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Shorting and Indian capital markets

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Re: Shorting and Indian capital markets

#71

Post by dcolkitt »

newswasboring wrote: post #45
TeMPOraL wrote: post #23

Earlier quoted context omitted.

Stock [purchased by] A [lends to] B [shorts to] C [lends to] D [shorts to] E ... There's one stock, but when people count shorts, they're counting the [shorts to] edges. That 140% ratio is essentially the (amount of [shorts to] edges) / (amount of stock in circulation).

This has been explained to me several times since last week. What nobody mentions is why is it done this way? It just feels unnecessarily obscure. What am I missing?

The simpler alternative to this is the much vilified and misunderstand system of “naked shorting”.

Basically it would allow credit worthy institutions to meet demand by creating synthetic shares out of thin air. As long as they pay all the associated dividends and maintain enough capital to buy back the shares.

That would remove the entire long and convoluted process of locating borrow, and remove much of the market disruptions associated with “short squeezes”

Re: Shorting and Indian capital markets

#72

Post by TeMPOraL »

tonyarkles wrote: post #60
xadhominemx wrote: post #52

Earlier quoted context omitted.

It probably is over 100%. That’s unusually high but 100% short interest is not some sort of special number. Shorting works by borrowing a share and selling it to someone else. There’s no reason the same share could not be borrowed multiple times, as the shares are all fungible.

From what I understand, it is a slightly special number. Each one of those shorts is supposed to have some kind of contract in place that can be used to cover the position (e.g. a call option that would ensure that the stock could be purchased, even if the options contract isn't ITM). If there's over 100% short interest, then it's impossible for all of the outstanding shorts to be covered in that way (or, alternative…

(Disclaimer: my expertise on the stock market extends to knowing how to spell "stonks".)

I posted a chain analogy elsewhere[0]. My understanding is that short interest being > 100% just means that the average length of the "short-lend" chain is greater than 1 "short-lend" pair. I don't think that such a chain is anything special - just that getting rid of the earlier short in the chain requires getting rid of the latter short in the chain first.

--

[0] - https://news.ycombinator.com/item?id=25956325

Re: Shorting and Indian capital markets

#73

Post by threedots »

kybernetikos wrote: post #59
xadhominemx wrote: post #52

Earlier quoted context omitted.

It probably is over 100%. That’s unusually high but 100% short interest is not some sort of special number. Shorting works by borrowing a share and selling it to someone else. There’s no reason the same share could not be borrowed multiple times, as the shares are all fungible.

Sure, but when you short, you owe a share. If more people owe shares than there are shares for sale, you have a serious supply and demand problem depending on when those debts come due. If shorts are significantly over 100% of float, then it would seem that they are still vulnerable to further squeezing. Further shorting is completely possible - nothing stops shares continuing to be lent, but doing so just makes the…

The supply of shares for covering is not constrained by the number of actual shares in issue in the ordinary course of trading (you can create this condition artificially if you want to but people usually don't). There can always be more shares created for short sellers to cover with through shorting itself.

Short squeezes are usually not about supply constraints, they are about forced buying caused by margin requirements. High short interest just indicates a lot of potential forced buyers in the event of a price spike. Except in special cases there is particular magic to having 100% of the float on loan except that this is a high number which suggests many potential forced buyers under the right circumstances.

Re: Shorting and Indian capital markets

#74

Post by imtringued »

nico_h wrote: post #13
mmmateo wrote: post #12

Earlier quoted context omitted.

When you lend someone a stock you borrowed, it’s considered an additional ‘stock shorted’

And the entity that bought it from the short seller can lend it to someone else, leading to two short shares, etc... Also, there is a difference between 100% of the stock and 100% of the float. Because in theory the institutions holding could alter their positions or lend their shares as well.

>Also, there is a difference between 100% of the stock and 100% of the float.

With GME both of these are abnormally high. Either of them is enough to explain the short squeeze.

