"Some redditors believe that a short squeeze was part of the reason that GameStop's stock rose so rapidly over the last week."
No, the active thesis on WSB is that while a few shorts closed their positions, active shorts are still >100% of float. The short squeeze has yet to happen. Thus the reason they're all holding - shorts are paying huge amounts of interest every day, so the point is to hold until they're forced to give up on their positions, which will lead to the short squeeze.
Chances are the shorts got replaced by other shorts. Someone who shorted @20 gets squeezed when it goes up to $100, they're forced to buy, they end up buying from someone else who is shorting @100. That person gets squeezed @300, they're replaced by someone else who sold short @300. That next person isn't going to get squeezed until $600-1000.
Ultimately the big winners are those who bought @10 and sold @300, or those who shorted @300 and cover @10. Everybody in between gets rekt. That's going to include a bunch of retail buyers and a few shorts as well.
That's fine though - there are still a lot of shorts paying a tremendous amount of interest, regardless of where they bought in. The point is that as long as the WSB crew doesn't sell, the shorts will have to cover (or continue paying a ton of interest forever) and the price won't go down (or at least it won't go down and stay there for an extended period).
Problem is that stock prices are set by the marginal buyer - the one that is buying right now. If the WSB crowd (and hangers on) runs out of money, then suddenly the buyers left in the general public might think the stock is worth $10 rather than $300 and adjust their orders accordingly. The result will be no buyers left, plus a lot of retail traders that bought at $250-325 hoping to ride it to the moon and desperate to get out before the price reverses. Shorts cover easily, at whatever price they name, and longs lose their shirt.
I'm hearing borrow fees are at about 80-100% annualized now. That works out to around 0.2-0.3% daily, so carrying a $10K position costs you $20-30/day, a $1M position costs $2-3K, etc. Someone with enough money to stomach that kind of risk can easily afford that.
That works until there aren't any more marginal buyers. Just because some people out there are willing to sell the stock for $10 (which no rational person is when it's trading in the hundreds, by the way... the idea that there are marginal buyers who are somehow willing to vastly underprice their sales relative to the market value isn't a valid one) doesn't matter as long as large swaths of it are held by people who won't sell at that price.
The nuance this article, and perhaps many commenters on HN, is missing is the latent nihilism powering much of the WSB-GME phenomenon. The same way some stubborn older people can't grasp that a minimum wage job can reliably pay rent and monthly bills, outside observers can't understand that a not insignificant number of these Redditors are willing to financially self immolate to just be given the chance to help pound billion-dollar firms to dust. Take a tour of these WSB threads, and underneath the party atmosphere of self-deprecating humor/memes/irrational hope, is a thick sense of contempt and vengeance at hedge funds and big players of the financial market. Some of the hate is brought to the surface, for example in the recollections of the collapse of '08 and how peoples' families and futures were reduced to near nothing.
First, WSB people are aware that the short squeeze hasn't happened yet, since short interest remains very high.
Second, the WSB consensus is starting to build around sacrificially holding stocks through the short squeeze and subsequent decline to ensure bandwagoning retail investors are able to get back out and extract the profits from short sellers covering.
Of course it does, since the stock is ridiculously overvalued. What does the WSB crystal ball have to say about when the squeeze will happen? How would we be able to tell when it has happened?
> sacrificially holding stocks through the short squeeze and subsequent decline
This is a noble goal. It will be interesting to see if it works out, tragedy of the commons and all. If everyone else holds, nobody will mind if I sell my shares, I do so need that Ferrari...
No one knows when or even if the squeeze will happen. It was on the verge of happening on Thursday when the DTCC raised the collateral requirements to stop retail investors from buying more shares. Now everyone is guessing it will probably happen some time next week. The signs should be pretty clear - there will be a rapid spike in the price as the squeeze snowballs.
> No one knows when or even if the squeeze will happen.
Well. $GME closed at -100 dollars (-31%) yesterday, and it's currently down another ~95 dollars from that in the pre-market. I guess we will not go to space today.
> Second, the WSB consensus is starting to build around sacrificially holding stocks through the short squeeze and subsequent decline to ensure bandwagoning retail investors are able to get back out and extract the profits from short sellers covering.
