If you search “The History of Wall Street Bets,” you’ll be inundated with the same story:
GME, GME, GME.
That story: A ragtag group of retail traders took on the big bad short sellers and Wall Street hedge funds — and won — when they bought so many shares of GME that it resulted in the bankruptcy and liquidation of Wall Street giant, the Melvin Capital Hedge Fund.
But is that really how it happened? And would you believe that the GameStop story isn’t even the most prolific event in Wall Street Bets history? Follow along, because we’re about to take you on a journey.
A journey of massive gains, colossal losses, and risk taking so intense that it forced major brokerages to change how they operate on more than one occasion. And it started off long before the phrase “meme stock” ever existed.
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What is Wall Street Bets? Overview
If you wanted to understand Wall Street Bets culture in just one sentence, you could look at the tagline that has lived atop the Subreddit for years.
“Like 4chan found a Bloomberg terminal.”
Over the past decade, Wall Street Bets has evolved from a niche subreddit for high-risk trades, to a widely known home for internet culture, options trading, and stock market memes. Despite its widespread use of crass language, Wall Street Bets has had a material involvement in the swell of options trading over the past few years.
It isn’t about the market cap of Wall Street Bettors — it’s about the enormous, quasi-gambles that high-dollar traders have made (publically) on the sub. Wall Street Bets are These traders are searching for life-changing gains, and they will get rich or die trying in the process.
While Market Rebellion advises a more tactful, discipline-driven approach, we’re no stranger to hunting down high-octane options trades. As Market Rebellion co-founder and legendary options trader Pete Najarian once said, in reference to a conversation he once had with a fund manager who was patting himself on the back for achieving a 7% gain from holding shares,
“Well shit. We don’t get out of bed for 7%.”
Such is the mentality of an options trader. Believe us when we say, Wall Street Bettors don’t “get out of bed” for 7% gains either. But a thirst for big gains and a high tolerance for risk isn’t the only foundation that this community was built upon.
2012: The Founding of Wall Street Bets
Wall Street Bets was a subreddit founded by Jamie Rogozinski. Roughly a decade ago, Rogozinski grew tired of hearing that his investment style was “too close to gambling” to succeed. Wall Street Bets was founded in spite of that.
Rogozinski called it,
“A place for people to talk about high-risk trades in an unapologetic way — for people to make some short term money.”
That mission, to this day, is the essence of Wall Street Bets. That’s where options come in — by far the preferred method of trading in the world of WSB. Options are lauded for their ability to create (and demolish) fortunes in the blink of an eye.
Notably, Jamie Rogozinski would later be banned for attempting to monetize the community, with two prominent users (OPINION_IS_UNPOPULAR and zjz) emerging as the new operators of the subreddit. This was generally considered a popular decision.
2012 Year-end subscriber count: 1,747
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2013-2018: Wall Street Bets Gains its Identity
Between 2013 and 2016, Wall Street Bets had begun to build a solid foundation of core principles that would stick with the sub to modern day. Rules that still rule over the sub would help to shape the culture at WSB. Like Rule #5:
5. Political BS
This isn’t /r/politics, /r/political_humor, etc. If you choose to start or engage in arguments about or instead of making fun of their bad SPY long then you’re in the wrong place and we’ll show you the door.
Nobody cares about your political opinions. If it’s not about taking advantage of the political to make money then leave that baggage at home. WSB is not the stage for your lazy political regurgitation nor will it be used as a propaganda mouthpiece by anybody.
For the uninitiated, Wall Street Bettors are intensely apolitical, and even a bit amoral.
That brings us to the most famous, amoral moderator of Wall Street Bets: Martin Shkreli.
Yes, “the most hated man in America” according to BBC — that Martin Shkreli. But before Shkreli was called a “pharma bro” by the media, Shkreli was a high-dollar trader making $20M bets on biotech companies, and posting his thesis on Wall Street Bets — where he soon became a moderator.