Re: Shorting and Indian capital markets

#75

Post by vsareto »

pbronez wrote: post #68
wrkronmiller wrote: post #39

Earlier quoted context omitted.

> 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—there 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…

“It’s fine” This situation sounds like a hideous volatile time bomb of complex exponential effects.

That's a bit overblown. Dog piling into a single stock is one thing. An entire market (that was) primed to collapse (housing) is another.

Re: Shorting and Indian capital markets

#76

Post by xadhominemx »

dmingod666 wrote: post #34
ignoramous wrote: post #11

> While everyone is celebrating retail traders winning over a large hedge fund in this case, it rarely ever plays out this way. Most commonly, retail ends up losing money when there is excessive speculation. This is the only passage anyone with too much at stake (than they can afford) in this short needs to read. Other than that, I believe industry insiders / traders are missing the mark in that the current dynamic i…

lol, when did the stock market reflect the fundamentals? Its post 2020, the whole economy had come to a standstill and the market was rallying like nothing happened. All this 'fundamentals' talk just sounds hollow.

The market rallied because it accurately predicted there would be a strong economic recovery in 2021/2022.

Re: Shorting and Indian capital markets

#77

Post by newswasboring »

dcolkitt wrote: post #71
newswasboring wrote: post #45

Earlier quoted context omitted.

This has been explained to me several times since last week. What nobody mentions is why is it done this way? It just feels unnecessarily obscure. What am I missing?

The simpler alternative to this is the much vilified and misunderstand system of “naked shorting”. Basically it would allow credit worthy institutions to meet demand by creating synthetic shares out of thin air. As long as they pay all the associated dividends and maintain enough capital to buy back the shares. That would remove the entire long and convoluted process of locating borrow, and remove much of the market…

or, you know, not allow shorting of borrowed loans which you can report as you owning them.

Re: Shorting and Indian capital markets

#78

Post by Enginerrrd »

dmingod666 wrote: post #34
ignoramous wrote: post #11

> While everyone is celebrating retail traders winning over a large hedge fund in this case, it rarely ever plays out this way. Most commonly, retail ends up losing money when there is excessive speculation. This is the only passage anyone with too much at stake (than they can afford) in this short needs to read. Other than that, I believe industry insiders / traders are missing the mark in that the current dynamic i…

lol, when did the stock market reflect the fundamentals? Its post 2020, the whole economy had come to a standstill and the market was rallying like nothing happened. All this 'fundamentals' talk just sounds hollow.

Yeah, tell me the P/E ratios everywhere else in the market right now are rational from a fundamentals perspective and I'll call you either deluded or a liar.

Re: Shorting and Indian capital markets

#79

Post by medium_burrito »

dmingod666 wrote: post #34
ignoramous wrote: post #11

> While everyone is celebrating retail traders winning over a large hedge fund in this case, it rarely ever plays out this way. Most commonly, retail ends up losing money when there is excessive speculation. This is the only passage anyone with too much at stake (than they can afford) in this short needs to read. Other than that, I believe industry insiders / traders are missing the mark in that the current dynamic i…

lol, when did the stock market reflect the fundamentals? Its post 2020, the whole economy had come to a standstill and the market was rallying like nothing happened. All this 'fundamentals' talk just sounds hollow.

By "fundamentals", you mean the government buying corporate bonds and money printer go "brrrr"? Seriously, we Japan now.

Re: Shorting and Indian capital markets

#80

Post by dwater »

xadhominemx wrote: post #76
dmingod666 wrote: post #34

Earlier quoted context omitted.

lol, when did the stock market reflect the fundamentals? Its post 2020, the whole economy had come to a standstill and the market was rallying like nothing happened. All this 'fundamentals' talk just sounds hollow.

The market rallied because it accurately predicted there would be a strong economic recovery in 2021/2022.

That is not true, it hasn't accurately predicted anything. 96% of 2021 and 2022 haven't happened yet.
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