How A Profane Subreddit Moved The Market

off since the financial crisis. We've just seen, right right, massive sell off and risk assets, an extraordinary amount of repricing of expectations for central banks all around the world to come in and intervene. And we've had other periods of sort of semi crisis, um uh since the Great Financial Crisis, during periods to say the Eurozone, but it's just never felt as extremely uncertain as it does right now. I don't know, I sort of remember late two thousand fifteen.

Uh yeah, I mean late two thousand and fifteen you had all the issues going on with credit and you had one big fund blow up. So I'm still waiting. I'm still waiting for the second order effects of the market sell off that we've seen to emerge. That's true, Like we haven't actually seen any sort of major liquidations or institutions of various size like truly go bust yet amid the volatility. Obviously nobody, uh, you know, we're not hoping that that happens. For now. It's mostly been like

a sort of markets reaction. But as you say, there hasn't really been a second order effect just yet. Ye, very true. So obviously the coronavirus is um you know, the leer contributing factor. It's people are gripped, my panic all around the world. It started in China late last year and now it seems to be spreading to countries basically everywhere. But I also think that there is another contributor to the top. It's not just the virus that caused the top. Well, I mean, the virus didn't cause

the top. The virus was the catalyst for the top to no longer be the top and for markets to sell off. But but what are you thinking about, Joe, Well, I mean, obviously it's our recent Business Week cover story that our colleague Luke Cowo wrote about when the bull market got weird and uh about all these traders and online forums making crazy big beds, and I think in retrospect many people will see the recent cover as what

really did the bull market in? Yeah, it was good timing, but in the history of of market crashes, people always go back and sort of look for retail investors who start to become really overconfident. Some people actually look at retail investor participation in the market as evidence of the top coming. And so some of the behavior that we have seen embodied in places like um what Luke was talking about, Uh, you could maybe see that as an

indication that markets were a little frothy. Yeah. So for those who actually haven't been paying attention to this particular subplot, which is probably most people, because there's bigger things going on in the world. Over the last several weeks, prior to this extreme bout of selling in volatility that we saw, there was a lot of attention paid to the behavior of people on a certain Internet web page or chat room or message board, whatever you want to call it,

in which there was an extreme subreddit. It was on Reddit, an extreme level of speculative activity, particularly the options market, the likes of which we haven't really seen, arguably since the glory days of the Ahoo message boards back during the dot com bubble, and it's a really fascinating story. It's really uh interesting look at how the markets work, um and how retail players can really make a dent

in publicly publicly listed equities. Yeah. So this is the thing that I find the most fascinating about this sub breddit. It's called Wall Street bets, and in recent months or over the past year or so, a lot of the people on it don't just think that they found good ways to make money through investing in the market. They think that they found a good way to sort of force the market into or force the market to do

what they wanted to do. So they actually think that they're impacting how Wall Street functions and pushing up the stock price. And that's where it gets really really interesting. Are they in fact having this impact on the market? Right? And I remember the message boards, the Raging Bull message boards Silicon Investor Yahoo message boards from nine and two thousand and I think they were far less ambitious than

what people are doing uh these days. So for more, for more on this, let's start by bringing in uh Bloomberg's own Luke Kala, who did have the cover story that cursed the market overall. Uh luke, thanks for joining us. So first of all, it just basically describe what it was that was worth covering here about this uh about this subread Well, I think for so long we've been waiting for the return of the retail investor, and you know, it's been this kind of long awaited thing that's never

really happened throughout any time during this bullmarket. And this is kind of like the be careful what you wish for story, because what became quite interesting is how you were seeing retail enthusiasm get to express in the markets. And so I remember there was one day, it was January eight, and this is when Tesla was still below five hundred, if you can imagine a day in which

that existed. But it was a Wednesday, and you saw a lot of bidding for the Tesla seven hundred strike call options that would expire at the end of that week. Tesla had already been up like that week, as was its want earlier this year. But it just seemed like this is this is such a ridiculous bet. Why would anyone do this? This doesn't make sense as a hedge.

There's got to be a better way to express a hedge if you're you know, if you're short the stock or if you sold calls like what's going on here? And someone said, you know, this is just a yolo bed. And the second I heard, you know, yolo bed, I went to Wall Street bets and tried to see what what they were in. You only live once, why not make a huge exactly? And you know when I when I went there, I saw you know a lot of people just uh that were seemingly enjoying a lot of

success on Tesla. And then that spiral to kind of other story stocks where they, you know, thought the it would do nothing but go up and up and up. And you know, Virgin Galactic is the you know, the next example. Plug Power another one that had its kind of time and the headlights, and then lumber Liquidators is one I find very interesting because it's not like it's not that fun of stock, like Lumber Liquidators compared to Virgin Galactic, compared to Plug Power, like it's it's really

hard to wrap an enthusiastic you know, big story around it. Uh. And yet you know a lot of the ones of the three ones I've lastlisted, they have in common. It's relatively low float relatively high amount of short interest. So when you got a group of people together, that thought, you know, if we're all interested in the same thing, and if we are all kind of you know, combining buying power, where can it have an impact. Well, in names like this, it can. And you were seeing at

least the volumes go up like crazy in it. Uh, it became too much to call it coincident, coincident timing, or coincidence after a certain amount of time, So luke to things here. Can you walk us through exactly what the options trading strategy was here, because you know, Joe and I kind of alluded to this in the intro. But it wasn't just that they could push the stock up. It was that they could actually exploit a loophole in the way certain financial contracts or Wall Street actually works