I believe it when I see it. Isn't the majority of shares hold by the heavy pros anyway? I doubt the other Hedgefonds and Yolon Musks will sacrifice shit.
> I believe it when I see it. Isn't the majority of shares hold by the heavy pros anyway? I doubt the other Hedgefonds and Yolon Musks will sacrifice shit.
They don't need to. It's mathematically impossible for shorts to cover, because they've shorted more than the entire float.
I don't think that's how this works. They "just" need to pay twice for it. The over 100% borrows happen like this:
Alice owns one GME. Bob borrows the share and sells it to John. John doesn't know this is borrowed stock and borrows it to Lisa. This way way you got two borrows on one stock.
As you can see, the hedgefonds likely already recovered some stocks from 140% down to 113%.
Their intention was to speculate on Gamespots bankruptcy and there for not even have to buy back any shares. That's why they overshot like this and also why they are human scum needing to bleed for their sins.
I honestly don't know what it means for the short squeeze, if they reach <100%. I assume at that point it becomes less of an we against them, and increasingly more of an everyone against everyone, again.
> if they reach <100%. I assume at that point it becomes less of an we against them
In order to cover their short, they actually need to buy shares with willing sellers. So it wouldn't be a case of everyone against everyone. The amount of holders will decrease proportional to the short percentage.
They just need to make sure they aren't buying while the sellers are decreasing their exposure. But that's quite easy to tell as the price would shoot sky high from all the short sellers buying.
Yes, but wouldn't the dropping shorts mean increasingly people bought overvalued shares?
Increasingly people jumping onto "the ride" up, who may not sell to shorts in time and will just lose the game?
I don't think we know the short:share ratio exactly, as double borrows would be happening for <100% too, no? I think in the end, nobody knows what situation people bought into exactly and how fast this will collapse.
People who got in late, risk not getting off in time, as GME is totally overvalued right now. There will be causalities from desperate, poor folks going all in for a lack of understanding their risk and believing the WSB hype. I don't blame them for being "stupid", as a few thousand bucks plus, can change your life, if you're poor; I blame the ignorant people on WSB not educating about the very real risks involved. Tho, it's probably a good time for everyone learning how all this works and paying 100$-500$ risk for this education.
> Yes, but wouldn't the dropping shorts mean increasingly people bought overvalued shares?
That's the point. When its 100% shorted and hedge funds all need to cover, they would be the ones buying these worthless stock from sellers. If say there are 5 hedge funds right now shorting 100% (20% each), you wouldn't want to be the last one shorting cause the 80% short sellers that are covering could very well bankrupt your fund. The underlying stock value doesn't matter as long as someone else is paying for it (i.e. hedge funds).
That's why business schools always say a) don't short sell and b) don't over leverage your short sell or you will get into a short squeeze. Short selling in my personal opinion is really dumb because your upside is limited, but your downside is unlimited.
I very much suspect that this will be in the textbook in the coming years as a prime example of black swan/ short squeeze.
>Alice owns one GME. Bob borrows the share and sells it to John. John doesn't know this is borrowed stock and borrows it to Lisa. This way way you got two borrows on one stock.
The question is what happens on the "margin". Lets say there are 110 shorted shares. You need to get rid of 11 of them to eliminate the short squeeze (assuming nobody buys the remaining 99 shares to hold them).
Lisa owes 30 shares. She only has to buy 11 shares and then the rest of her shorts will have the potential to be in the money. She could buy one share and return it to the lender. She could now make an agreement with the lender to buy a share for a fixed price from the lender and return it and repeat this 11 times.
The question is, why would the lender agree to this instead of just charging market rate?
In my opinion the lender should be on the hook. By lending out your shares you receive interest payments that cover the risk of a "default" just like a regular bank loan. If the borrower fails to return the shares due to bankruptcy you just lose your share. This would significantly reduce the potential for a short squeeze because the lender would just agree to a share price that does not leave the borrower bankrupt.
Tho, I think your scenario doesn't exactly mean "mathematically impossible" but rather speculation about the short situation's specifics. The whole situation only exists because the big fishes can deceive and manipulate the market mostly to their liking. I wouldn't bet on them not playing dirty to distort analysis of what's really going on.
