How to understand all that's going on with GME [GameStop]
How to understand all that's going on with GME [GameStop]
To clarify, this is not a post asking about how to trade options but merely to understand what's going on here and how a group of people on reddit can cause such mayhem. I see terms like a short squeeze, gamma squeeze, etc and do not understand what it means.
Are there any resources, books, blog series you guys can point to to better understand these terms and the theory behind such behavior. I am just curious more than anything.
I have a 3 fund portfolio which I am more than happy with. This is just to expand my knowledge about financial markets out of interest.
https://www.theverge.com/2021/1/22/2224 ... volatility
Are there any resources, books, blog series you guys can point to to better understand these terms and the theory behind such behavior. I am just curious more than anything.
I have a 3 fund portfolio which I am more than happy with. This is just to expand my knowledge about financial markets out of interest.
https://www.theverge.com/2021/1/22/2224 ... volatility
Last edited by aaja on Sat Jan 23, 2021 1:39 pm, edited 2 times in total.
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Re: How to understand all that's going on with GME
What kind of mayhem, and where?aaja wrote: ↑Sat Jan 23, 2021 10:38 am To clarify, this is not a post asking about how to trade options but merely to understand what's going on here and how a group of people on reddit can cause such mayhem. I see terms like a short squeeze, gamma squeeze, etc and do not understand what it means.
Are there any resources, books, blog series you guys can point to to better understand these terms and the theory behind such behavior. I am just curious more than anything.
I have a 3 fund portfolio which I am more than happy with. This is just to expand my knowledge about financial markets out of interest.
RM
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Re: How to understand all that's going on with GME
What does any of that have to do with Graduate Medical Education?aaja wrote: ↑Sat Jan 23, 2021 10:38 am To clarify, this is not a post asking about how to trade options but merely to understand what's going on here and how a group of people on reddit can cause such mayhem. I see terms like a short squeeze, gamma squeeze, etc and do not understand what it means.
Are there any resources, books, blog series you guys can point to to better understand these terms and the theory behind such behavior. I am just curious more than anything.
I have a 3 fund portfolio which I am more than happy with. This is just to expand my knowledge about financial markets out of interest.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: How to understand all that's going on with GME
This article explains it some: https://www.vice.com/en/article/qjpx8w/ ... ellers-cry
GameStop was a major target for financial firms who were shorting the company—many investors on the WallStreetBets subreddit believe that a few investment firms have shorted millions of shares of GameStop. This means that investors sell stock they don't have, then hope the price goes lower so they can buy the amount of shares they sold at a lower price at a later date.
To accomplish that a seller typically borrows stock from someone, usually an investment bank, then sells it. When the price drops they purchase the stock back and return it to who they borrowed it from. The act of buying the stock back is called “covering.” If the stock price rises instead of falls before a trader can cover their bet, they’re getting squeezed on their short. It’s a short squeeze. Because they've already sold the stock (that they didn't have), they still have to "cover" the amount of shares they've sold. If the stock price goes up, they have to pay that higher price and thus have lost money. When this happens en-masse, investors who have bet on a short are basically cutting their losses and forced to buy up the stock, which can send prices even higher.
If a stock has heavy short interest and gets squeezed, the mass move to cover can bid the price up even further, making the squeeze even worse and setting off a chain reaction that can cause rapid price increases
"But I confess that half the time I worry that I have too much in equities, and the other half of the time that I don't have enough in equities." John Bogle
Re: How to understand all that's going on with GME
I don't know if these replies were sarcasm asking me to stay away from such topics, but OK, I'll bite
https://www.theverge.com/2021/1/22/2224 ... volatility
https://www.theverge.com/2021/1/22/2224 ... volatility
Re: How to understand all that's going on with GME
I have a layman's conspiracy theory - don't know if this makes sense but wanted to see if my understanding is correct.
Generally big research firms, funds, etc control try to control the rise and fall of certain stocks by putting our reports and other mechanisms like collusion, to benefit themselves because they are big enough to be able to pull it off. Is this the same effect being pulled of by a pulled of by a public forum acting on public data and are successful just because of the volume of people involved. They know enough people have shorted the stock and if as a coordinated attack they can short squeeze for gains this time, can't it easily be repeated?
