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  • My Not So Short Story on GME


    Eastwood
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    On 1/25/2021 at 10:18 AM, Storm the Field said:

    GME at 9:10 $88.60

    9:50 $144.42

    10:10 $88.09

    What in the hell was that all about?

     

    On 1/25/2021 at 10:38 AM, Eastwood said:

    I'll post a recap of everything when the dust settles on this. It's been an interesting ride and it has caused me some concerns over contagion in the broader market.

    I'm not a financial advisor. This is not financial advise. I don't work in finance. I do not have a degree in finance. Actually, I have a BA and I'm bad at math past Cal I. I won't apologize for the length because this post is me spiking the football and other than banter about the moves GME makes in the future, this is the last time I ever dig into the fundamentals of the GME trade.

    What we saw today was covering either due to what is called a gamma squeeze or a short squeeze. Maybe a mix of both. We won't really know until later, possibly at the end of close Wednesday when brokerages like TD update their short interest. A gamma squeeze occurs as the price moves up, crossing the thresholds of strike prices of calls that will soon be expiring. Market Makers use the Delta of an option to determine how many shares of a stock they should purchase in preparation of possibly covering the calls when they are exercised, either by the buyer of the call or upon expiring in the money. As the share price goes up, combined with the days getting closer to expiry, up goes the Delta, up goes the amount of shares the MMs buy. Last Friday, every call on the board for GME was in the money at expiry. I'll repeat: EVERY CALL ON THE BOARD WAS ITM AT EXPIRY. I don't know if that's ever happened in the history of the market. That means that if every call was exercised, 11.7 million shares would need to be transferred over to the new owners today and tomorrow. Now, as the Delta on a lot of the lower strikes were already at 1 and the shares already (hopefully for the call seller) purchased, it shouldn't be a big deal. However, the big pop happened ON Friday, not before. That caused a mad scramble in the after hours Friday, today, and possibly tomorrow for those who are gambling on the price decreasing further before they fill those calls. So, that's a gamma squeeze. Price creeps up, MMs who sell calls end up buying shares to cover, causing the price to climb higher, and then creating essentially a feedback loop spiking the price when combined with buying from retail or pops on positive news.

    What is happening, and may continue to happen, is the result of hedge funds and possibly Bank of America rampantly shorting GME over the course of a year hoping that it goes zero and they then get to pocket everything and give nothing back. The short float on December 31st was 140% and the institutional ownership was 117%. But how is such a thing possible? They borrowed shares to either 1.) sell, never intending to buy them back and return them because they were hell bent on bankrupting GME, or 2.) lent out those already borrowed shares that they never intended to give back anyway to collect the premium, creating a borrowed share of a borrowed share. They would also buy dips incrementally, amassing large positions, sell calls and buy puts with a quick expiry, then dump all of the shares they accumulated at once while simultaneously shorting to tank the price and pocket the premiums on the options they bought and sold. Then, when that wasn't enough, they sold naked shorts. They sold shares they didn't even have or even exist. They injected "synthetic shares" into the market. Synthetic, fugazi, fogazi. It's a wazi, it's a woozi. They're fairy dust. They don't exist. They're not fucking real.

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    But the people and institutional investors they sold them to bought the right to own the shares. And those banks and hedge funds are obligated to deliver them. But now there aren't enough shares to go around. There's an infinite demand for shares, but a finite supply. In a total share recall event, the lenders of the shorted shares could recall every share on borrow and still be 21 MILLION shares short of demand. The banks and hedge funds that created that SHOULD be on the hook. It SHOULD be illegal. Think of how depressed the price was because of it. Think of the loss of market cap, which led to lowered credit ratings, which led to higher interest rates and less borrowing power, and the layoffs and store closures that followed. Awful. The price should go to infinity because the demand the banks and hedge funds created will become infinity.

    Boomers can bitch and moan about RH and college kids dumping their stimmy into GME all they want, but the reality is that a bunch of boomer bankers and hedge funds created a situation that should be legally, economically, and financially impossible. Boomers want to call what retail investors are doing "market manipulation." However, anyone who dug into the situation enough saw the writing on the wall. Honest to goodness due diligence combined with simple supply/demand economics combined with paying attention to the new market trend of retail investors told anyone interested all they needed to know.

    This was me back in September:

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    I know for the bulk of you guys in here that it is too much of a leap of faith to go long on GME, but there is profit to be made on it in the last quarter, being console launch and holiday season. Especially if it hits $10 and the Robinhood millionaires show up. Even more so if another round of direct stimulus is announced.