in order to make the stock go up. And then secondly, would you say that Wall Street bets is representative of the average retail investor? So on the on the first part, the and this this relates to I'm not sure if if people actually believe this or this just becomes a you know, very happy supporting evidence and something that makes you feel a lot better about making your moon shot at the you know, the fact that someone might be

there to help accentuated and help bail you out. So the thinking here is that when you like, say you're buying a call option on on the other side of that, if it's a fresh option, there's going to be a dealer, and dealers are not in the business of taking directional exposure. So when they're selling that call, what are they doing. They're also you know, buying a certain amount of stock

to hedge their exposure. That's called delta hedging. And as if the stock does continue to go up from there, it you know, resetting your delta hedge your which would be kind of gama hedging, but it's really just resetting your delta hedge would entail that as the stock goes up, you would be required to kind of buy more and more to make sure that your directional exposure to the

stock hasn't changed. So when we describe this dynamic, when we were talking about the Tesla calls, the testas see one thousand straight calls, and I believe late January, someone on Reddit latched onto this and said, you know, l O L. Bloomberg is admitting that the stock can only go up if we continue to buy calls because of the hedging algorithms, which is, you know, it's it's very

much an overstatement of of what can actually happen. Can I just step in real quickly, because you mentioned delta hedging and gam hedging and all this stuff just for people who need a little bit of time to catch up, walk us through very simply. The idea is people buy

a lot of call options. The dealer who sells it, sells the call options, are then on the hook if the call options essentially are become in the money right, and so in order to avoid that risk of having to pay out a big wager, just like a casino, they have to sort of balance their own books, and that requires them to purchase the underlying stock. Yeah, dealers are trying to make money from from the bid ask spread and making you pay both sides of it during

your transaction. They're not in the business of really making sure that or or hoping that tesla goes down. They'd like to be, you know, cover their butts in all contingencies in all cases. So that's what's kind of going on there, and it's just you know, with some Greek letters surrounding it. But that's the that's the basic kind

of scenario and mechanism you described perfectly. So trying to exploit the fact that dealers are big banks on Wall Street need to maintain a neutral position when they're writing all these contracts doesn't strike me as something that your average retail mom and pop investor is really doing. So is Wall Street beats a little bit different? I'd say there are a lot more aggressive about certain tactics being used and the kind of the hurting behavior. I don't

think the average retail trader is really trying to think of. Okay, like if I get together with Jim down the street, and you know, Marry across the road, who I play bridge with, if we really get together and start, you know, stockpiling our potential buying power that we can kind of, you know, maybe maybe lift some bids here, maybe get

some dealers offside, maybe cause some kind of a gamma chase. So, yeah, it does seem from that from that point of view, a lot more sophisticated and ambitious than you know, some

people others speculating options might be. On the other hand, just because it sounds more sophisticated, doesn't mean, it's a our strategy doesn't make what's being said more true, because if we've learned anything about kind of the recent market dynamics, presuming you are the only actor in the market and able to move it is kind of it's it's a fool's errand. And that's why you know, if some if there's power out there too to buy all these options,

you have to recognize it. On the other side of it, there's going to be uh, potentially a desire to sell, and we've seen you know, a lot of selling pressure come into the market that's completely overwhelmed whatever retail buying. The markets probably, I mean the markets kind absolutely clover rejuice to your article came out and presumably if you had been buying a bunch of call options ahead of that, you are one is not doing particularly well this week

with that strategy. Yeah, Like we we saw a bunch of ten thousand percent updates for a lot of these mood shot options, but most out of the money and very low delta options are going to expire worthless. It's just the kind of the name of the game. Okay. So on that note, in addition to having Luke join us for our episode. Today we have another guest. Luke has said, uh set the stage, but we actually have the founder of the subreddit Wall street Bets joining us now,

Jamie Ugazinski. He uh founded the page, got it launched in twelve. Jamie, Thank you very much for joining us. Thank you for having me. Okay, so I want to obviously get to everything that Luke talked about and this sort of crazy phenomenon and force in the market that Wall street Bets has become. But you started it in what was the purpose? What? What do you're like, Okay, I'm gonna start a new page on Reddit called Wall

street Bets. What what were you thinking? Well, I mean back when I started it, I was looking for a forum where we can discuss high risk trades, um work into day trading, or high risk or active investing. All the forums that I found on my both on Reddit and off wridit we're traditional, diversified, long term, long time time horizon type investing, and so I since I couldn't find find it, I decided to found Wall Street Bets and has evolved a bit from what they originally intended,

but that was the original idea behind it. Can you describe the Wall Street. That's demographic like who is your average user on Wall Street bets? And why are they on that subpreddit versus something like the investing subreddit. So the I don't actually have access to the specific demographics, but I'm going to take a very educated guest and say it's going to be mostly males young probably eighteen uh.