Generally big research firms, funds, etc control try to control the rise and fall of certain stocks by putting our reports and other mechanisms like collusion, to benefit themselves because they are big enough to be able to pull it off. Is this the same effect being pulled of by a pulled of by a public forum acting on public data and are successful just because of the volume of people involved. They know enough people have shorted the stock and if as a coordinated attack they can short squeeze for gains this time, can't it easily be repeated?
Re: How to understand all that's going on with GME
Its called options trading. Or more likely herd mentality.
https://www.cnbc.com/2018/05/04/the-val ... nging.html
Yes, even Buffett uses them. But remember he has been doing this for decades.
Its all the newbies on Robinhood and reddit that is causing the shift. Its also a game of supply and demand. People buying options, the "market makers" have to have the underlying stock in order to sell the options (otherwise its called a naked option). As a result they have to go on the open market to purchase actual shares and thereby driving up the stock.
Now if you look at the financials of companies like GME, it is actually losing money every quarter. negative net income.
Now even Tesla (I do not own any Tesla nor options, nor anything related to Tesla) loses money on every car it sells. If you actually strip out the carbon regulatory credits that GM and Chrysler pay Tesla every quarter you will see that its net income is actually negative. That is why at the end of every quarter Musk pushes the workers to push every car out of the lot (reminds me of the ending of the 80's movie Gung-Ho about a Japanese car company in America with Michael Keaton).
https://www.cnbc.com/2020/07/23/teslas- ... ility.html
But no one cares as long as Robinhood bro's keeps jacking up the price. Don't get me wrong, I want EV companies in general to succeed in the US (yes, made in the US).
https://www.cnbc.com/2018/05/04/the-val ... nging.html
Yes, even Buffett uses them. But remember he has been doing this for decades.
Its all the newbies on Robinhood and reddit that is causing the shift. Its also a game of supply and demand. People buying options, the "market makers" have to have the underlying stock in order to sell the options (otherwise its called a naked option). As a result they have to go on the open market to purchase actual shares and thereby driving up the stock.
Now if you look at the financials of companies like GME, it is actually losing money every quarter. negative net income.
Now even Tesla (I do not own any Tesla nor options, nor anything related to Tesla) loses money on every car it sells. If you actually strip out the carbon regulatory credits that GM and Chrysler pay Tesla every quarter you will see that its net income is actually negative. That is why at the end of every quarter Musk pushes the workers to push every car out of the lot (reminds me of the ending of the 80's movie Gung-Ho about a Japanese car company in America with Michael Keaton).
https://www.cnbc.com/2020/07/23/teslas- ... ility.html
But no one cares as long as Robinhood bro's keeps jacking up the price. Don't get me wrong, I want EV companies in general to succeed in the US (yes, made in the US).
Re: How to understand all that's going on with GME
Obviously collusion is against the law. Are there nefarious characters within the financial industry? Yes.aaja wrote: ↑Sat Jan 23, 2021 11:01 am I have a layman's conspiracy theory - don't know if this makes sense but wanted to see if my understanding is correct.
Generally big research firms, funds, etc control try to control the rise and fall of certain stocks by putting our reports and other mechanisms like collusion, to benefit themselves because they are big enough to be able to pull it off. Is this the same effect being pulled of by a pulled of by a public forum acting on public data and are successful just because of the volume of people involved. They know enough people have shorted the stock and if as a coordinated attack they can short squeeze for gains this time, can't it easily be repeated?
Remember the libor collusion from the major banks that sets (in general interest rates)? https://www.theguardian.com/business/20 ... ant-number
This is simply the rise of Robinhood and the late 90's early 2000's internet stock bubble, day trading BS. My guess with covid, unemployment, store closures, etc, when this ride is over, there will be a very, very bad day for the market.
Re: How to understand all that's going on with GME
I'm not super knowledgeable on this stuff so I could be wrong, but I think that's basically it. However, I'm not sure I would use the word "easily". The circumstances of GME were fairly unique.aaja wrote: ↑Sat Jan 23, 2021 11:01 am I have a layman's conspiracy theory - don't know if this makes sense but wanted to see if my understanding is correct.
