributed to a perfect storm of favorable circumstances: the exponential growth of the Robinhood app and its cashless options trading, the extreme volatility brought to the markets by Covid-19, the incentive checks sent to millions of Americans, the absence of televised sports for much of the year, and the unwanted leisure time, locked up at home, that the pandemic forced many people to take up.
The forum, which describes itself as “4chan found the Bloomberg terminal,” has unleashed a war against the supposedly corrupt movement with giddy nihilism, impenetrable language and memes.
And this is what led WallStreetBets to become an unprecedented force for financial radicalism, to invest in retail and to appeal to a rapidly growing audience of millions. (5, at last count).
Many have described WallStreetBets’ war against GameStop as a populist campaign against hedge fund raiders seeking to capitalize on the destruction of a well-known retail brand like GameStop. But unlike many other online communities of this type, it also has a clear financial purpose for people.
“It’s a means to an end,” says one of them, A.J. Vanover.
At his auto parts store in Missouri, Vanover earns about $35,000 a year. But on Wednesday, he found himself a paper millionaire. (His Robinhood account exceeded $1 million, according to screenshots he provided, but he hasn’t cashed it in yet.) For months, Vanover followed GameStop as a “game of value” and published his thoughts on WallStreetBets. Vanover was out of work this week, quarantined after one of his colleagues hired Covid-19, but now he thinks he won’t get his old job back. “I know I have a two-week notice period,” he says with a nervous laugh. “So I’ll be polite.” Vanover said he plans to help his parents pay off their mortgage and continue to invest in options.
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“These guys can move the markets.”
When you enter WallStreetBets for the first time, you will definitely be a little lost.
The language of the forum can be difficult to understand, even for someone who knows typical Wall Street jargon. The specific vocabulary for subtitles is very extensive and is almost never explained to a newcomer who sincerely asks for a definition of the term. Posters revel in their crudeness; homophobic swear words are rejected as terms of affection.
The site is a chaotic mix of memes, screenshots of wild losses and wins, periodic “deep dives” into stocks, all united under the guiding principle of putting as much money as possible at as much risk as possible, primarily trading in short-term options. Trading individual stocks, unlike options trading, is generally unprofitable. For you, there is r/investment just around the corner, thank you.
But as extreme online movements have shown, Internet culture can lead to extreme behavior and make radical ideas acceptable to people who grew up with memes and 4chan in ways they probably wouldn’t be, at least initially, if presented in a direct way. In the case of WallStreetBets, extremism has a real financial impact.
“These guys can move markets,” said Jeremy Blackburn, an assistant professor of computer science at Binghamton University who studies extremist communities on the Internet.
“It’s a big deal.”
Lana Schwartz, assistant professor of media studies at the University of Virginia, described the financial shift from sub-dit to the kind of nihilism found on 4chan as the idea that its users should have a “relaxed” relationship with their money. She characterized the spirit this way, “Let it go. Let it go. Because the secret that elites know is that money is money. B.S., and only when you know that money is B.S. can you amass much of it, which should be your goal.”
This mindset at WallStreetBets not only encourages risky trades, it trades all of its assets or portfolio for one risky trade – a financial move that would bleed any certified financial advisor to death.
“It’s not even about the end. It’s about the means. It’s about making that bet, that’s where the value is. Of course you can get the money, or you can end up sharing, but you’ve played the game, and you’ve played it in a crazy way,” Blackburn said.
“It’s kind of scary, isn’t it? Because it’s real money. And if you’re more interested in the game than the outcome, it can be incredibly dangerous.”
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4Chan meets Bloomberg terminal
WallStreetBets has long presented itself as “the 4chan with Bloomberg terminal.”
If you take a closer look at communities like 4chan or 8kun and WallStreetBets, it’s not just the sharing of memes that connects them.
One of the key elements of 4chan is its opposition to the dominant “Norman” culture, an idea that is widespread. For many people on 4chan, “Norman” culture is that of the popular kids in your high school. For WallStreetBets, the “Norman” culture it opposes is that of core “safe” investments: Focus on long-term returns, maximize your 401(k)s, buy index funds; Suze Orman 101st tip “boomer,” as the users say.
WallStreetBets presents it all as a fool’s game.
“They don’t want to wait 20 years to pay their rates,” Blackburn said.
Schwartz sees the cynicism surrounding long-term investment recommendations on WallStreetBets as an understandable reaction from a younger generation that has witnessed two economic crises, the chaos of the Trump years, ever-increasing inequality and the threat of catastrophic climate change.