Sadly, I didn't get into a broker in time. I literally have no shares in this and just hope wallstreet burns over this one way or the other. Would have preferred to throw 50€ or 100€ into the game just for the education. There will be another crisis for me :)
Thanks for the explanation. Yes, they would need to pay more than once for it. In any scenario, the demand would outstrip the supply and hence there is still a short squeeze on the table.
It's very reminiscent of how fractional reserve amplifies the money supply. John puts $100 in the bank. Bank lends $90 to Steve. Steve buys a thing from Ali. Ali puts $90 in another bank...Bank 2 lends $81 to Sheila...
Does a short/float ratio of 100% require multiple brokers to participate? How is the bookkeeping on these shorts maintained?
Isn't creating the appearance of this kind of consensus exactly what would happen at a pump and dump scheme at the height of the pump? First it is hold the line. Then it is buy the dip. Then everyone moves onto something else while a few decide that they are now long-term investors, or weren't in it for the money after all.
What evidence do you have that "all" information is public? If shady people did manipulate WSB into a frenzy to create a bubble, you'd expect them to create the appearance of a public process, wouldn't you?
Bitcoin is just a deflationary asset like gold. Except it hasn't gained the same widespread popularity of gold. Every bubble was the result of a new class of investors joining the market.
GME is just a meme stock that people buy to get involved in a movement.
The stock will of course go down again but it remains to be seen if these hedge funds can recover from their 60 billion dollar losses.
It is no question whether this event will have far reaching consequences. With the SEC reacting to actions directed by common people something has changed fundamentally.
It really doesn’t take a crystal ball to come the conclusion that the stock value for a dying company isn’t going to remain high. Even less so for the liquidated remains of Bed, Baths, and Beyond.
Well they make 5 billion revenue a year, are close to profitable, and their online revenue is up 34% in 2020 to more than a billion. And now they can print money with share dilution, and they’ve become a household name and are touted as a weapon in a class war. So IDK if dying is the right word for it.
The efficient market hypothesis - that over the long term prices will reflect what something is actually worth - is the core underpinning assumption of pretty much all finance.
Tesla is a leader in several emerging markets like electric vehicles, large scale battery production, and autonomous vehicles. While it's price seems high to me, it is perfectly reasonable to think other people legitimately value it that highly. Gamestop, on the other hand, is a brick and mortar retailer of essentially digital goods in the midst of a global pandemic. This week I was genuinely surprised to hear it still existed. No sane person does nor should see Gamestop as having a strong future outlook. People bought with the express purpose of market manipulation, and when they lose interest the stock will cease to be manipulated.
I have heard that Tesla is a self fullfiling prophecy. Elon Musk has an infinite amount of crazy ideas that he is willing to try out. The fact that TSLA is going up allows him to dabble with all of them. Most of them don't pan out. However, there is a decent chance that at least one of his ideas works out and actually ends up justifying the value of the stock.
Yeah it’s almost a VC firm at this point. You’re not investing in the discounted future cash flows of Tesla absent influx of capital, rather you’re investing in the ROI you think Tesla can generate using money from equity raises.
The crazy thing is that the connection between the worth of a company and its market performance is so tenuous that the emh shouldn't make sense in the stock market.
The only connections are: if a company does a buyback if it's share price gets low and can afford it off of existing revenue, if a company needs to raise cash and does a dilutatory raise, if the company exits the market via merger, acquisition, or bankruptcy, or if it's a dividend stock. All of these events are relatively rare.
It will happen but only after the squeeze, which hasn't happened yet. One of the hardest parts of running a business is having a product that people want to buy. GME is a stock that every short seller is guaranteed to buy. It's like scalping. There is the obvious risk of having left over inventory but it's guaranteed that at least some units get sold for horrendous prices.
Can we get this comment flagged for misinformation? Jen Psaki doesn't even have any brothers, just two sisters [1]. The fact that somebody at Citadel is also named "Psaki" does not in fact mean they are siblings.
I sincerely hate everyone involved in this stupid story. Liars and con artists, from HN to Reddit to Wall Street.