I mean, obviously there are old enough to open a brokerage account and and have enough of an income so that they can, um they make the type of bets that they're trying to make. And why are they hanging out on Wall Street bets? I mean, for I have various reasons or various ideas as to why they I want to be doing it, but for uh, probably similar motivations that got me in the first place. Right, I was single at the time, out of disposable income, had

a reason to be a little bit more aggressive. When when people are older and they have a family and they have to be a little bit more cautious, well defin whally they want to start taking um more of a precautious person to investing. But when they're younger, thing can afford to take the risks, and so you know, all Street Bets is a place where what we welcomes that type of behavior, and the welcome welcomes the type of you know, on some capacity it's aggressive investing, active investing,

and you know, oftentimes it's straight of gambling. So um, I'd say it's people that are just in that demographic that they're looking to make some quick money. Yeah, we haven't really talked about this aspect. But in addition to the demographic, and you mentioned people who are willing to take more risk, there's a certain like Wall Street Bets mindset. And I've been reading the page off and on for several years, and it's not it's not only that it seems like there is a high degree of sort of

like risk taking or thrill seeking. There seems to be also like a certain amount of nihilism associated with it, in which people seem just as excited to massochism. To people seem just as excited about posting screenshots of them losing a hundred thousand dollars or losing a fortune in a single day, um, as they are as excited about making a bunch of money. There's a lot of egging

people on to take more and more risks. What talk to us about that mindset, just the sort of the thrill seeking, massochistic, nihilistic aspect that we see on Wall Street Bets and why you think that's that emerges. I'm not sure necessarily that I've people egging people on to take on more risk. I think that the peer pressures certainly exists. Uh, you know, I see where you're coming out, but I have have yet to see somebody to say, oh,

I think you should increase your possession position. I think it's more of a peer PRESSU your type scenario that people try to maybe just attention. People want to impress each other, right, is that kind of what you're saying, They just want to be cool and impress each other for to who took the wildest riscue. Yeah, it would probably be more of motivation like that. But um, you know, as far as the massacre is, I think it's more

it's a very honest forum. Right. If you go outside of Wall Street Bets, for you know, you go on Twitter or finn Twitter, you go any of the other areas, you have a lot of people that have just these huge egos that show these really impressive trading track records. You know, look at my fancy car that I'm driving. I know, you know, check out this impressive statistics for

my uh, you know, trading history and whatnot. And so you you have these glorified people that it's almost impossible to become them, whereas in Wall Street, bets are just very honest with each other and to say no, no, houn, it's very difficult to actually recreate what they're talking about in some cases statistically very improbable. Some people obviously can do it, but most people cannot. I'm the statistics also backed that up. People who want to actively beatreud most

of them to. So I think that it's more of an honest approach to it, where they say, okay, I know that I'm likely going to lose money into it, so let's just be honest about this. Let's let's not try and pretend that I'm something that I'm not. And uh and I think it's would celebrate it is more the honesty behind that more so then hey, check it out, guys, I lost a lot of money. Go ahead and give me some some up votes. In karma, it's hey, guys,

look I try this. I put my money online. I said this was gonna happen, and I failed and so people celebrate that follow up honesty and they say, wow, this is a genuine conversation that we're having. So I think that's more the motivation that that you and it

comes off more as the celebratory law. I mean, i'd agree totally in my in my time very good because you know, thinking about all of these stocks that were you know, going up, there's there are people on all street that's going, no, no, I'm I'm selling Tesla calls, I'm doing I'm doing this, I'm doing that, and then you'd see them come back, you know, a week, two weeks later and go okay. So yeah, all those positions I was talking about earlier, I'm getting completely completely host.

If you want to know how much I'm going to get host in the future. Here's the other strikes. I'm short out of the money, have fun ruining my life type of thing. But it's it's very much a an unpretentious, honest conversation and it's, uh, it is refreshing for those who have spent uh, you know, their their lifetimes are most of their waking hours on finance Twitter. But you know, on the on the other side of things, the there the degree of you know, kind of willingness to go

in with no information. On the other hand, the I think the best example would be, you know, one person posting, you know, I don't know what I don't know what options are, and I don't know what l L is, but I'm up ten thousand this morning and thank you. This is my lunch break, coming on to post it. Thank you very much. And then you know one person going, you know what, what the hell can you expect? It's

lumber liquid it or they liquidate lumber. It's right there in the name, and uh yeah, it's it's fun, it's entertaining, and it's definitely it's definitely a different scene from what I've been used to on the internet. Right. One can never admit on finance Twitter that they made a mistake, but on Wall Street Bets, it's almost a badge of honor if you have this big loss. Jamie, you actually

wrote a book about Wall Street bets. And this is gonna sound really condescending, but I thought it was surprisingly thoughtful and kind of earnest, which wasn't what I was expecting because the subredit itself tends to be the sarcastic, jokey, macho place. But there was this one chart in your book, and it shows robin Hood account openings alongside the growth

of users on the Wall Street Bets subbredit. Can you talk to us about the importance of this new crop of online brokers or the dynamics in the brokerage industry currently in fueling Wall Street bets. Yeah, I mean to be honest with you, when when I came up with that chart, I was not expecting that. I was very surprised and uh and even more so surprised when I broke down that chart a little bit further. So I'll

first describe that chart. What I did is I superimposed the growth of Wall Street bets since the inception of robin Hood. Uh, you know, the growth in terms of subscribers, and then the growth of users of robin Hood, and those lines were pretty much right on top of each other, and you know, the growth right on part of the

correlation was very easy to see. And the the what was even more surprising was, I think it was around two thousand eighteen, if I'm not mistaken, robin Hood introduced stock options as part of their offering, the product offering to their users, and they saw a very steep change in their growth, they ended up having a dramatic increase um and users and Wall Street bets had the exact same slope change, right, So the the adoption or increase, and so you know it does ask the questions, Okay,