Above, a surprisingly mild-mannered and discipline-focused set of posts from a man who allegedly jacked up the price of drugs which some considered a necessity. Source: Wallstreetbets
Of course, soon after these trade theses were posted, this happened…
By “this,” we mean the former moderator of WSB and CEO of Turing Pharma was sent to jail for several years. Source: Wikicommons, Wallstreetbets.
Opposite on the spectrum of “millionaires making researched bets on biotech companies” came the influx of new traders in 2015 and 2016 thanks to the newest commission free brokerage, Robinhood. As a check-in on the growing popularity of the sub, by January of 2015, Wall Street Bets had accrued 8,780 subscribers. By the end of the following year, the sub was closing in on 100k. The sub would go on to have annual in-person meet ups, and even pool community cash to rent out boats, event halls, and more.
This was due to continued momentum of massive gains (and crippling losses) being posted day in and day out on the community. Apart from the ones which literally changed the world of options trading (or at least the way that one brokerage allowed options trading), we’ll have to cover those enormous gains and losses in a follow-up article.
2018 Year-end subscriber count: 446K
But, speaking of those game-changing trades…
2019 — The “Infinite Money” Glitch, Box Spreads, and Robinhood Policy Scrambles
In 2019, Wall Street Bets users began to push the envelope, identifying not just one — but two major flaws in Robinhood’s software that allowed users to make risks bigger than ever intended.
The first glitch we’ll cover is something that would become known as the “infinite money” glitch.
It worked like this:
Robinhood Gold users (this is Robinhood’s paid tier) were able to sell call options with margin borrowed through the brokerage. The “glitch” was that Robinhood would then add the credit from the short option (even though it was an option position) to the user’s buying power — allowing the user to repeat this cycle as much as they pleased.
Of course, the users were still on the hook if their trades went sour. Two users, one by the name of “Call_Warrior” and another by the name of “MoonYachts” went public about their success with the (extremely high risk) strategy. Through high leverage trades with money they didn’t really have, both were able to accrue seven-figure fortunes.
One user, by the name of ControlTheNarrative, was not so lucky.
ControlTheNarrative was a young Robinhood user who recorded his entire trade experience of leveraging $2,000 into $50,000 and gambling it all on short-dated AAPL puts into earnings. The user even filmed the reaction.
Above: What it feels like to lose $50,000 you didn’t have. Source: Youtube.com
Needless to say, Robinhood was none-too-pleased when they caught wind of this detrimental flaw in their software — but it wasn’t the only glaring error WSB had uncovered in 2019.
Enter: Box Spreads
During the same year, a user going by the unfortunate name 1r0nym4n sold a box spread. A box spread is a volatility arbitrage strategy mostly utilized by hedge funds and financial institutions, which is intended to be a delta neutral interest rate position. But if you asked 1r0nym4n, he would have told you it was “free money”, and that position literally could not go awry.
Though 1r0nyman’s account was only $5,000 in value, he sold a box spread that created a $300,000 credit and should have netted him $40-$50K over the course of the coming two years. However, it only took a few days for 1r0nym4n to realize the error in his logic — one leg of his box spread went ITM, and 1r0nym4n was assigned, causing his spread to be liquidated, and leaving him on the hook for $60,000 in losses. Lucky for 1r0nym4n, Robinhood simply closed the user’s account and took the loss themselves before banning box spreads entirely.
Through these two major events, Wall Street Bets left a mark on Robinhood and on the options trading world long before GameStop would become a household name. And on that topic, let’s take a different approach.
2019 Year-end subscriber count: 772K
GameStop’s Short Squeeze: Wall Street Bets Brings Melvin Capital to its Knees (…With a Little Help)
In the interest of time, and because everyone and their mother already has, we’re not going to cover the GameStop short squeeze in any extreme detail. This is the one thing about Wall Street Bets that the rest of the media has really drilled down on — because it sounds so inspiring.
The GameStop story, in a very boiled down fashion, goes something like this:
- In 2020, a few hedge funds are “naked shorting” GameStop — attempting to profit off the decline in GameStop’s share price by borrowing more shares than are available in the float.
- One Wall Street Bets user, by the name of DeepFuckingValue, latches onto this — and builds his case for why GameStop stock is undervalued. The case is about more than just a short squeeze.
