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GameStop Is Rage Against the Financial Machine

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Re: GameStop Is Rage Against the Financial Machine

#851

Post by cortesoft »

missedthecue wrote: post #769
garmaine wrote: post #737

Earlier quoted context omitted.

Yes but what I’m saying is that the float doesn’t increase from 100 -> 200. There’s still only 100 shares on the market at any given time. If Alice shorts 100 cows on Monday, and then Bob shorts 100 cows on Tuesday, and both are due at close of market on Friday, it’s gonna be a bloodbath.

Shorts aren't "due". You can hold them as long as you pay the interest and have the margin requirement.

No, the person who lent the share out can demand it back and refuse to lend it out again... normally, the short seller would just turn around and borrow another share from someone else to sell short, "rolling over" their short position, but that assumes there is another share to borrow. There usually is, it not always.... and it might be VERY expensive to borrow if it is a heavily shorted stock.

Re: GameStop Is Rage Against the Financial Machine

#852

Post by gregable »

gmadsen wrote: post #822
gregable wrote: post #807

Earlier quoted context omitted.

Sure, but irrational enough not to short a $6 stock priced at $300?

just because it was held at $6, doesn't mean that is the fair market price. These Hedge funds had significant incentive to bankrupt this company. 300+ is most likely a bubble, but $50-$90 is completely reasonable looking at the fundamentals. And besides, traditional wall street fundamentals are not the end all be all of a stocks value. Tesla is living proof of that.

Perhaps, pick your favorite number. I think it's pretty clear nobody believes fundamentals support $300 though. Was wondering why market short pressure doesn't prevent it from getting that high.

Re: GameStop Is Rage Against the Financial Machine

#853

Post by cman1444 »

cman1444 wrote: post #839
BadBot wrote: post #812

Earlier quoted context omitted.

I understand how this short sale "chaining" can result in a stock being over 100% shorted without any illegal naked short selling taking place, but why wouldn't this chaining not result in a short squeeze and therefore bid up the price? I'll walk through an example and maybe someone can point out what I missed. Let's say we have a market for some stock. There are only 5 traders (Alice, Bob, Chuck, Dave, Eli) and 100…

I believe that this is correct. The parent comment sounds very sure of themselves but I don't think the statement "there will always be more shares held long than short" is necessarily true.

After researching a little more I've found I was incorrect. There are always more long shares than short shares. However, the "long" shares are not necessarily real shares in the company. They could be ones that have been lent out as described above.

Re: GameStop Is Rage Against the Financial Machine

#854

Post by nrmitchi »

xmprt wrote: post #487
swiley wrote: post #432

Earlier quoted context omitted.

They won't lose their shirts, just the beer money they spent on a meme. Plenty of them really don't care.

Things may have changed since you last used reddit but now I regularly see people playing with $1000s of dollars joking about buying weekly options and trading on leverage that they don't have and then not understanding the implications of that when things come crashing down.

There's been a lot more of this in the last 8 months when it's been pretty difficult to actually lose in the stock market.

Re: GameStop Is Rage Against the Financial Machine

#855

Post by FabHK »

ta1234567890 wrote: post #384

This is a great example of how the stock market is not about fundamentals, just like Bitcoin, it’s all about popularity and perception. In the end, people don’t care if the “stock is really worth” the price, they only care if themselves or someone else are willing to pay the price, nothing else really matters.

Well. If you hold the stock for long enough, over time its fundamental value will be realised.

To mangle something that Lincoln probably never said:

All the stock prices can be somewhat wrong for some time, and some stock prices can be very wrong all the time, but all stock prices can't be very wrong all the time.

Re: GameStop Is Rage Against the Financial Machine

#856

Post by FabHK »

bitwalker wrote: post #577
Macha wrote: post #509

Earlier quoted context omitted.

If he sells prior to to the fall, that is

They already cashed out $13MM, and the remaining stock were bought at like $14/share. Even if it crashes, they still called this thing like a year out and got rich off of it.

They "called this thing like a year out" in the same way a lottery winner that's been playing the same numbers for a decade "called it".