what is there a correlation here? And I obviously, I mean it's hard to um repeat those because both of those numbers are big enough to distally significant. I think the proliferation of not just robin Hood, but just all these low commissions now zero commission burke ridges are making lowering the barriers to entry for pretty much anyone and

all the even traditional brokers. I mean I'm talking merrit Trade and Charles Schwab and even Vanguard is now offering stock options, Vanguard being the holy grail of you know, stafe ets for index fund uh the type investing. Right. So, the fact that you have all these brokers making it really cheap, lowering the barriers to entry. Have a lot of let's call them younger people, are people that have they want to enter this market with less money or

or want to even experiment. Maybe they have them on even maybe they just want to play with less now that they're able to do so. Anyone that wants to play with it just by definition would want to find a way to experiment. And I think that experimenting with a place that has more aggressive or more diverse type of conversations of different types of security is more more so than just the stock stock options. We don't talk about cryptocurrencies very much on the Wall Street Bets, so

it's obviously that's also part. I'm glad you mentioned cryptocurrencies because when you talked about the honesty of Wall Street bets reminded me of an important point I saw someone make with your that there are a lot of similarities between this sort of like casino options betting that you're seeing now on Wall Street Bets and the crypto craze,

especially of late. But the differences, to me one is that you guys seem fundamentally more honest, because I remember and all the people going crazy for crypto, we're also trying to pretend that they like understood something about the technology, or like, oh, we're like building some really important decentralized system here, or we're gonna like run to all these Uh, this is gonna be a really important smart contract platform upon which all these apps can be built and stuff

like all they're gambling was couched in the language of technological innovation, whereas it seems like you're gambling is couch to the language of gambling fundamentally just way more truthful and honest than cryptos right there in the names. But I wanted to ask you a little bit more about the sort of mentality because I think the tagline on the page is like if the if the Bloomberg terminal met forte and message boards or something like that, and

there is you know, it's extremely crude. It's extremely uh politically incorrect, to say the least. Uh. There's a lot of people who like refer to each other using homophobic slurs and other things that we have to edit out whenever we do an article or talk about a comment on the page. So I'm just like sort of curious, like, could you explore or explain that aspect of it more this sort of like I don't know if it's a deep irony or profanity. I mean, it's right there in

the description with the four chune aspect of it. And from whence that aspect of it emerged? Why is Wall Street that's so offensive? Yes, that's a good that's a good way to put it um all right, So the tagline itself, Yeah, I came across it when I was reading a different forum. It was the Finance Forum, many many years ago, and when people were trying to find a way to describe Wall Street bets, it was very difficult. Case. Somebody just said, hey, Wall Street bets is like a

four jan or to find a Bloomberg terminal. So I like, I mean, I do really like it. There is there is a petition underway to potentially change the tagline to how can we have insider knowledge when we don't have any knowledge? And I fully, I fully endorse that one. Anyway, go on, Yeah, you have that tagline. I put it up there, and it's still true to this day. So we get that one, you know, with regards to the

overall culture of it, the crudeness of it, the language. Look, anyone that's been following Wall Street beds for for a long time is realized that the the I guess there's a locker room mentality, the the instults, slurs they are they come and go and fad. I guess it's just the way that to add on to the fact that this place has you know, no filter, No, Yeah, there's there's no reason to contain the way that you're expressing yourself, the way that you're trading on the way that these

people are trading. And you know, I can't really explain how or why it is that that came out that way, but what I do know is, you know, the way that these guys come off, it's very seldom offensive. So for example, recently, you know, they've been referring to anyone that's been bearished in a homophobic manner. And now that we've had a pretty rough week class week, a lot of these guys are in the form of endearing saying, hey, guys, you know now I'm part of that category, and there's

an endearing passion, not in a derogatory extent. Obviously it's insulting, obviously, it is you know, offensive, um and uh and and I realized that. But I think that having watched these terms come and go, give it a year, and now it's instead of you know, referring to homophobic, it's going to be maybe you know, tall people or people that drive certain types of cars, or people with certain color eyes.

You know, they they're equal opportunity insulters. And I've seen these trends come and go so often that I've no longer taken and taken it too seriously. At one point, obviously, I was like, Wow, this is really distasteful. I can't

you know, I can't be associated with this. But having seen the way that it's not used in hateful fashion, it's not used in a in a way that it's means spirited, it's obviously offensive, I acknowledge that, but it's, uh, you know, it's I guess, a phenomenon that I can't really explain. So we've talked a little bit about the mentality behind Wall Street bets, and we've talked a little bit about the language used on Wall Street bets, and Luke knows very well that it has its own terminology

at this point. But Jamie, maybe you could talk a little bit about why certain investments seem to be favored, or why certain bets seem to be favored over others, Like why options versus futures, Why the emphasis on stocks instead of say currency trading, which used to be where we used to get these big leveraged bets, or we still get a lot of leverage bets, but it seems like an obvious choice for for Wall Street bets and instead they've focused on some very particular types of investments.

Why is that an excellent question? I want that actually blowed in the book the the I guess I'd break it down into two separate components, right, So why going for leverage versus not leverage? UM? And that's I think self explanatory. If you're going to go out and make a bet, you wanted to be leveraged. If you want to buy a lottery ticket, you want to be able to the multiplayer money by a huge percentage, so buying you know, almost impossible to do that with stocks, uh,

and the leverage is the way to go. So looking at the scope, you know the tools that are available and the leveraged the universe. I've asked myself the same question, why why future specifically UM a tool that I personally favor, Why what if they want to use that as opposed to stock options? And my thesis I can't back it up. My thesis is straight up, it's more available. Right if you want to get approved for stock options on your robin Hood account, you can do it instantly or not.