These are unprecedented times of uncertainty,” she said. “There is no reason for a twenty-something to imagine that their 401(k) plan will pay off in 50 or 60 years, as their parents did. And I’m not saying they shouldn’t believe that. I’m just saying they have good reason not to believe it.
Above all, the specter of the 2008 financial crisis hangs over society.
“I was in my early teens during the 2008 crisis,” one user wrote in a recent post celebrating the site’s apparent (albeit perhaps fleeting) victory over hedge fund Melvin Capital, which closed this week after big losses at GameStop, according to CNBC. “When the crisis hit our family, we were able to keep our little house, but we were living on a year’s supply of pancake mix, powdered milk, beans and rice.
“Stop listening to the media who make us market destroyers and start encouraging us, because we have a unique opportunity to punish the people who caused so much pain and stress ten years ago and we are taking advantage of it.”
You may also notice a nihilism that 4chan and WallStreetBets share in their casual and ironic references to suicide. On WallStreetBets, the desire for “$ROPE” is an internal joke about suicide that is almost always represented with catastrophic loss.
4chan, 8kun, and WallStreetBets glorify the caricatured version of autism both ironically and sincerely – “autistic” is a point of pride on both sides – as a superpower of perseverance that allows total engagement with the leagues’ worldview beyond the suffocating conventional wisdom of the mainstream.
For political extremists, so-called “autist” power can be a weapon used against enemies in devastating campaigns of emasculation and persecution. At WallStreetBets, the power of the “autist” manifests itself by making a deal with “diamond hands,” sticking to it, and refusing to sell, even after suffering significant losses or gains, to make the ultimate profit.
However, there are important differences between WallStreetBets and sites like 4chan.
Unlike other fringe groups, WallStreetBets has generally not denounced its enemies or opposed others (when a subdit posts aggressively on rival subdits), and although it has long competed with stable p/investments – the sub, so attached to its ideals of modesty and risk-aversion that it avoids individual stock selections – StockJock-e, the moderator on p/investments, politely downplayed the argument, calling it “ornery and exaggerated” in a report for CNN Business.
For Blackburn, whose research has focused on toxic online behavior (“Gaps are my field,” he said), WallStreetBets – by the low standards set by others – is a relatively benign online community. “It’s kind of a fun attitude,” Blackburn said.
“Minus the fact that people are bankrupt.”
Make it a business
To understand how risky the trading strategies used at WallStreetBets are, it is important to understand how options trading works.
Instead of buying one share, an investor with an option contract can buy an option to buy 100 shares at a fixed price in the future. As the expiration date approaches, the value of the contract can fluctuate rapidly because it becomes worthless to the buyer if the target price is not reached.
Although options trading is risky – if you take a wrong guess, you can end up with literally worthless assets – you can also bet on it with leverage. The shorter the term of the option, the riskier and more volatile it becomes.
“The nature of stock options causes people to take a thousand dollars and turn it into a hundred thousand and in some cases a million dollars,” says Jaime Rogozinski, who founded WallStreetBets in 2012 but left the Reddit site in April 2020. (Reddit says he was removed for abusing the WallStreetBets brand, which he denies.) “We don’t feel sorry for anyone who loses $1,000,” he said.
The rise of WallStreetBets did not occur in a vacuum; it coincided with the general boom in options trading.
“Retail put option volumes have completely derailed,” said Benn Eifert of QVR Advisors, who called this volume “a multiple of any previous entry we’ve ever seen.”
With Robinhood, which has revolutionized the simplicity and cost of options trading – and which some sources say makes more profit doing so than traditional stock market trading – individual investors need only answer a few short questions to enter a volatile world (Robinhood, while simplifying the process, warns that options trading “carries significant risks and is not suitable for all investors”).
But if options trading is risky, and short-term options (“F.D.”, short for “F****ts Delight” in the homophobic language of WallStreetBets) are the riskiest type of option, then placing all your savings (“YOLOING”) in a short-term option is, from any “rational” financial point of view, sheer madness.
It is also so common on WallStreetBets that YOLOing has its own tag or flash so you can search among the many people who publish their savings and all kinds of offers.
“Typically, this behavior results in the loss of most or all of the money of the individuals involved,” Mr. Eifert said.
But risky trading naturally comes with the tempting possibility of big rewards – rewards that inevitably end up on the front page of WallStreetBets.
