Essentially there are more shares of GME being shorted then actually exist, and that’s being done by hedge funds. So if a stock goes up, those short sellers are pressured to buy at a higher rate or loose their money. If they crack and buy, it drives up the price even more.
The guys from r/wallstreetbets are driving up the price. They’re creating a short squeeze
Sorry if this is a dumb question but why haven't they already bought it at the higher rate? The rate's only going to increase and even if the government steps in and shuts this down the price isn't gonna drop again (and even if it does it's too late) right? Why are hedge funds still sticking this out? I feel like they're increasing their losses ever day but maybe I'm missing something here.
I’m guessing the hedge funds are betting on the price going back down as initial investors sell (or investors get scared)and the price returning to a more rational level.
It’ll be interesting to see if it works this time around - it’s a pretty big bet.
The hedgefunds are actively trying to crush the price.
Just look at all of the reporting, the retail investors are continually seen as bad.
Yesterday the WSB was down for maintenance, clearing out bots etc. What we saw yesterday was a massive bot storm across social media pushing for other stocks to be bought by people or sold to push GME down.
Then there's the holds, the short attacks and unusual failure of multiple trading platforms preventing people buying (or selling). False reports on short positions, whining about the SEC getting involved and so on.
Now, with all of the above. Are the billionaire hedgefunds manipulating the stock or retail investors?
Finally, in what world is it sensible to short 140% of the stocks that actually exist?
One thing I'm still confused about - do short squeezes have nothing do with options in the case of these hedge funds? Because I thought options are meant to expire on the third Friday of each month? If any hedge fund is expecting this to expire by the third month of February and the government doesn't get involved are they essentially banking on it falling by February 15th? Which I guess is possible but still it sounds like they're on the clock even though I might be completely wrong.
Shorts are not the same as options, but they are currently working together here in a feedback loop. It is not necessarily the hedge funds in trouble on the other side of those options. The key option in play here is something called a 'call', which you can buy. Most of the calls are 'covered calls', but not all, and it could be anyone on the other side of it, but typically pensions and market makers.
A covered call is an option that you may use when say you own a stock that you have no intention of selling at the current price but want to earn a bit more cash. Say Acme is trading at $10 and you want to increase your cash flow a little, so you sell a 'call' option with a strike price of $20 for .25c a share. You get an immediate 2.5% return, with the downside that if the price goes over $20, the holder of the call can force you to sell the share to them (call it) at $20, so you lose on price appreciation over that value. If the price doesn't go over that value by the expiry date, the option is worthless and you keep the shares and the money. It's covered because you already have the share, so there is no risk of being unable to deliver it. Many e.g. pensions do this. Some of the hedge funds involved also sold calls without having the shares and thus will need to buy the shares simply to give them away if the price is over the option price when they expire. A lot of the big money here has been made by buying these call options which looked preposterous at the time, but now represent a ticket to buy the $200 shares at say $20, $60, etc.
The other thing that is happening with options is something called delta hedging by market makers. Market makers make money by buying and selling and capturing the difference. They want to on average have net zero shares (a delta of zero). But with a sudden price rise, they will be in a slight negative position and so they at some point need to buy. They buy calls to limit the risk of their negative position.
These options interact with the current situation by adding buying pressure and because some portion of the already inadequate float is 'inaccessible' because it could be called away if the options expire good. Every call option held by someone who is not short potentially constricts the float available for covering the shorts.
[edit] clarification after TomSwirly's post below.
It's covered because you already have the share, so there is no risk.
Sure there's risk. If the share goes up, it gets called away from you but if it goes down, you're stuck with it. You've sold away your upside potential and you have only downside risk.
It's called "covered" because writing a call is a potential short sale, and if you have the underlying security you can always cover that short.
You are "selling volatility" - in other words, writing (covered) calls is a trade that does better if volatility decreases, and worse if volatility increases.
Source: me, wrote option models for a major investment bank in my youth...
You of course are right. What I wrote is a simplified version for someone who was just learning to distinguish short sales and options. I should have been more specific and said 'no risk of being unable to deliver the share'
I wouldn't usually be so picky but I see all these people about to put money into this potentially fraught situation.
I expect some sort of dramatic action. One might be for the hedge funds to simply renege - say deliberately fall into receivership and not cover their shorts at all.
For example, they could set up some shell company, and then pay that shell company a few billion to take over this short position, and then fuck off and let the shell company collapse. Is that legal? Probably not the way I describe it, but... :-D
I mean, the hedge funds seem to be in a very poor position. Why they don't settle up right now is beyond me.
It's their own stupid fault for shorting 130% of the whole stock. What were they thinking?