Just I don't only can pick on robin Hood, just all of the stockbrokers. You go in there and you answer a quick little survey and UH, for a lot of these guys, the answer is obvious what they want you to answer. And many cases even if they answer honestly, you know, I do have a lot of dependence on don't have a lot of income, but you know, I think that they want me to say that I don't want to lose my money. They'll get approved right away

for stock options and they can instantly start treating them. Um. And so I'm going to say that it's because it's the most widely available. My guess would be if futures or if for you know, for x uh or to become just as easily available would probably also start getting more popular when when you look at the combination of you know, new retail online focus brokerage UH that combined with you know, also high nominal prices on a lot of stocks, your Amazon and your Tesla increasingly and then

the potential for nonlinear payoffs. So like that's that's just the recipe for options in general. And you've you've seen it really be taken up by the market. First six weeks of twenty you had single stock options up seventy seven percent the notional volume off of record levels already at the end of so this is this is the Wall Street Bets field search. So I want to uh talk about the evolution a little bit of the page because when I first came across Wall Street Bets, maybe

it was I don't know, twenty fifteen. I forget when I started really looking at it early on, Like it always had this sort of like you know, crude, offensive gambling nature, but you know, a lot of memes. I remember in the early days when I was paying attention, there were a lot of memes about say, the CEO of a m D, Lisa Sue, because that stock was doing really well and she was making everyone a lot of money, and so there was a lot of like sort of glowing memes about her and all the money

they were making and stuff like that. And it is sort of, you know, just normal sort of message board chatter and so forth. When did this new phenomenon emerge where it became less about sort of just posting stuff and ideas versus what the emergent coordination where we started seeing it earlier this year maybe last year, where the idea is like, oh, we can all be a team. We can all jam the call option purchases, and at the same time it became less about just trading ideas

versus let's see if we can move the market. Well, I'm not sure that I still seen that, to be honest with you. You You know, like you've had a lot of this group think mentality going back from for for a long time. Just like you just mentioned with m D. You know, that was what they referred to as a meme stock or even there was an article on market watchman years ago, uh when they covered Wall Street Pets. They were talking about the stock at the time where it was an ef the u w T I, which

was like a crew A Creed early TF. You know, they mentioned a lot in that article. A couple of months ago, somebody brought that article on on Wall Street Pets and when people read it, they said, what in the world is what you w T? I've never even heard of this thing before? And how come this market Watch article is pumping that stock so much? You know, it seems like that's Allably the didn't the thing that we care Obviously the crowd that was reading this article

didn't remember or wasn't a part of it. I think there's always been a kind of a group mentality, So I wouldn't go so far as connecting it as trying to come up with a coordinated um buying a tent. I think that what we you know, what we've said, what we saw this year, or you know what Lucas wrote about her has been writing about. You know, it's definitely interesting. But I've yet to see a group effort where they say, oh, gay guys, let's let's try to

manipulate the market. So this phenomenon was first spotted by by him using tesla. I believe obviously Tesla had already been u somewhat of a meme or a meme stock

or a focused stock of a subreddit. And so you know that one, I think inherently was already being the focus of a subreddit, and maybe it was receiving a lot of attention, a lot of additional volume on the stock options, just because I'd be curious to see if you did a similar study, like at dating back all the way am B was popular, if you find something similar. So you know the point of this is, I'm not

really sure that some new campaign came out there. He says, all right, guys, this is a new name of the game. Let's try and you know, pump stocks. This This one guy that came out shortly after this article. Obviously, the article, you know, put it in their heads that they can now you know, found a new cheat code the way they like, they're referred to it as, so that that kind of became a thing. And that brought one guy that posted an article on what was the liquid Lumberjacks

or whatever. I don't want to pump their name anymore, but they they put the article up there and there was whatever happened and that that post was removed and they tried again with the second stock and that was removed as well. But that wasn't a case where everybody decided to all right, this is the this is how we're going to try and and play the stocks from now on. Now. I think that it's I think it's

always just been the focus. If they have a stock this a lot of focus is going to get a lot of volume, is gonna get a lot of activity. And I'm be surprised if they both put them calls depending especially right now that we're entering into a shop of your market, that they're going to see some more disagreements with regards to which direction these things are going to go on, the disagreements with regards to how to

play any particular stock. Yeah, the places where I go to kind of hang my hat on this are well, lumber liquid it. This is the best example because nobody in the world was talking about it. And then there was the post from someone who had been a member of Wall Street Bests for three years but it never

posted anything. And that morning you suh, you know, the equivalent of the last twenty days and call options trade in the first twenty minutes and ultimately call volumes of over seventy x the twenty day average when nobody else in the world was talking about it. That's that's where