    The price hadn't even hit $10, yet, when I said that. The house of cards had already been built. A fan had been placed in front of it. And everyone told me that I was crazy for thinking the house of cards would fall over. It wasn't a secret. It was in plain fucking sight. And we are finding out it is everywhere. Wall Street and old guys in banking and finance can harumph all they want about how a bunch of dumb wage earners are gaming their system to make a buck, but I think the reality is that the curtain has started getting pulled back on Old Man Oz. Take me, for example. I've given a detailed breakdown and have proof in this very thread that I had produced this investment thesis MONTHS before it was mainstream and materialized. I gave my credentials above. Want to know how long I've been actively investing? Since March. Same as all the Robinhood punks. All it takes for a large chunk of the population to be competent in anything is 1. Time 2. Education/training, and 3. Financial resources. In March, there was the perfect storm of 1. COVID lockdowns, 2. The internet and educational resources on the various trading platforms, and 3. Stimulus - The ultimate Other People's Money. Millions of $3k hedge funds popped up all over the nation and had the time, education, and money to be just dangerous enough. I traded in a paper account on Think Or Swim for 30 days and was then off to the races. I developed a momentum trading strategy where I combined candlestick patterns, moving average patterns, the RSI, and the Elliot Wave. Not only that, I also voraciously consumed anything I could get my hands on about market history, valuations, and trends. I bought and sold stocks, bought options, and sold covered calls and generated a 10% return over the course of about a month. Then I stumbled on GME, halted all active trading, liquidated any outstanding options, sat on my KO, XOM, and PFE (which was my worst trade) shares and positioned myself into GME. My return is now over 1000%. Either I'm some kind of wonder boy who picked all this up quickly because I'm a high functioning autistic person...

    SparklingOfficialAtlasmoth-max-1mb.gif

    Or maybe this shit just ain't as hard as Wall Street wants us to think it is. And maybe Wall Street was so habitually comfortable with how little people knew about their industry in the past that they didn't even bother concealing their moves because they didn't think retail investors would know how to play the other side. Well, the secret's out. This new batch of retail investors spent the last decade learning how to min/max various economic systems in video games. They are accustomed to dumping hours of time learning how to maximize returns on digital assets. They went from watching hours of YouTube videos on how to mine diamonds and make a Fortune 3 pick axe in Minecraft to watching hours of how to turn a couple grand into 5 figures. In some cases, 6 or 7 figures.

    As I stated earlier, I sold half of my position in GME today, but I still firmly believe in the trade I executed. I am now concerned about two things, one being specific to GME. I think the invisible hand of the free market is about to get absolutely doomfisted by either the government or big banks. I think a lot of institutions out there are shook. When GME hit $150 and other short squeezes were popping, a huge market sell-off occurred. I think funds were liquidating to cover their losses because margin calls were going out. In GME alone today, short sellers lost $1.6 billion according to Business Insider. Melvin Capital, supposedly the biggest short seller of GME out there, is down a whopping 30% for 2021, so far. They manage billions. We learned in 2008 that these banks and funds actually interweave into a structural support for the entire financial system. If a multi-billion dollar part of that support structure fails, it increases the strain on the others, and then another fails, and then we have a cascade failure. I think GME and the big shorts come together and negotiate a share purchase of newly issued shares under the condition that they are immediately transferred to the rightful owners to get the short float below 100%. This is actually extremely bullish for GME. They erase their remaining debt, buy out of all of their bad leases, and increase their cash long enough for the turn around. That's why I only sold half of my position. I'm long GME. In Ryan Cohen I trust. But I also think the government steps in and does something to try to fix the rest of the market. As history has shown us, this doesn't mean punishing the banks who created the situation in the first place. No, they're going to increase the regulations on the retail investors. That could also have grave, unintended consequences when retail cashes out all at once.

    So, I feel really good about today, but there may be grave consequences in future. I'll end with the cringiest thing possible: be a retail trader who uses a scene from The Big Short in one of his posts.

     

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    19 minutes ago, Zwylde said:

    I just can’t fathom the fallout if the Gov’t bails this out.

     

     

    Totally agree but I can also sadly see it happening. Same as it ever was.

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    Naked shorts are already illegal, but happen on a fairly massive scale on the daily.

    There should be a reckoning.

    Shorting is necessary for "price discovery," I suppose, but it's a nasty business.

    Edited by TwiceHorn
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    27 minutes ago, TwiceHorn said:

    Naked shorts are already illegal, but happen on a fairly massive scale on the daily.