Generally big research firms, funds, etc control try to control the rise and fall of certain stocks by putting our reports and other mechanisms like collusion, to benefit themselves because they are big enough to be able to pull it off. Is this the same effect being pulled of by a pulled of by a public forum acting on public data and are successful just because of the volume of people involved. They know enough people have shorted the stock and if as a coordinated attack they can short squeeze for gains this time, can't it easily be repeated?
I don't know exactly how short interest is measured but I saw people quoting figures of over 100%. Again, I don't know what that means, and maybe the people on WSB don't either, but someone explained it to me as more shares being shorted than even exist of the company. That's because the company was as good as dead and had refused to adapt their dying business model. I suppose it's technically possible if so many people want to short the stock that new short sellers are having to essentially borrow and sell shares which were dumped on the market by old short sellers, in essence double shorting. Keep in mind GME is the type of consumer-facong company that every new kid on Robinhood fancying themselves a day trader knows about and thought would fail, so it's quite susceptible to short interest from common individuals as well as institutions. It got to the point where brokerages flat out stopped offering shares for traders to short.
Well, all of a sudden, Ryan Cohen, the founder of Chewy, an online dog food retailer which he sold for a lot of money, bought up 10% of the company and put himself on the board along with other e-commerce specialists, and GME put out a statement calling themselves digital-first. Now, nothing has come of this change yet, because it was very recent, but this started to create hype over a potential recovery, which began to trigger the chain reaction and cause a significant price recovery. This is when the WSB people really came in droves and plotted to squeeze the short institutions.
In other words, yes, this is something the public can technically do. However, a lot of unique circumstances were in play with GME and the chain started to go off all by itself even without mass intervention. It's not something I would expect the public to be able to replicate on every stock at any given time.
Re: How to understand all that's going on with GME
Makes sense! Thanks for clarifying
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Re: How to understand all that's going on with GME
Shorters made a bad call and got burned is pretty much all. They thought a business making 5B annually and only valued at 300M to go to 0. Now valued at 4.5B instead, they're scorched.
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Re: How to understand all that's going on with GME
For future reference, readers here can't read your mind.aaja wrote: ↑Sat Jan 23, 2021 10:53 am I don't know if these replies were sarcasm asking me to stay away from such topics, but OK, I'll bite
https://www.theverge.com/2021/1/22/2224 ... volatility
So asking something like "...to understand what's going on here and how a group of people on reddit can cause such mayhem..." without any context about what mayhem or what reddit group (or even what GME stands for; there can be more than one such abbreviation depending upon context, as has been shown), or any link to something specific on reddit, isn't likely to get you the most helpful responses.
If, on the other hand, you had bothered to include the theverge.com link you have posted here now, but in the first post where you asked the question, that would have been far more useful.
It's a combination of helping the reader (who cannot read your mind/know what you meant) as well as trying to get the best responses for your own purposes.
Not everyone here on BH reads the same things or has the same specific interests.
Why you would preface your sharing of the relevant link for your own question with "...but OK, I'll bite" ---
RM
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Re: How to understand all that's going on with GME
1) stock suppressed and undervalued, bankruptcy narrative overblown
2) strong a rapidly expanding gaming market
3) new console release usually corresponds by with a rise in GME stock price
3) no one is super excited about what GameStop is at the moment, however, there is excitement surrounding ryan cohen’s involvement and the possibility of a major transition resulting in an increased, forward looking stock price
WSB is a fun subreddit that occasionally has some convincing DD’s. I became absolutely convinced by the analysis of GME as a value play with the cherry on top being a lottery ticket for a momentous short squeeze event.
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
2) strong a rapidly expanding gaming market
3) new console release usually corresponds by with a rise in GME stock price
3) no one is super excited about what GameStop is at the moment, however, there is excitement surrounding ryan cohen’s involvement and the possibility of a major transition resulting in an increased, forward looking stock price
WSB is a fun subreddit that occasionally has some convincing DD’s. I became absolutely convinced by the analysis of GME as a value play with the cherry on top being a lottery ticket for a momentous short squeeze event.