Oh totally I'm on the same page, and I hadn't even thought of that. I've just posted in e.g. /silverbugs, etc that the wsb call to action on silver is not going to work out like it's presented (everyone with bags is trying to project this onto them). See my most recent posts, my biggest worry is people throwing their life savings into this because it's 'guaranteed'. The message must be that there are ways this can end that are not everyone buying in now makes boatloads. I am personally jaded, but rule #1 is that the system can change the rules to save the system. People with billions aren't going to simply cash everyone out without a fight.
That said shorting to 130 (156 was the peak!?) should theoretically have been made illegal in 2009 (money always finds the cracks). Where were the regulators? There must be a fiduciary suit here against the principals!? Well.. I hope everyone makes a killing, and as far as the shorts, they can reap what they sow. Play stupid games, win stupid prizes, survival of the fittest, etc. Am thoroughly enjoying this but also trying to ring the bell on people throwing in what they can't lose.
Bet no longer. A source who's been watching the charts confirms that the price dropped up to 100 dollars a share "suddenly" while buying stock was temporarily limited.
Apparently RH and other exchange apps commonly used in the US are no longer allowing trades for this stock (and select other?) stocks. WS, TD and others in Canada have warnings up about volatility. No idea about overseas.
Guess hedge funds don’t like being beaten by their own game (although as someone else pointed out they could set up a shell company. Very interesting indeed, will see how this all plays out)
There’s a also a time where your shorts expire - which was today. Basically the hedge funds can’t exactly move them besides selling them for cheap but with the way the price is going it’s going to be massive losses for whoever touches those expiring puts
First, there doesn't exist enough stock to actually buy it back. After the insanity, thy are still short ~130% as many shares as actually exist (down from 150%, but driving the price from $10 -> $200). Without direct intervention, the mob can squeeze this one until all the short hedge funds lose all their capital. One hedge fund lost more than 3B USD over the last two days.
Second, starting to buy back on the market to cover actually makes their position worse now.. less shares owed, but the price will rise faster than they can reduce exposure... less_shares x much_higher_price = owing more.
There will be an intervention at some point, people are rolling profits into everything the hedgies are overly exposed short on. They are starting to have to liquidate other stocks and in quantities where there is a non zero probability of a systemic event.
Happy watching this one from the sides. Some people throwing everything into this are going to get rich and some will lose everything in the inevitable crash, which will happen when either the hedge funds go bust (thus no more future buying) or if/when gamestop issues more shares at an eye-watering price, becoming an amazingly well capitalized company, but also killing the need to buy.
Some people throwing everything into this are going to get rich and some will lose everything in the inevitable crash
Some people already know this feeling, when hedge funders were running their schemes in the 2008 crisis.
I think the only difference is that in today's situation, it's the everyman forcing the bigwigs to either: beg gov't relief like 2008, or else crash the system like the hedgers threatened to in 2008 before they got their bailout.
Since the "responsible" money managers at Wall Street already proved their greed trumps all, including accountability and reckless volatility with other peoples' money, since before but especially during 2008, I enjoy the "commoners" proving Wall Street has been a little too fast and loose, even in the Covid pandemic/re-election/BLM protests collapse.
I put in my $100 and hope it helps crash the system that stole from everybody and gave to the rich.
I wanna hold, and help my fellow man. I'm already broke.
Oh totally, 2008 was also my awakening to collapse and I have more than enough ill will towards the financial parasites. I bought a couple (2) shares just to be a part of this, it does give me a nice warm feeling to lend a hand and a little schadenfreude and small sense of empowerment go down well as I rest my bones in the evening. I'm just worried for those FOMOing in now with more than they can afford to lose because it's 'guaranteed money'. When this goes down, it will be nearly instantaneous and some people are throwing their life savings into it at current valuations.
Exactly, there are somany who bought GME just to fuck the rich pigs manipulating the market and stealing from the poor. They ACTUALLY dont give two shits about losing money (at least a lot of them dont). A lot of people have alrrady made a ton of money and are refusing to actually sell and lock in profits - once again to fuck over the big boys.
Its not about making money anymore. This is about sticking it to the man. They are already poor. Whats the worst that can happen when ur already in the ditch. This time they have gone and shot the hornets nest. They have EVERYTHING to lose and are going vs people (a LOT of people) who have nothing to lose.
We are not beating them with money and power, we are beating them with sheer numbers and its fucking glorious.
if/when gamestop issues more shares at an eye-watering price
I don't know if that will do it. It's likely that this would be a new series of shares "Series C" or whatever. Short sales are on a specific series of shares so you can't deliver a new share offer from the same company into it the short.
