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Not at all.
Wrong. https://en.m.wikipedia.org/wiki/Naked_short_selling
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Not at all.
Wrong. https://en.m.wikipedia.org/wiki/Naked_short_selling
As your link explains “Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing [...]”
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Is it actually illegal to do this (not should it be, is it)?
Yes. It’s called naked short selling. It’s been illegal since 2008. https://en.m.wikipedia.org/wiki/Naked_short_selling
https://en.m.wikipedia.org/wiki/Naked_short_selling#%22Norma...
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I don’t think it’s about that at all. If you follow the subreddit at all, you’d see that WSB investors have been losing immense amounts for a long time now. I think the primary thing that baffles the more traditional investing establishment is how irrational WSB investors actually are.
/r/wsb are not the prototypical Robinhooder who have followed on behind them.
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> At some point somebody will be left holding the bag The same applies to Bitcoin, though, for the past 10 years. Someone's holding the bag at $30K as we speak... Gamestop can (theoretically) go the same way.
Bitcoin is basically a universal hedge.
Am I missing something in the Gamestop news that isn't "hedge fund gambles billions on naked shorts and loses"? That seems like a real blunder on their part. In other contexts we would just call this gambling, I think. Shorts have infinite liability, not hedging them is not something I can get behind.
The problem I have isn't that a hedge fund screwed up. It isn't even with WSB. The problem I have is that this seems to be another red flag that we are in the late stages of a bull market. The point where, at least according to folk wisdom, the least sophisticated investors enthusiastically enter the market.
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I can't answer most of your questions, but I think I can answer the voting part. There are 100 shares, Alice owns all of them, but loans them all to Bob so Bob can short them. Bob sells all of them to Charlie. So Alice owns 100 shares and Charlie owns 100 shares even though only 100 real shares exist. (Bob owns -100 shares.) But Alice can't use her shares for voting because she loaned them out, only Charlie can vote.
That's not correct. Alice does not own anymore the shares, only Charlie does. There are 2 steps involved: 1) shares borrowing 2) shares selling Shares borrowing: Bob will borrow 100 shares from Alice. Bob will have to give Alice a collateral, valued at 100% value of the shares + a percentage. Bob also has to pay a borrowing fee to Alice, daily. At this point, Bob owns the shares, not Alice. Alice does not receive div…
Bob sees the name go up, and instead of buying the 100 shares to close the position, he goes back to Alice. Alice says, 'sure, I'll lend you another 100 shares.' But Alice doesn't have any at the moment, so she buys the 100 from Chuck (from Bob, from Alice), and now....
200 shares short on the original 100 shares?
If Bob wants to close out (or must close out)... there must be many more people with shares for this to work out nicely.
However, if it's all through puts, none of this matters!
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But behind the algorithm there is a human trader with motivations and market knowledge who is commanding it; the fact that the buyer is, in some technical sense, an algorithm doesn't seem very relevant to me.
You'd think that, but even simple algorithms exhibit complex emergent behavior when exposed to the real world. How A Book About Flies Came To Be Priced $24 Million On Amazon: https://www.wired.com/2011/04/amazon-flies-24-million/
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To add something to this: The redditor doesn't need to pay 1 dollar per cow (the market price as sold by fund), the redditor pays .01 cents for an option contract to buy the cow for 2 dollars at the end of the month. The options contract requires the bank selling the contract to buy a cow today. In effect, the redditor is able to force the bank to buy 100 cows by spending only 1 cent.
No. It's a lot more complicated than you buy a call option and the brokerage buys 100 shares immediately.
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The second that the shorts have covered the price isn't going to drop to $90, it's going to drop back to $20 and most of the WSBers who were holding out for $2000 will lose their shirts. The shorts are going to lose, no doubt. But once they've lost, the stock price is probably $20. A lot of WSBers are going to be holding stock at that point, and possibly on margin. And that stock is going to be a crappy retail stock.…
They can cover their initial capital outlay pretty easily by selling a small number of shares on the way up.
I also had a horrible thought, what if someone came in and bought short positions at inflated prices with his lunchbox money instead? Then that person is trying to wait out the redditors.
Wow. So many angles.
Too rich for my blood.