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
Re: How to understand all that's going on with GME
Sorry about the assumption. Will make sure to include all relevant information next time I post anything. Appreciate the response!ResearchMed wrote: ↑Sat Jan 23, 2021 11:45 amFor future reference, readers here can't read your mind.aaja wrote: ↑Sat Jan 23, 2021 10:53 am I don't know if these replies were sarcasm asking me to stay away from such topics, but OK, I'll bite
https://www.theverge.com/2021/1/22/2224 ... volatility
So asking something like "...to understand what's going on here and how a group of people on reddit can cause such mayhem..." without any context about what mayhem or what reddit group (or even what GME stands for; there can be more than one such abbreviation depending upon context, as has been shown), or any link to something specific on reddit, isn't likely to get you the most helpful responses.
If, on the other hand, you had bothered to include the theverge.com link you have posted here now, but in the first post where you asked the question, that would have been far more useful.
It's a combination of helping the reader (who cannot read your mind/know what you meant) as well as trying to get the best responses for your own purposes.
Not everyone here on BH reads the same things or has the same specific interests.
Why you would preface your sharing of the relevant link for your own question with "...but OK, I'll bite" ---
RM
Re: How to understand all that's going on with GME
+1000Marseille07 wrote: ↑Sat Jan 23, 2021 11:34 am Shorters made a bad call and got burned is pretty much all. They thought a business making 5B annually and only valued at 300M to go to 0. Now valued at 4.5B instead, they're scorched.
The short seller may be right but what is happening in GME is the risk of the theoretical "unlimited loss" you expose yourself to when shorting it. The short seller may be right that the debt load will bring it down or its mall heavy footprint is no winning recipe for the future. But low rates...maybe a surge back from low mall traffic levels...a partnership they can strike up...seems silly to bet a company that was trading at heavily distressed levels will go right to 0. Can get to 100 first who knows. Essentially when something is worth nothing, it can be worth anything.
Whew. Thank you Mr. Bogle for simplifying my life and making my investment decisions be how much leftover do I have this month, and sending it on its way.
Re: How to understand all that's going on with GME
Where can I read more about such topics from a theory standpoint. I get the gist but some of the terms and concepts fly over my head. Is there a book, article or forum you recommend by any chance.BuffMaltese wrote: ↑Sat Jan 23, 2021 11:58 am
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
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Re: How to understand all that's going on with GME [GameStop]
Also, you can edit your first post to include that link, which will probably be helpful for some.
You should be able to find a "pencil" icon in the upper right, above your own text. Clicking on that will allow you to edit. You will only see that pencil icon for your own posts, not for those of other members.
Sometimes people add something like,
ETA [meaning Edited To Add] <and then whatever was added, changed, etc.>
And also for future use, when editing, sometimes (probably not in this case) one can use the "strike-through" rather than totally deleting text. (The strike-through icon is above the white composing area, third clickable marker from the right, next to what should show "Normal" for the default font size.)
Deleting text in some cases can cause confusion, for those who already read it, and now don't quite recognize what's there, but don't know just "what's wrong or changed", etc., and also for new readers who will better understand why the change has been made.
RM
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Re: How to understand all that's going on with GME
The short interest calculations can be misleading. When a hedge fund shorts the stock there is another counter-party, the buyer, of the short sale. Because the share was borrowed from a margin/hypothecation/lending (call them owner A), and hedge fund B short sells that stock to buyer C, this process has resulted in two owners, or 2x the initial stock ownership before the short sale process. New owner C can lend that security to a different short seller as owner C is the owner of record and has no idea that there was borrowing/selling going on before their purchase.dboeger1 wrote: ↑Sat Jan 23, 2021 11:18 amI'm not super knowledgeable on this stuff so I could be wrong, but I think that's basically it. However, I'm not sure I would use the word "easily". The circumstances of GME were fairly unique.aaja wrote: ↑Sat Jan 23, 2021 11:01 am I have a layman's conspiracy theory - don't know if this makes sense but wanted to see if my understanding is correct.