    There should be a reckoning.

    Shorting is necessary for "price discovery," I suppose, but it's a nasty business.

    It's absurd that hedge funds were allowed to short sell 140% of GME shares with the objective to drive them into bankruptcy so they don't have to fill the orders. That's straight up market manipulation, and it's nice to see fat hedge fund cats be the bagmen for once

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    Can't have populism destroying the game that the the institutional houses created. I think there's value in the institutional guys rating and projecting a stock's long term growth or decline. But let's not kid ourselves into thinking it's all altruistic in nature. The same dudes making the pronouncements also have skins in the game to see that their advice comes to fruition. 

    So the individual investors got together and form a large buying/selling block. They disagree with some institutional investors forecast of a certain stock so they go all in in the other direction. Again, no altruism there neither but both are playing the game. The gubment will see that the second example is punished to allow the first example to be the standard.

    Crazy world we're living in. But stocks have been distorted from reality for a long time so I guess crazy is just normal.

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    4 minutes ago, Captainant said:

    Turns out, dumping trillions of dollars of liquidity into a stagnant market leads to stupid shit happening. Who knew!

    is the market a free market or not? 

    200.gif

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    7 minutes ago, crash_davis said:

    Can't have populism destroying the game that the the institutional houses created. I think there's value in the institutional guys rating and projecting a stock's long term growth or decline. But let's not kid ourselves into thinking it's all altruistic in nature. The same dudes making the pronouncements also have skins in the game to see that their advice comes to fruition. 

    So the individual investors got together and form a large buying/selling block. They disagree with some institutional investors forecast of a certain stock so they go all in in the other direction. Again, no altruism there neither but both are playing the game. The gubment will see that the second example is punished to allow the first example to be the standard.

    Crazy world we're living in. But stocks have been distorted from reality for a long time so I guess crazy is just normal.

    Thing is, though, much of what the institutional houses did is already unlawful or flat illegal.

     

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    Just now, crash_davis said:

    is the market a free market or not? 

    200.gif

    I'd honestly argue that it isn't right now. Every retail trading platform halted trading on GME to enable institutional investors to drive the price back down.

    It's looking pretty clearly like that the institutional investors just want retail to be the bag holders for their derivative strategies

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    1 minute ago, TwiceHorn said:

    Thing is, though, much of what the institutional houses did is already unlawful or flat illegal.

     

    So is members of Congress making trades with private knowledge had from closed door congressional meeting. I'm still waiting for the severe punishment to be doled out there.

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    2 minutes ago, Captainant said:

    I'd honestly argue that it isn't right now. Every retail trading platform halted trading on GME to enable institutional investors to drive the price back down.

    It's looking pretty clearly like that the institutional investors just want retail to be the bag holders for their derivative strategies

    I was making a joke about the "free" market. It's not and has not been for a long time. The institutional houses run the market. They'll not have populism beat them at their own game, even for a few extraordinary instances.

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    2 hours ago, TwiceHorn said:

    Thing is, though, much of what the institutional houses did is already unlawful or flat illegal.

    You say that like it matters.

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    OP, that's a great explanation of what happened, thanks.  I think the second half of your post though lacks perspective of markets and how they work.  There's a lot of liquidity in the market right now-  money from lots of newly minted hedge funds, as you said.  And this new money is inexperienced money.  It follows trends and so initially when everyone is following the same trend, making money is easy.  But there will come a day where the strategies diverge, liquidity dries up, the markets become stagnant again, and then the newly minted active traders start losing consistent money day after day.  Death by a thousand papercuts.  

     

    So I'd say be careful.  Make that money!  But be careful and realize the market psychology aspect of trading is something that takes time to develop.  The experience of observing market cycles takes time to develop.  Don't be too caught up in the current euphoria to ignore this.  

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    2 hours ago, crash_davis said:

    So is members of Congress making trades with private knowledge had from closed door congressional meeting. I'm still waiting for the severe punishment to be doled out there.

     

    37 minutes ago, XYZ said:

    You say that like it matters.

    All true.  

    But it matters in the sense that new laws aren't required here at least not until the enforcement mechanisms are improved.

    And, it probably justifies a punitive bailout or denial of bailout.  

    The mortgage crisis was full of unethical and criminal behavior, but the central mechanism of the problem was not illegal.

    Here, the central mechanism, naked shorting, is already illegal.  The number being bandied about is that 140% of the issued shares of GME were shorted.  That is massively illegal.