I go to hang my hat. And Microsoft is another one because it really blew my mind that uh, And this was the discovery soon after the kind of the delta hedging cheap ode was first kind of bandied about more on Wall Street Bets, was Microsoft became a target, which is odd to me because I you know, it's it's a big company and the the idea that you know,

moving that would be very difficult. And the next morning you did see the unusual call activity a pre market kind of activity that was suggested as the desired tactic that people should take up. So it and mapped out a little too well. No, so I so I agree with you on percent. What my point is not, um, you know whether or not the your observations are or correct. My point is, as an overall community that says, hey, community,

this is all what we're gonna do. What you found is one actor that decided to come up with one stock, as you say, is a boring stock that doesn't quite fit the thesis of what they usually like to talk about. Comes off and yes, he makes the post and and you make the argument that he had a measurable impact on the on the market. So that's that's fine. UM. My point is as a community, that's not what their

efforts start to be. This is this one guy that that came on there with a shady history, like you said, o lack thereof and therefore you know, the moderator team took action, and not only with that particular guy, but now a proactive action before identifying those types of individuals. But that's that's what they are, their individuals. They're not necessarily as much as the as a collective of Wall

Street Bets. You know, I think the Microsoft observation I think is more um accurate and that and that's that I don't think. You know, obviously they joke around a lot and the joke and I did see what you're talking with regards to Microsoft, like, all right, now, let's do it with Microsoft, because that one is more of a spot that fits into the Wall Street Bets portfolio

of stot to like to play with. And obviously it would be a much harder stock to move if they were ready to do that, but they fail, you know, they want for it anyways, because the stocks are volatible and they're you know, oftentimes they pick these stocks because they're already on the move, and that's how they get

on their reader Jamie. I've tweeted a couple of screenshots from conversations going on in Wall Street Bets, and I've had at least one instance of someone ceasing in the U S Securities and Exchange Commission, and even on the subreddit itself, every once in a while, people will joke and say, hello, Hi, the SEC is watching that sort of thing. Do you worry about the regulators coming in and seeing some of that activity and viewing it as

a pump and dump scheme. Yeah, so ever since you know, we started with wall streets, we've always been conscious not just with the sec just with overall UM laws and regulations. Right, So this this goes all the way to anyone that's making any types of threats or any type of suicide threats are or any type of activities is just considered

UM gray area. So this, this dates back to this is just part of the terms of service with Reddit, and it's also part of our moral obligation is is UM as moderators and we have a big moderator team. We have about fifty moderators, and many of them are very experienced, and many of them are professionals that actually do have Bloomberg terminals and they do you know what they're they're uh talking about, and they're they're helpful with

trying to identify this. So they're answering your question. I'm not worried necessarily that they're they're going to come after UM walls, be bets, uh specifically if they're doing any type of investigation, Well, I guess they're gonna make whatever kind of investigation they want to make. I know that from the moderator standpoint, we do everything that we can

to try and be responsible with this. We do have very clear rules listed on the subwada, which include, do not manipulate the market, do not attempt to manipulate the market, do not give any type of false information, do not try to pump any particular stops of stock, do not pump and dump, I mean all this stuff that that is clearly again the laws or against the regulations or against the rules, and we enforced those very strictly. And not only because there against the laws, that it's also

against the spirit of the subreddit. You know, we're we're all out there to try and hopefully make some money or to learn and and keep the community entertaining. And um that's that's what we're there to do. And uh and so as long as we're doing our part to actively proactively handle any types of things, and look, they come up all the time, you'd be surprised a lot of a lot of them never even make out the

light of day. You know. There was, for example, a couple of months ago, a situation in which somebody posted a link to a um A tour and onion site. Right, these are these underground I guess you could refer to them as websites. Really sure the league activity and these guys were trying to share inside information. And not only that that post it removed within seconds of getting up there.

We change the logic of the moderator to make sure that it can automatically filter out any type of conversation, regard any links uh to these court sites or in cet information. There's a lot of stuff that never makes it out to the light of day. So if he ever wanted to make an investigation, they'd see without a reasonable doubt that we have done very much, um everything that we do uh in order to uh to keep

this place, you know, fun and legal. I'm curious or what do you see as where the typical Wall Street Bets user eventually goes. Do they go broke and get so angry with the markets that they sort of walk away? Or do a lot of them sort of graduate two? Okay, this was their fun intro to the space, but they want to learn more about investing or do they invest?

But this is sort of like their version of gambling, like you know, like after what what do you what do you see is the trajectory of a typical Wall Street betsh participants. Well, what I see is probably not what actually happens. Once again, I'm gonna take an educated guest just based off from my experience. Specifically speaking, most people probably lose their money. Um, it's just the name of the game. Especially with the types of trades that

they're doing. They are not only going with stock options one of their favorite types of plays. Obviously, stock options aren't just unlike for X or futures where you can just put on direction, there's there's more variables to it, and they choose the types of variables that are the riskiest possible, that the highest likelihood that they lose their money. Um. And so just just given that, common sense tells me

that most people probably lose money. UM. That's that's not necessarily what we get to see on the step ddit because maybe they don't post it as much, or maybe they're not as animated to give the stories, or maybe you don't get as much visibility. When somebody makes millions of dollars, they do get a lot more tension, and

so it's easier to make the assumption that everyone's making money. Um. But what I have seen, which is very surprising, is a lot of people that make money, a lot people that do end up winning the lottery tickets turned out to be extremely rational people. And obviously with exceptions, but a lot of these guys. You know, there was an example that I think even Bloomberg covered it um back

in October of twenty nineteen. You know, some guy put in seven hundred dollars or seven hundred sixty dollars and over a hundred thousand dollars. I spoke to him as as part of the book to see how he was doing it, to get some of his idea behind the trade. And you know, he immediately after making that trade closed up his brokerage account. He deposited that money into his

retirement fun. I don't know if the I R or the one K or whatnot, but you know, he said he couldn't focus on work anymore and he had to keep focusing on his job. So he did, and he has not to this day, at least until last months, trading a getting or is he interested because he knows he can't replicate it? Um. That's you know, that's an extreme example if I'm straight up closing his brokerage account.