Generally big research firms, funds, etc control try to control the rise and fall of certain stocks by putting our reports and other mechanisms like collusion, to benefit themselves because they are big enough to be able to pull it off. Is this the same effect being pulled of by a pulled of by a public forum acting on public data and are successful just because of the volume of people involved. They know enough people have shorted the stock and if as a coordinated attack they can short squeeze for gains this time, can't it easily be repeated?
I don't know exactly how short interest is measured but I saw people quoting figures of over 100%. Again, I don't know what that means, and maybe the people on WSB don't either, but someone explained it to me as more shares being shorted than even exist of the company. That's because the company was as good as dead and had refused to adapt their dying business model. I suppose it's technically possible if so many people want to short the stock that new short sellers are having to essentially borrow and sell shares which were dumped on the market by old short sellers, in essence double shorting. Keep in mind GME is the type of consumer-facong company that every new kid on Robinhood fancying themselves a day trader knows about and thought would fail, so it's quite susceptible to short interest from common individuals as well as institutions. It got to the point where brokerages flat out stopped offering shares for traders to short.
Well, all of a sudden, Ryan Cohen, the founder of Chewy, an online dog food retailer which he sold for a lot of money, bought up 10% of the company and put himself on the board along with other e-commerce specialists, and GME put out a statement calling themselves digital-first. Now, nothing has come of this change yet, because it was very recent, but this started to create hype over a potential recovery, which began to trigger the chain reaction and cause a significant price recovery. This is when the WSB people really came in droves and plotted to squeeze the short institutions.
In other words, yes, this is something the public can technically do. However, a lot of unique circumstances were in play with GME and the chain started to go off all by itself even without mass intervention. It's not something I would expect the public to be able to replicate on every stock at any given time.
Therefore, short interest uses a stale, but updated numerator, but the denominator doesn't adjust for the synthetic long (or what is an adjusted free float market cap).
As for the squeeze, the vast majority of the short interest was likely hedge funds and institutional prop traders. The retail and others forced a squeeze, in part, by buying call options forcing the brokerage/prime-brokers to go long the underlying security to hedge their risk. Once the short interest gets to be too high, there is a severe lack of supply for the short sellers to buy back to cover their position. Making it worse, they are being called out of the shorts - potentially - by their counter-parties.
Interesting situation for sure.
Re: How to understand all that's going on with GME
https://uat.tastytrade.com/tt/learn/an- ... the-greeksaaja wrote: ↑Sat Jan 23, 2021 1:30 pmWhere can I read more about such topics from a theory standpoint. I get the gist but some of the terms and concepts fly over my head. Is there a book, article or forum you recommend by any chance.BuffMaltese wrote: ↑Sat Jan 23, 2021 11:58 am
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
Tasty Trade has a lot of good info, videos, etc.
GME has (had?) more than 70 million shares sold short (more than 100% of float, or more shares than are actually available to trade). Because shorts are selling shares they do not own, they have to borrow shares from someone else, and have to pay interest on these borrowed shares. Interest on GME shares has been as high as 45% recently, but is usually around 20%.
When a short goes to close his position, he does this by buying back the shares he sold short on the open market. Because his losses are theoretically unlimited (because the stock price can keep going up) at some point his broker will force him to cover or close his position by buying back the shares he's short on the open market. This is essentially a margin call.
The long idea here is that the shorts will face a liquidity problem and be forced to buy shares on the open market at whatever price is available when they get margin called. This is what caused VW to briefly become the most valuable company in the world a few years ago: https://moxreports.com/vw-infinity-squeeze/
Re: How to understand all that's going on with GME
There's also the feedback loop aspect. The share buying from closing the short positions will continue to drive the share price up, causing other short sellers to potentially close as well and buy shares.Bastiat wrote: ↑Sat Jan 23, 2021 2:08 pmhttps://uat.tastytrade.com/tt/learn/an- ... the-greeksaaja wrote: ↑Sat Jan 23, 2021 1:30 pmWhere can I read more about such topics from a theory standpoint. I get the gist but some of the terms and concepts fly over my head. Is there a book, article or forum you recommend by any chance.BuffMaltese wrote: ↑Sat Jan 23, 2021 11:58 am
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
Tasty Trade has a lot of good info, videos, etc.