Re: GameStop Is Rage Against the Financial Machine

#857

Post by dkrich »

dcolkitt wrote: post #711
noncoml wrote: post #654

There are 100 cows. A hedge-fund believes that the milk consumption will go to zero, so they borrow the 100 cows for one month and sell them for $1 each. Then they borrow them again, and sell them once more for 90c. Certain that they will worth $0 at the end of the month A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. Her plan is s…

> A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. This is a common misconception, but fundamentally wrong. Every short sell has an equal but opposite buy. Therefore every share shorted creates a new synthetic long share. Alice owns 100 shares. Bob borrows 100 shares from Alice, then short sells them to Chuck. There are now 200 shar…

This is the exact thing I have been trying to convince people of since this began. It started with a kernel of truth and a case to be made for a potential short squeeze but at some point along the way transitioned from a squeeze to a bubble with more and more chasing gains out of fomo and some ridiculous concocted story about the little guy vs the big bad Wall Street. This is further evident from the spillover effect seen in amc, Nokia, and many others.

All that said you do need to understand that if your impulse is to short or buy puts you’re almost certainly early as bubbles always go much further than anyone thinks possible and the extraordinary IV of the options makes it very difficult to profit from.

Re: GameStop Is Rage Against the Financial Machine

#858

Post by nrmitchi »

caddemon wrote: post #816
GordonS wrote: post #485

Earlier quoted context omitted.

> Also, there is a worry about multiple hedge funds going bankrupt Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...

Isn't this complicated a bit by the way shorts work? Like when you buy $n of stock, it is impossible to lose more than $n. But with shorting you could lose unpredictable amounts if shit hits the fan. I agree it's not a good look for a hedge fund to have put themselves in this position, but I think it was more about believing they couldn't lose so extraordinarily badly, not that they couldn't lose at all.

I know this has been discussed elsewhere, and it's kind of against the narrative, but my understanding is that typically if you're shorting like this, you would hedge your potential losses by buying calls. Ie, if you short at $20/share, and want to limit to 100% losses (excluding premium), you could buy calls at $40. If the price skyrocketed past here, you have the calls.

There is obviously much more complex math to optimize this.

I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them).

It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).

Re: GameStop Is Rage Against the Financial Machine

#859

Post by DSingularity »

anonymouse008 wrote: post #782
dcolkitt wrote: post #711

Earlier quoted context omitted.

> A Redditor notices this. She knows that in a month's time, the hedge-fund will have to buy 200 cows, and there are only 100 available. This is a common misconception, but fundamentally wrong. Every short sell has an equal but opposite buy. Therefore every share shorted creates a new synthetic long share. Alice owns 100 shares. Bob borrows 100 shares from Alice, then short sells them to Chuck. There are now 200 shar…

I'm really confused because wouldn't that require a filing with the SEC to authorize shares? Wouldn't that number become part of the float? I looked into "fails" data, and I'm a bit lost [0]. Is Alice's IOU sellable as a security with voting rights? Who gets to vote on those 100 shares? There are now 200 votes? That's very strange. I've heard of synthetic longs before but in options [1] [0] https://www.sec.gov/data/f…

The board of GameStop doesn’t have to do this. Don’t forget they own a ton of shares.

Re: GameStop Is Rage Against the Financial Machine

#860

Post by FabHK »

stonecraftwolf wrote: post #88
elliekelly wrote: post #49

Earlier quoted context omitted.

And (no one seems to be talking about this) but there's definitely a systemic cost. Going forward, how do you effectively manage the risk of one of your positions becoming a meme? This happening once is an interesting situation and I've certainly enjoyed watching it play out. If it happens repeatedly it will definitely start to undermine the investing public & market participant confidence in the market. That's certa…

I don’t think dismissing this phenomenon as a stock turning into a meme is right. WSB is...something, but there is actually a rationale behind going long GME. If you think that the new CEO, known for turning dead retail into profitable online content and e-commerce businesses (as I understand it), is going to turn GME around, then buying $12 Apr 21 calls for thirteen cents or whatever it was makes sense absent any no…

> dismissing this phenomenon as a stock turning into a meme

GP is not dismissing it. They're saying that a stock play turning into a meme is becoming a serious additional risk factor.

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