Minhajul, 22, a student and part-time pharmacist born in Bangladesh and raised in Queens, New York, decided to bet his incentive on Robinhead after seeing what he called the “crazy” and “insane” profits on WallStreetBets. By buying options weekly and reinvesting all the profits from each successful trade, Minhajul was able to turn his initial $1,200 into $280,000 in two weeks, before the end of July.
“I was like, ‘Holy shit….I’m rich,’” Minhajul, who did not want his full name published, recalled in an interview.
On the night of July 30, Minhajul could not sleep – the possibilities of her new wealth kept running through her mind: a new car, even a new house. But the next morning Minhajul was exhausted and fell asleep for a mid-morning nap. When he woke up, his wallet had lost $220,000. By the end of the week, he had only $8,000 left.
Minhajul said he was not happy about losing his unrealized potential profit – for him, he was still playing with the house’s money – but others were not so happy.
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Loss of pornography and other rituals
Click on WallStreetBets’ “Loss” section, which is very extensive (and still growing), and you will witness each of the five stages of grief distorted by the ironic troupe’s online play mirror.
The “porn of loss” is a basic element of the site, with its own rituals. It is supposed to show its losses (or gains) with its positions, then it attacks a peanut gallery.
It is common to sprinkle salt in wounds (“Is the sales button not working?”), as are rude comments about “the woman’s friend.” Less common, but still worth noting, are genuine words of encouragement when the despair seems deep enough.
“A lot of people ask me if I’m okay. Honestly, not really. It’s going to take me a long time to recover financially, and maybe even longer emotionally, knowing the damage I’ve done in my own life that goes beyond money,” said a Reddit user who said he lost $28,000.
“Your dick is still working… You’ll feel like an idiot for a while, and rightly so, but set a small goal and achieve it,” advises another.
If you look around Wallstreetbets long enough, you will inevitably come across people who are engaged in what can only be described as a possible gambling addiction.
A Reddit user posted a screenshot of a $134,000 loss with the caption “YOLO is one hell of a drug! See you guys,” describing himself as a medical professional who has been betting his life savings on YOLO contracts for years. In their parting bill, they described the mindset that changed them from a “rational investor” to an options gambler.
“I just wanted to settle the score. If I collapse, I stop. And you never stop. Way too aggressive, after that plays “YOLO.” I study and watch the charts every trading day with respect to the size of the trading day and I think my probability has increased a lot since my first big win ….The Desperate Option plays in the end.”
“I have turned from a rational investor into a sick, irrational, desperate gambler.”
Weeks after their “departure,” they returned to the site.
“No emergency fund. No pension,” they wrote, “and I lost my last benefit check.”
A massive new audience
The explosion of WallStreetBets into the mainstream took him into uncharted territory.
There are legal issues surrounding the site’s collective pressure to increase GameStop’s participation, and the Securities and Exchange Commission announced in a statement that it is “aware of and actively monitoring” market volatility.
The White House and the new Treasury Secretary, Janet Yellen, are “keeping an eye on” GameStop’s stock market manna, and WallStreetBets briefly shut down the site Wednesday as moderators shut it down to “enforce Reddit’s content guidelines and BMS rules.” Robinhood, a trading platform on WallStreetBets, made a controversial decision Thursday by restricting trading in GameStop, AMC, Nokia and other stocks announced on the subreddit.
Reddit told CNN Business that its “site-wide policy prohibits the posting of illegal content and the incitement or facilitation of illegal transactions. We will review this issue and work with law enforcement as necessary.
And even if the forum resists an investigation – by the authorities, the judiciary or Reddit – it will face another problem. If part of the appeal of a place on the Internet lies in its community, its shared language, its anecdotes and memes, what happens when new people who are unfamiliar with this suddenly pour in?
As the WallStreetBets campaign against Melvin Capital hits the headlines, those who have been burned by WallStreetBets’ advice in the past and the lure of getting rich from weekly options trading have not quite gone away.
Omar, a student teacher who lost tens of thousands of dollars trading options every week, told CNN Business that he is back at WallStreetBets to try to recoup the money he lost last year trading student loans. He bought an option on GameStop that rose from $7,000 to $10,000 during Wednesday’s rally.
“There is a pandemic. There’s nothing we can do. I can’t have fun. I can’t go out, and the prospect of making some money seems very good,” Omar thought.
“What’s not to love?”