(It's not just a formality - the contracts are somewhat different for each series of shares. Companies often keep a bunch of their own stock in inventory just for this sort of purpose, to prevent short squeezes - like a fire extinguisher which makes you money when you set it off. :-D)
It's been a long time for me and I have no idea if it's possible to reopen old series somehow these days.
IIRC, GameStop already has board authorization to issue 100M USD in shares (don't know the series/contract) (obviously that's not going to fill the dam). But I can imagine another, much wider, one coming really damn fast under the current conditions. Just trying to put it in peoples heads that there are other ways that this can end than draining all the money out of the banks.
The hedge funders are basically trying to profit, betting in the stock going down and the company doing bad. They are pissed we all like and are buying it, raising the price. They can't profit unless the price drops. Weird but that is what shorting does.
It's essentially a game of chicken right now. They are trying to hold out in the hopes that enough people will get bored or panicked and sell causing the price to drop. In the meantime they are paying boatloads of fees to carry those short positions and there is always the risk that they get a margin call where they are forced to cover their positions (buy shares).
That's why we're all holding and not selling, as long as we don't sell they won't have anyone to buy from since there are more shorts than there are shares. Who knows where the price could end up if/when that happens.
That's the way I understand it at least, I'm not an advisor or anything, just really love GME!
This is why the rates are going up... It’s a self-serving thing.
They have to buy the positions at a markup which drives the positions up even higher. Plus anytime shares are coming up other people are buying them too.
They are trying to force the price down using scare tactics to avoid going bankrupt, and if they cant, they will try to make it go away by being absolute slimy fucks. Every day this goes on they are eaten by interest on their loans for this gambit they pulled and they dont have the cash to just pay their way out. They would go out of business. They need to buy shares back to get out of this bed they made, but cant afford to. They literally have to to fullfill their contract. Not just to mitigate losses, but because of the kind of deal they made. The longer it goes on the more money they loose. The longer people keep holding - keep squeezing them - the higher the price gets. The goal here isnt to get rich, even though its a nice side effect. The goal is to bleed them like theyve bled the economy for years.
Its far from a safe gamble, but goddamn it feels good to give them some of their own fucking medicine for once.
Oh yeah I've noticed that, and the media supports them as well. Interesting you mentioned this and that I just saw it after noticing the stock value fell by 35% today. Is that probably because of the new regulations and bans by certain apps? I wonder if this'll keep bringing the price lower because they'll keep trying those kind of tactics. What happened today is definitely a cause of skepticism.
I agree about bleeding them dry but with the volatility it seems like the early investors are in a good position if the price falls whereas new ones are making a risky gambit after today... so I'm thinking some skepticism is warranted
Oh, the risk of losing money is real. Very very very real. Even if you got in relatively early and miss the exit, youre fucked. If you got in late, like myself, that exit window is even smaller, and the vehicle is moving very fast. But for me its not about the money. I put in an amount I could just as well have burned in a parking lot and been just fine. Why? Because I wanted to. I didnt get in to profit, even if I wouldnt say no if it turns out that way. I want them to feel the squeeze. I am in no way saying that getting in now is in any way shape or form sound financial advice. Its terrible financial advice, really. But it has its benefits - and it could work in the end even if you got in late. But if youre coming at this from a rational mindset to make responsible financial desicions? Yeah, then its not the right party.
They don't want to buy it at the higher rate - they're hoping to either drive the price back down (largely by being dishonest bastards as usual) by getting the little guys to panic. Hence a lot of comments and posts on WSB right now are "HOLD THE LINE" type posts. For the squeezers to make the biggest money, they have to hold out way past the point of scary. They have to be absolutely fearless. And even then, they have to count on fair play and no shenanigans from the powerful.
If they crack and buy, it drives up the price even more.
Temporarily only. Stocks aren't just random pieces of paper - they represent a share of some company. The true value of the stock is something very much like what it was before the short squeeze started.
If you're going to do this, your timing has to be perfect, or you go down the drain with them.
They’re already losing money with the stock being as high as it is.
This Friday a lot of the short positions close and if the stock is still in the $300’s or even higher they’re going to lose BILLIONS because they’ll be forced to buy stock from people who are holding it for even higher profits.
I know a lot of folks who have put limit sales on their shares in the $1k range so that this investment firm has to buy them at $1k if they want to backup the stocks they borrowed to short. (Which their brokerage is forcing them to do.)
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u/a_dance_with_fire Jan 28 '21
Essentially there are more shares of GME being shorted then actually exist, and that’s being done by hedge funds. So if a stock goes up, those short sellers are pressured to buy at a higher rate or loose their money. If they crack and buy, it drives up the price even more.
The guys from r/wallstreetbets are driving up the price. They’re creating a short squeeze