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    Good post OP - if for no other reason than to get the discussion started - but you provided a good recap.

    I will say...

    18 hours ago, Eastwood said:

    Or maybe this shit just ain't as hard as Wall Street wants us to think it is. And maybe Wall Street was so habitually comfortable with how little people knew about their industry in the past that they didn't even bother concealing their moves because they didn't think retail investors would know how to play the other side. Well, the secret's out.

    michael jordan laughing GIF

    HF managers got cocky and did something really stupid and when it got outed a lot of people made a quick buck. I'm not dismissing your credentials or anything you've learned since you started trading but mostly you and a lot of other people got lucky. 

    I promise you Wall Street and the Big Boys will get their money back and probably then some. Yes they got pantsed but most of these guys have been doing this for decades. They aren't going to lose the war against a bunch of hobbyists and emotional investors - and even if they got close the gubment would be happy to bail them out.

    But - way to take advantage - that's really all you can do. I'm definitely a bit jealous of everyone that cashed in on this one. 

    Edited by ztejas
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    2 hours ago, fattyflattie said:

    So they screwed that dude over for more than a million.  Yeah, that's guillotine shit.

    I would imagine he got margin called since every broker doubled (or more) the margin reqs for GME and a few others. They for sure dicked him by covering at the very bottom.

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    7 hours ago, Captainant said:

    It's absurd that hedge funds were allowed to short sell 140% of GME shares with the objective to drive them into bankruptcy so they don't have to fill the orders. That's straight up market manipulation, and it's nice to see fat hedge fund cats be the bagmen for once

    How would selling short on the secondary market force GME into bankruptcy?  The underlying financials and balance sheet for GME is what was forcing them into bankruptcy.  The short sell was a bet on the inevitable.  Although I would agree that being allowed to go over 100% doesn’t make sense. 
     

    When this is all over GME will most likely go into bankruptcy unless they change their business model pretty quickly 

    Edited by EuroHorn
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    4 hours ago, TwiceHorn said:

    Here, the central mechanism, naked shorting, is already illegal.  The number being bandied about is that 140% of the issued shares of GME were shorted.  That is massively illegal.

    And nobody will go to prison.

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    7 minutes ago, EuroHorn said:

    The underlying financials and balance sheet for GME is what was forcing them into bankruptcy.

    Um... any public's balance sheet is pretty heavily tied into their stock valuation.

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    7 minutes ago, ztejas said:

    Um... any public's balance sheet is pretty heavily tied into their stock valuation.

    Stock on the balance sheet is recorded at book value after the IPO.   Equity is Assets minus Liabilities. GMEs balance sheet has not changed due to all the trading that has happened. 

    Edited by EuroHorn
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    21 hours ago, Zwylde said:

    I just can’t fathom the fallout if the Gov’t bails this out.

     

     

    I am 100% expecting a government bailout + regulatory action against retail investors. Maybe even criminal action against some.

    And I expect the media to demonize the wallstreetbets crowd. I mean, that's already happening.

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    19 minutes ago, EuroHorn said:

    Stock on the balance sheet is recorded at book value after the IPO.   Equity is Assets minus Liabilities. GMEs balance sheet has not changed due to all the trading that has happened. 

    You're right. I misspoke. Obviously stock price can have some effects on a company's financials long term but it doesn't move the needle day to day. 

    The more relevant point I think is that it can make activist takeover easier - which a HF or new ownership group could try and do to further tank a company's financials while they fight over the scraps. In which case they'd probably doubly benefit from short positions even if they owned a bunch of GME on top of it.

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    12 minutes ago, ztejas said:

    You're right. I misspoke. Obviously stock price can have some effects on a company's financials long term but it doesn't move the needle day to day. 

    The more relevant point I think is that it can make activist takeover easier - which a HF or new ownership group could try and do to further tank a company's financials while they fight over the scraps. In which case they'd probably doubly benefit from short positions even if they owned a bunch of GME on top of it.

    the market provides access to capital if it is a going concern. 

    Who’s going to buy a company that’s the blockbuster of video games?  The stock will eventually go to zero and bondholders may get something out it. 

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    13 minutes ago, ztejas said:

    You're right. I misspoke. Obviously stock price can have some effects on a company's financials long term but it doesn't move the needle day to day. 

    The more relevant point I think is that it can make activist takeover easier - which a HF or new ownership group could try and do to further tank a company's financials while they fight over the scraps. In which case they'd probably doubly benefit from short positions even if they owned a bunch of GME on top of it.

