The ‘stonk’ bubble poses significant global risks (opens in new tab)

The funds have to trade the constituents. They can't say "here's our new ETF that is equivalent to such and such basket" without trading the basket, because otherwise they're basically short their own ETF. That position taken by the entity managing the fund can be dynamic depending on constituent weighting, dividend treatment, etc -- and (this is important) it may not match exactly with the composition of the ETF.

https://www.bloomberg.com/professional/blog/passive-funds-ef...

https://www.bloomberg.com/news/articles/2021-01-28/gamestop-...

https://www.ssga.com/us/en/institutional/etfs/funds/spdr-sp-...

The passive funds were interested in gme when it was not volatile. They predicted low volatility and downward prices so they shorted it. Reddit saw that if they get enough people to buy the stock then the short sellers have to cover their positions at a loss. Then the people who bought are left holding a worthless stock which some can sell at the top to make some money but most will be left holding once the stock goes back down. Some people actually make money in this scheme so everyone thinks it is going to be them.