But I've seen a lot of people that make it big, take that money, stash it away and uh and use that money responsibly, you know, to buy a house, to invest it into these dividend baying ets. They're well diversified, they like to make fun of and they they're able

to u to be responsible with the market. So you know my thesis at this point, there's a lot of these these this demographic which there's a lot of millennials and Generation Z. You know, they may they may want to actually build the next stag and they don't have what to do it with. Maybe it's because their students that maybe it's because of wages are cost of living. I really can tell you. I'm next putting that matter. But you know they're they're looking to try and get

ahead or get out of this rat race. And the ones that do and there's been a lot of them that have made hundreds of thousands and even millions. And if it started to pull back and say, all right, now I've set aside, I've accomplished what I wanted to accomplish. I don't think I can do this again. You know,

I don't want to become a date trader. Uh. If they've made enough money to retire, then you know they do that even if they've made enough money of it, they can continue with their ordinary job and invest responsibly. They've done that too, So that leads me to believe that there's more to that group than with the surface leads people to believe. So one of the themes running through Luke's article is this question of whether or not the bets made by the subreddit the options trading can

impact the wider market. And in your own book, Jamie, you also talk about the notion of systemic risks. So talk to us about when a bunch of people are taking these kind of levered bets on online brokerage. Is who's the loser here? Like, where does the lost money actually come from? And is there a chance that this could negatively impact the market if enough people do it?

You know, if we're if we're talking specifically about these options trades that that Luke was referring to, you know, I guess the losers whoever's on the other side of this bet. But it's really difficult to measure. I mean, you guys understand it just as well as I do. It's not as easy to measure. Is just the winner a loser? Because there's a lot of things that play. You know that the market is fluid, and it goes up and it goes down, and it depends on when

people enter and exit. A lot of these brokers are not necessarily just making money off the bid asked spread. They're making money off to the premium from these options. And so if they do end up buying the stocks um, you know, and the stocks go off, one could argue that they're making money as well. If the entire stock market goes up and everybody is long the stock market,

you know, it's difficult to argue that anyone's losing. But it's not that simple, right, you know, It's happened last week, and anyone that had all those shares in their possession is no longer as happy as they were two weeks ago.

So yeah, I'm not assarily sure who the winner the loser is, Like I suppose, it really depends what about more generally, I guess what I'm getting at is if someone takes a big levered bet, uh, and you know, they put in a thousand dollars, make some sort of trade, and they end up ten thousand or even a hundred thousand in the red, who's the loser on that one, and what happens to the brokerage that let that trade

go through. So you have a huge number of people that are taking that are playing with some very sophisticated tools right um, and they're using it in ways that they don't fully understand them um and and and they're posing what I believe to be a systemic risk um and so you know that some examples of this, which I find to be extremely fascinating, which was one of the biggest motivators that I had to write this book in the first place, was the securities like the VIX

that they revolve around the volatility index that then have ets on top of them, and then they have leverage dts and they have you know, stock options on top of those. Um. Those are extremely extremely complicated. People that know what they're doing don't know how to explain it to other people that also know what they're doing. So so if you have a kid that opens up his his broker account on his cellphone during his lunch break and types the U v X Y or TVIX or whatever,

you know, it's just a symbol like Apple. They don't know they've just got a price that moves up and down, and it moves up and down a lot, so it looks like fun, right because it seems like it's got one of the properties that requires for them to make a trade. So maybe they'll look it up and they say, oh,

something to do with alatility or whatever. I'm only gonna hold this for a few minutes or a few days, so I could care less what the what the company does or what their earnings reports BIGGS has to do.

So you know, they buy options on top of that because it turns out to those as well, and then they'll just you know, lever up, you know, in ridiculous amounts, not realizing that there's a huge mechanism behind this, right, like we all well maybe you guys remember the big volmageddon February fifty think that you know, we're we had an example the the market showed a weakness in because of the existence of all these tools, right, because there's so many of these kas that they had to rebalance

at the end of the day, both the ones that were There's was the ones that were leveraged long the vixit spiked so much that particular day that you know that come four o'clock they were all going to have to buy vixity cures, and so all the participants that know this, which is pretty much everyone, decided the front on this during the daytime, so they drove up the vix even further, you know, and that made part market participants even more nervously ended up buying put options on

the SMP, which obviously drive the vix even higher, which you know, made people nervous, and they started to start selling some of their stocks, which you know, probably the bigger drop. And this feedback was disastrous and a lot of what happened that particular they had nothing to do with coronavirus or some you know that that maybe that was a complete systemic failure of these really sophisticated tools.