    Massive shorting can lead to bankruptcy or other ruin, but it's not usually the stock price per se as much as the (dis)information that shorts tend to put out on the shorted company.

    I don't remember the company, but Kyle Bass was short in some pharma and himself began attacking the validity of their patents.  That's not illegal, and there is a public interest in invalidating patents, but that made me very squeamish.

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    8 hours ago, Captainant said:

    I'd honestly argue that it isn't right now. Every retail trading platform halted trading on GME to enable institutional investors to drive the price back down.

    It's looking pretty clearly like that the institutional investors just want retail to be the bag holders for their derivative strategies

    you need to make a correction - and it a critical correction: they didnt halt trading on GME, they halted buying on GME. 

    you could 100% panic-sell all your shares back, and they were happy to do it.

     

     

    (also, they opened up the call options chain....but , oh whoops , you guys like it too much, so cant buy those either)

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    12 minutes ago, TwiceHorn said:

    Massive shorting can lead to bankruptcy or other ruin, but it's not usually the stock price per se as much as the (dis)information that shorts tend to put out on the shorted company.

    I don't remember the company, but Kyle Bass was short in some pharma and himself began attacking the validity of their patents.  That's not illegal, and there is a public interest in invalidating patents, but that made me very squeamish.

    Again, that wasn’t about the shorting. It was about their products. People short stocks everyday. It’s not going to send a company into bankruptcy. And people going long and raising the stock price is not going to keep GME in business.  They need to make profits by selling products or services. 

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    27 minutes ago, ztejas said:

    You're right. I misspoke. Obviously stock price can have some effects on a company's financials long term but it doesn't move the needle day to day. 

    The more relevant point I think is that it can make activist takeover easier - which a HF or new ownership group could try and do to further tank a company's financials while they fight over the scraps. In which case they'd probably doubly benefit from short positions even if they owned a bunch of GME on top of it.

    not some effect - massive effect. 

    small effect = you have good credit rating and can sell bonds at low coupon (i.e. cheap borrowing)

    big effect = your stonk is hella stonk and you can issue very nice new shares for lots of cash.  thats money that goes to your balance sheet. see: tesla.

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    14 minutes ago, TwiceHorn said:

    Massive shorting can lead to bankruptcy or other ruin, but it's not usually the stock price per se as much as the (dis)information that shorts tend to put out on the shorted company.

    I don't remember the company, but Kyle Bass was short in some pharma and himself began attacking the validity of their patents.  That's not illegal, and there is a public interest in invalidating patents, but that made me very squeamish.

    Massive shorting results in lowered share price, which leads to lowered market cap, which affects not only the company's debt on the books by possibly changing interest rates and possibly causing acceleration, it affects the company's ability to borrow in the future. Without the ability to borrow, already struggling companies lose the ability to try to extend the amount of time they have to make the necessary changes to survive.

    If we want to talk about valuation, GME's cash on hand, plus assets, led to a fair market value of around $10 - $12 per share. Sure, market sentiment that the company was a loser could have suppressed the price down to the $4 level, but the presence of 140% short float is a very good indicator that the share price was artificially depressed. Additionally, GME unloaded a ton of older inventory and increased their cash reserves, which was then used to pay off an entire half of their outstanding debt that was coming due in 2021, which put them in a better position to negotiate better financing in the future. Then Cohen bought 9.8% of the company and the price STILL didn't make it out of single digits.

    If that isn't an artificially depressed share price, I don't know what is.

    Edited by Eastwood
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    Just now, DonkeyCigars said:

    Also are we sure naked shorting is illegal? I’ve heard it both ways the last few days and I’m not a Hermès tie wearing WallStreetBro...

    100% illegal, but poorly enforced

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    1 minute ago, 52-80 said:

    100% illegal, but poorly enforced

    According to Bloomberg;

    1. This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding!¬†I want to offer a¬†simple¬†explanation. There are 100 shares. A¬†owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90‚ÄĒthere are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine.

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    9 minutes ago, EuroHorn said:

    Again, that wasn’t about the shorting. It was about their products. People short stocks everyday. It’s not going to send a company into bankruptcy. And people going long and raising the stock price is not going to keep GME in business.  They need to make profits by selling products or services. 

    Well there are simple short positions.

    And there are massive short positions with attendant arguable misbehavior by the shorting party to insure that their short positions pay out.  I'm not sure longs could get away with some of the things shorts get away with to assist their positions.