What kind of propagandistic crap is this? Sorry, Tim Lee (adding the "B" has always felt like a fraudulent way to trade on the credibility of Tim Berners-Lee), the ink spilt in other corners of the Internet and in publications much more mainstream than yours is frankly just more in depth. (See for example Matt Levine at Bloomberg. [1])
If this is what passes for explanation from tech "journalists" these days, then it's a good indication of why I've stopped reading a lot of it. It's usually BS, from the condescending think piece headlines to the simplistic and ignorant but still highly know-it-all attitude.
No, Ars Technica doesn't actually publish much quality work anymore.
I get much more enjoyment and enlightenment from the much more interesting Jon Stokes on Twitter.[2] He was one of the Ars' founders before they became a typical 6th Avenue publication with a 6th Avenue editorial stance, that is, the journalistic equivalent of neutron degenerate matter, the kind of shop that tells you to sell, but pretends not to offer financial advice (not that anyone would prosecute anyway).
This is simply false reporting. The play had a everything to do with Ryan Cohen. Arstechnica is long since being credible. They’re owned by conde naste and it shows.
I read the article expecting that it might be very one sided. What I found was that in seemed incomplete perhaps but pretty balanced.
> And if you were lucky enough to get into GameStop days or weeks ago, you should seriously consider selling. At a minimum, sell enough to recoup your initial investment. Because not everyone who made big paper profits will see those gains realized.
That could if I was a conspiracy theorist, serve the interests of the firms, but if individuals put in money they can't afford to lose and are up multiples, selling just enough to cover the initial buy seems very sensible advice.
What the article doesn't cover is the revolution that many small fish that are coordinated can outweigh the decisions made by the few sitting at a proverbial table. Even those with deep pockets discovered that they are not in control and reached levels of risk they couldn't weather.
How disconnected from reality of using the stock market as money making vehicles rather than investing in the success of underlying companies is what's on display and needs to be shaken up.
It is. However, I think the situation right now is a prisoner's dilemma where this type of "snitching" means most people will lose. If nobody sells, a lot of people will win and the hedgefonds will lose.
The hedgefonds are very much trying to provoke "sensible" decisions at all costs right now. They need people to be predictable and afraid.
> How disconnected from reality of using the stock market as money making vehicles rather than investing in the success of underlying companies is what's on display and needs to be shaken up.
This. WSB isn't the problem, they just highlight it. The naked shortselling is the malicious part. The hedgefonds weren't just speculating against GME, they were inducing Gamespot bankruptcy. That is fucked up. That shouldn't be allowed. Nobody should be allowed to bet on someone losing, especially if they got all-powerful money at their hands. I think most people just don't realize how much a billion dollars really is: More than 1,600,000 stimulus checks. And they game with it like it's nothing.
I can try from my limited understanding I gathered in the last few days.
They pick stocks of companies struggling, which only need a little push. Mostly their financial powers means they can speak self-fulfilling prophecies, I think. "Advice" stock holders. But they also can "attack" stocks directly teaming up, like the short ladder attack we've seen the last few days. Bad press and media manipulation do the rest. Crashing a stock probably means influencing the companies liquidity and if they don't make profit at the moment, that may be the end. Or one of their friends buys then the majority of the company's shares. You know, mafia shit, but with numbers.
Overall you can ask yourself: Is it a good idea to allow anybody speculating on someone's loss, when they got enough financial power to make everyone jump?
Respective bankruptcy hugely increases the win on betting against a stock, since they don't have to buy back the shares they borrowed. They arrogantly went all in on GME, business as usual... or so they thought :)
Just to make this clear, I don't buy into the narrative of wealth redistribution as those profiting are probably in the top 1-2% anyway. But I like to see some of these assholes losing a lot, maybe someone going to prison over this. And well Gamestop and AMC just got a second life in this game. If they get their shit together, they will have a more epic "almost bankrupt" story than Apple.
And who know, maybe this will unite people under the clear view who their real enemies are, that it's neither ethnicity, culture or religion dividing them; all their struggles are caused by billionaires playing God.
No, the active thesis on WSB is that while a few shorts closed their positions, active shorts are still >100% of float. The short squeeze has yet to happen. Thus the reason they're all holding - shorts are paying huge amounts of interest every day, so the point is to hold until they're forced to give up on their positions, which will lead to the short squeeze.
The squeeze hasn't been squoze yet.