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Ask HN: What the heck is happening with GameStop?

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Re: Ask HN: What the heck is happening with GameStop?

#31

Post by sriram_malhar »

i am fairly clueless about the stock market, and would love an explanation for the following: there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here?

And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a David Goliath situation. Some billionaires lost their shirt, and other billionaires made a shit load of money. This is like David standing up to Goliath, until Davids dad comes in and gives Goliath a proper ass whooping. Is this what happened?

Re: Ask HN: What the heck is happening with GameStop?

#32

Post by loandigger »

hibbelig wrote: post #19
King-Aaron wrote: post #3

Its an imgur link I know, but this is the most succinct run-down I've seen so far: https://imgur.com/a/DCCpuZA

The part I don't understand is this: “Someone noted that these hedgefunds shorted 140% of all shares available.” How can you borrow a share that doesn't exist?

Normally, when you short a share, your broker has to go find somebody who already owns it and they "borrow" it from there and allow you to "sell" it short. But if you can believe this, the very, very largest Wall Street firms, (Citadel, Sigma2, etc.) those with trillion dollar balance sheets got a special exemption from the SEC : rather than having to "find" shares to borrow, they can "manufacture" shares, using their massive balance sheets as collateral. This is how 140% of GameStonk can be shorted. It is this unfair playing field that r/wallstreetbets is fighting against. Since the short exceeds the float, it is possible that there could be an "infinite" short squeeze, that even if they took the company private by buying every available share, there would still be another 40% outstanding they would have to cover. HOLD!

Re: Ask HN: What the heck is happening with GameStop?

#33

Post by imtringued »

sriram_malhar wrote: post #31

i am fairly clueless about the stock market, and would love an explanation for the following: there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here? And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a…

> there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here?

The official punchline is "buy high, sell never". A short seller's deepest nightmare is a trader that is behaving extremely irrationally by holding a failing asset and never selling it. You cannot screw such a retail trader by being faster because being slow is the entire point.

>And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a David Goliath situation. Some billionaires lost their shirt, and other billionaires made a shit load of money. This is like David standing up to Goliath, until Davids dad comes in and gives Goliath a proper ass whooping. Is this what happened?

Everyone knows that those who will make the biggest gains are those who bought GME when it was in the single digits. Nobody else expects to get rich off of the short squeeze.

The irony is that short sellers think that this will be a temporary squeeze and thus all they have to do is short even more and sell the inflated stock to cover their interest and just wait out until all their shorts are in the money again. The problem with this strategy is that you are betting against irrational traders who have zero intention of selling, ever.

It's pure entertainment value.

Re: Ask HN: What the heck is happening with GameStop?

#34

Post by imtringued »

perl4ever wrote: post #5

I don't know, but this is not it: https://www.cnn.com/2021/01/27/politics/gamestop-stock-surge...

>As a result of the belief among the pro investor crowd that GameStop was, essentially, doomed, they began shorting the stock -- essentially betting on it to fail. This happens all the time to a variety of stocks with very little fanfare. It is the way of the modern stock market.

This article somehow missed the abnormal part where there were more short positions than shares in circulation. It's like doing fractional reserve banking with stocks except without any regulations. A short squeeze is just a bank run with this analogy. This does not happen all the time. It's entirely dependent on those who kept shorting the stock without making sure that they can cover their shorts.

Re: Ask HN: What the heck is happening with GameStop?

#36

Post by aynyc »

hibbelig wrote: post #19
King-Aaron wrote: post #3

Its an imgur link I know, but this is the most succinct run-down I've seen so far: https://imgur.com/a/DCCpuZA

The part I don't understand is this: “Someone noted that these hedgefunds shorted 140% of all shares available.” How can you borrow a share that doesn't exist?

A has 1 share of GME.

B borrowed it from A and sell to C.

C has 1 share of GME.

See, magically, A and C has 1 share of GME each.

Re: Ask HN: What the heck is happening with GameStop?

#37

Post by thefiregecko »

loandigger wrote: post #32
hibbelig wrote: post #19

Earlier quoted context omitted.

The part I don't understand is this: “Someone noted that these hedgefunds shorted 140% of all shares available.” How can you borrow a share that doesn't exist?

Normally, when you short a share, your broker has to go find somebody who already owns it and they "borrow" it from there and allow you to "sell" it short. But if you can believe this, the very, very largest Wall Street firms, (Citadel, Sigma2, etc.) those with trillion dollar balance sheets got a special exemption from the SEC : rather than having to "find" shares to borrow, they can "manufacture" shares, using thei…

Do you have a source for that special exemption? Or even just keywords I can search for?

Re: Ask HN: What the heck is happening with GameStop?

#39

Post by AnimalMuppet »

aynyc wrote: post #36
hibbelig wrote: post #19

Earlier quoted context omitted.

The part I don't understand is this: “Someone noted that these hedgefunds shorted 140% of all shares available.” How can you borrow a share that doesn't exist?

A has 1 share of GME. B borrowed it from A and sell to C. C has 1 share of GME. See, magically, A and C has 1 share of GME each.

That's a lot like how banks create money.
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