And so now you have these kids that are you know, they're really is of them and millions of millions, and they're using very leverage tools to exploit these millions of millions of uh, very complex securities, and they're plugged into you know, this interconnected system. And yes, I believe that there is uh that there is a risk of play. Once again, I'll struggle to define the winner and a loser, but you know, but I do worry, um with the

fragility of the of the system. Jamie. Uh. Before we wrap up real quickly, I have to note the sort of poetry or perfection of this moment that we're interviewing, because literally, while we're talking and recording this podcast, I see that Robin Hood is experiencing an outage. Uh So amid this extraordinary volatility that we're seeing in the market. I'm sure there are a lot of frustrated Wall Street Bets users. They have a thing on their status page

saying right now we're experiencing a system wide outage. We're working to resolve this issue as soon as possible, So presumably a lot of people not to trade frustrated that they can't take advantage of the volatility one way or another. Kind of perfect timing. Final question, just in terms of I have two very quick questions for you. Is one, have you yourself made money overall trading options? And to

where do you want to take Wall Street Bets? What do you see is it's a future or you're just going to sort of let the people do their thing um with options. I have not made money. Uh. I guess that's that's probably the first of it. I've said that the options are really tricky, um and uh uh and I I lost a fair amount of money with them, but you know, I also learned a huge amount about the market with that, and I've since moved on to

different instruments that have there's being more profitable. But but now the stock options are appreciate thing to make money with. Um. And with regards to the direction of Wall Street bets, I guess there's twofold number one. You know, it has to some extent of life of us. Uh. So I haven't directed Wall Street Bets into what it is now, you know, I have uh let the community take it wherever it wants to go, and the moderator teams take it to where it wants to go. And so we'll

see what that means for the future. And as far as what I might want to do with it, well, you might be hearing about some ideas here in a couple of weeks. I have no doubt about it. Okay, great, Well, Jamie, really appreciate you joining us. It's obviously sort of a fascinating experiment window into a psyche of uh at least a handful of market participants, and I really appreciate you taking your time to uh explain the history and perhaps

the future Ball Street Bets. I'm I'm problem. Thank you very much for having me, Thanks Jamie, Thanks so much, Shamie. And we want to thank Luke Kawa of course for coming on and walking us through the technical details a lot of a lot of this options trading as well as for his great bus this week cover story. So thank you to Luke Kawa as well. Oh my pleasure, My pleasure. So one thing I was thinking about is this, um, this difference between our investing and our Wall Street bets.

And on the one hand, you have a group of people who are sort of playing by the rules and investing a little bit of money in you know, passive stuff like s SMP five hundred funds and sort of eking out little returns every once in a while. And then you have the our Wall Street bets people who are making this big money and sort of well big money and big losses and also trying to find cheat codes to exploit the system. And I guess the big question that I'm thinking now is which one of those

should the stock market be Like? There's an argument that the stock market or the market in general should be about efficient allocating companies capital or capital to companies, And I don't know, I could sort of argue it both ways. Yeah, absolutely, I think both need to exist. And you know, there's always been this spectrum in any given market, right between the sort of pure speculation short term gambling mentality and

the longer term fundamental investing mentality. And we did a some episodes recently looking at how the sort of pure long term passive investing mentality has been gone to a very large extreme, with people not taking any risks of individual stock selection or market timing and just blindly buying

the entire index every paycheck. And so it's not surprising that if the sort of long term passive approach is getting more and more extreme, more and more vanilla, that you have then see the sort of mirror image happening on the other end. And so then you see the people who do try to like quote beat the market or take idiosyncretic security risk going absolutely to the extreme

the other way. And what you get is you sort of hollow out that middle of the old days of like, you know, people buying thirty stocks for their portfrait value of investment seems really quaint. Yeah, stuff like that. Yeah, it's sort of two extremes um at the end of a sort of barbell. I guess the other thing I'm wondering is, you know, it's fine to see people taking these sorts of bets and blowing up their robin Hood accounts as long as it's their own money and as

long as it doesn't affect the wider market. But then the point that Jamie touched on at the end, which is, we do have some instances where options trading has impacted the underlying index, such as x I V and the vix back and form and ged in and uh again, we mentioned the robin Hood blowout at the end, and you so would have to think whether or not a lot of the brokerages and the zero commission trading are encouraging a race to the bottom when it comes to

enabling these sorts of levered bets. A yes, But B I'll just say, you know, for as big as they are, you know, there are institutions that are ten times bigger throughout history, established serious, respectable institutions where people have PhD s and right equations and they all wear a tidal work that have caused far more damage than anything on

the message board. So while I'm sure that that is a potential phenomenon, uh, if Wall Street Bets did create some sort of endogenous volatility, they would not be the first buy any stretch. No, that is totally a fair point, and no ties or PhDs, presumably on Wall Street Bets. I gotta say it's probably a few now to be fair. Well yeah, okay, Well that kind of brought me to my last point, which was in Jamie's book The Guy that lost bunch of money on X I V who

was on Wall Street Bets. I think this was the biggest loss ever on Wall Street Bets. Jamie says he ended up working for a unnamed financial institution, so there is some overlap between professionals. He wouldn't be the first person who made his name and career by losing a lot of money or so. Somehow, I feel like in finance, if you if you lose a little bit money or in trouble, if you lose a lot of money, you could probably uh you know, find a new job and

do something else. Yeah, so weird and yet so true. Okay, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Wisn'tal. You can follow me on Twitter at The Stalwart, and you should follow our colleague Luke Colla on Twitter at l J Cola and follow Jamie on Twitter. He has the handle at Wall Street Bets. And be sure to follow our producer on Twitter,

Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcasts, Francesco Levi at Francesca Today, and for all the Bloomberg podcasts, check them out under the handle at podcasts. Thanks for listening