    Edited by TwiceHorn
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    4 minutes ago, TwiceHorn said:

    Well there are simple short positions.

    And there are massive short positions with attendant arguable misbehavior by the shorting party to insure that their short positions pay out.

    Yea and the massive short positions were there because there’s a very very high probability that GME was heading to bankruptcy. This wasn’t taking a viable company like Microsoft and having massive short selling put them out of business.  Had Reddit not got involved we would be discussing a company going bankrupt due to a dinosaur business model. Regardless of the short selling.  Unless GameStop some how managed to reinvent themselves.  But they probably still file to reorganize 

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    3 minutes ago, 52-80 said:

    not some effect - massive effect. 

    small effect = you have good credit rating and can sell bonds at low coupon (i.e. cheap borrowing)

    big effect = your stonk is hella stonk and you can issue very nice new shares for lots of cash.  thats money that goes to your balance sheet. see: tesla.

    Yeah but that wasn't what I was thinking about. So sure I'm kind of right but I had the wrong idea. 

    Which is a little embarassing but what can I say I'm rusty.

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    1 minute ago, EuroHorn said:

    Yea and the massive short positions were there because there’s a very very high probability that GME was heading to bankruptcy 

    Which is absolutely false. After they survived Q2, they had enough cash on hand and assets to pay off 100% of their debt in the event of a bankruptcy and would actually have funds left over to pay shareholders. Companies in that position don't go bankrupt. Company's that are about to go bankrupt don't have someone like Ryan Cohen dump $75 million into it. Anyone saying the GME was going bankrupt in 2020 after Q2 was writing hit pieces. It's exactly why I went long on it in May. Someone gambled the house on it going under and all of the indicators after Q2 said otherwise. That's also when Cohen stepped in.

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    2 minutes ago, Eastwood said:

    Which is absolutely false. After they survived Q2, they had enough cash on hand and assets to pay off 100% of their debt in the event of a bankruptcy and would actually have funds left over to pay shareholders. Companies in that position don't go bankrupt. Company's that are about to go bankrupt don't have someone like Ryan Cohen dump $75 million into it. Anyone saying the GME was going bankrupt in 2020 after Q2 was writing hit pieces. It's exactly why I went long on it in May. Someone gambled the house on it going under and all of the indicators after Q2 said otherwise. That's also when Cohen stepped in.

    What were they going to change fundamentally with the $75 million. Selling games online?  Their current business model will be nonexistent unless they reinvent themselves 

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    12 minutes ago, DonkeyCigars said:

    According to Bloomberg;

    1. This does not necessarily mean a lot of people are doing evil illegal nefarious naked shorting! Really, I promise! There is no special limit on shorting at 100% of shares outstanding!¬†I want to offer a¬†simple¬†explanation. There are 100 shares. A¬†owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90‚ÄĒthere are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine.

    if you give financial statements to 3 tax filing firms, they'll each give you a different tax return.  these things are kind of gray area.

     

     

    naked short selling is not illegal strictu sensu, but it is all-but-discouraged: https://www.sec.gov/investor/pubs/regsho.htm

     

    the way that you can short sell >100% float is if you havent "located" (i.e. secured) a share TO sell short.  it doesnt meet this requirement:

     

    Rule 203(b)(1) and (2) ‚Äď Locate Requirement. Regulation SHO requires a broker-dealer to have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due before effecting a short sale order in any equity security.[7] This ‚Äúlocate‚ÄĚ must be made and documented prior to effecting the short sale.

     

    based on how gray the regulation is, you can see how people get away with it

     

     

     

    Edited by 52-80
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    1 minute ago, EuroHorn said:

    What were they going to change fundamentally with the $75 million. Selling games online?

    but that's not up to you or any arbitrateur to decide, w.r.t. how the stock should be traded.

    the issued shares are a secondary instrument, "freely" (lol) traded on a secondary market.  if people buying and selling decide that the price is $350/share, even if the underlying company that the microfractionalequity ownership represents is totally shit, thats for them to decide, not you.

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    13 minutes ago, EuroHorn said:

    Yea and the massive short positions were there because there’s a very very high probability that GME was heading to bankruptcy. This wasn’t taking a viable company like Microsoft and having massive short selling put them out of business.  

    I'm not arguing that short selling is bad per se or that GME didn't "deserve" a short position.  There's probably a short position on everything.

    But I might argue that 140% short is abusive and retail investors' response was no more unjustified than the actions that resulted in that degree of nudity.  And noisy shorts like Ackman bug me.

    Edited by TwiceHorn
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