- Other well-known traders, like “the Big Short” Michael Burry, latch onto the same thesis.
- In June of 2020, GameStop’s market cap was roughly $0.25B, with a share price of $1.03. At that time, GME was a true micro-cap stock.
- By the first week of January, 2021, shares of GME have more than 4X’d in value, now trading at a split-adjusted $4.42, with a market cap of $1.15B.
- Around this time, Michael Burry exits his position. DeepFuckingValue does not, and continues to post updates of his position to the community, drawing more and more users into the trade.
- By January 25th, GameStop reached a market cap of $21.13B, hitting its all-time high — a split-adjusted $86.88).
- Then, on January 28th, Robinhood and some other brokerages made the executive decision to halt all buying of GameStop shares, due to “extraordinary trading” — likely due to liquidity concerns relating to the DTCC (the clearing house that works with Robinhood).
- As a result — an outcry. Everyone, from AOC to Ted Cruz to TV personalities to Joe Rogan to Elon Musk to all of your friends who never said a word about the stock market before this were suddenly furious.
- Some of that anger was warranted — It’s likely that shares of GameStop would have continued higher had Robinhood not halted buying on January 28th — which happened to cap off the rally and lead to GameStop’s continued decline. (Shares of GME have lost roughly 77% of their value since hitting the January 2021 all-time high.)
- However, despite a lot of talk from regulators, a few public court hearings featuring Robinhood CEO Vlad Tenev, and a reinstatement of the GME buy button, GameStop never covered, and nothing was ever really done.
- By the end of May 2021, Wall Street Bets popularity had fully gone parabolic, with the total subscriber count reaching 10 million users. In January, Wall Street Bets broke a Reddit record for the most comments made in a single day (338K on January 28th).
One thing that many miss in this story is that this wasn’t just retail traders. Order flow and volume evidence point to the high likelihood of involvement from other hedge funds and institutions on the long side, looking to join in on the short squeeze.
Think about it this way: When GameStop was a micro-cap company, it was reasonable to believe that retail traders could have helped push the stock higher, using large positions held by short sellers as fuel for the rally.
But once GameStop begins taking off, all the combined investment potential of everyone you know, and everyone you’ve ever met, isn’t going to move the needle. It’ll help, but when you see massive institution-sized orders coming in and out on a daily basis, it’s less and less likely that retail had anything to do with getting GameStop shares to trade as high as they did.
An analysis from JP Morgan’s trade desk corroborates this theory. Additionally, an analysis from Vanda Research takes it a step further, digging into the orderflow for clues about the smaller short squeeze rallies in GameStop that took place in March.
“Patel said there were “big spikes” in daily net purchases by retail investors on January 26 and January 27 when the GameStop retail trade was peaking. On January 26, when the stock soared as much as 95% to $150, net purchases by retail investors were $68.18 million. The following session, the stock rocketed up 157% to an intraday high of $380, with net purchases of $87.48 million, according to VandaTrack.
Looking at the differences in net dollar purchases in January and the latest rally, “it’s almost as if that gap to me like it’s a different type of trader or investor behind the recent move,” said Patel. “It’s definitely not retail because these volumes just wouldn’t have the same impact on price compared to what we saw back in January.”
He said the fresh upswing in prices was likely driven by institutions.”
Regardless of who drove the rally, we at Market Rebellion know one thing for certain.
Wall Street Bets: Post-GME Era (Present Day)
These days, most GME “apes” have migrated to subreddits that specifically focus on the topic of GameStop and other meme stocks, and Wall Street Bets has mostly reverted to the same bread and butter that has kept them afloat for a decade:
Stock market memes…
…And massive, high risk option trades.
The community continues to grow despite the tough year that the stock market has had, with the 10th highest daily comment count, the 50th highest subscriber count, and 40th highest daily post count relative to all other subreddits.
That’s impressive, considering that as of May 2022 (several months ago), there are more than 3.5 million subreddit communities that exist on the website.
As a whole, this still only scratches the surface of Wall Street Bets — a story about a community that has truly changed the world of trading forever — a story that is still being written to this day.