GME has (had?) more than 70 million shares sold short (more than 100% of float, or more shares than are actually available to trade). Because shorts are selling shares they do not own, they have to borrow shares from someone else, and have to pay interest on these borrowed shares. Interest on GME shares has been as high as 45% recently, but is usually around 20%.
When a short goes to close his position, he does this by buying back the shares he sold short on the open market. Because his losses are theoretically unlimited (because the stock price can keep going up) at some point his broker will force him to cover or close his position by buying back the shares he's short on the open market. This is essentially a margin call.
The long idea here is that the shorts will face a liquidity problem and be forced to buy shares on the open market at whatever price is available when they get margin called. This is what caused VW to briefly become the most valuable company in the world a few years ago: https://moxreports.com/vw-infinity-squeeze/
Re: How to understand all that's going on with GME
compound that with long investors not willingly selling, along with call options (even swaps) which force the counterparties to hold the underlying cash security to delta hedge (which mean full position because they were likely close to all in-the-money). Suddenly, the available shares to purchase to cover the shorts is dried up.MrJedi wrote: ↑Sat Jan 23, 2021 2:23 pmThere's also the feedback loop aspect. The share buying from closing the short positions will continue to drive the share price up, causing other short sellers to potentially close as well and buy shares.Bastiat wrote: ↑Sat Jan 23, 2021 2:08 pmhttps://uat.tastytrade.com/tt/learn/an- ... the-greeksaaja wrote: ↑Sat Jan 23, 2021 1:30 pmWhere can I read more about such topics from a theory standpoint. I get the gist but some of the terms and concepts fly over my head. Is there a book, article or forum you recommend by any chance.BuffMaltese wrote: ↑Sat Jan 23, 2021 11:58 am
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
Tasty Trade has a lot of good info, videos, etc.
GME has (had?) more than 70 million shares sold short (more than 100% of float, or more shares than are actually available to trade). Because shorts are selling shares they do not own, they have to borrow shares from someone else, and have to pay interest on these borrowed shares. Interest on GME shares has been as high as 45% recently, but is usually around 20%.
When a short goes to close his position, he does this by buying back the shares he sold short on the open market. Because his losses are theoretically unlimited (because the stock price can keep going up) at some point his broker will force him to cover or close his position by buying back the shares he's short on the open market. This is essentially a margin call.
The long idea here is that the shorts will face a liquidity problem and be forced to buy shares on the open market at whatever price is available when they get margin called. This is what caused VW to briefly become the most valuable company in the world a few years ago: https://moxreports.com/vw-infinity-squeeze/
As was mentioned, this is precisely what Porsche did to all the VW shorts
Re: How to understand all that's going on with GME [GameStop]
aaja wrote: ↑Sat Jan 23, 2021 10:38 am ...I have a 3 fund portfolio which I am more than happy with. This is just to expand my knowledge about financial markets out of interest.
https://www.theverge.com/2021/1/22/2224 ... volatility
There are literally hundreds of books and even more information online. Just google the term you're interested in. You should find more than enough info free online.aaja wrote: ↑Sat Jan 23, 2021 1:30 pmWhere can I read more about such topics from a theory standpoint. I get the gist but some of the terms and concepts fly over my head. Is there a book, article or forum you recommend by any chance.BuffMaltese wrote: ↑Sat Jan 23, 2021 11:58 am
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
Holding a 3 fund portfolio requires none of the terminology mentioned in this thread (shorts, puts, calls, options...). There's no need to deep-dive in the details unless you truly just wanted to understand what those terms mean.
Understanding a definition does not mean you have the experience to invest in that manner. You can get tripped up in no time flat.
Re: How to understand all that's going on with GME [GameStop]
It's the efficient market hypothesis in all it's glory
Jokes aside, take a look at wallstreetbets on reddit to get a better idea of what's going on with GME
Jokes aside, take a look at wallstreetbets on reddit to get a better idea of what's going on with GME
Re: How to understand all that's going on with GME [GameStop]
The market is pricing in future anticipated demand for moonshot stocks. Institutions are likely now watching /r/wallstreetbets for the next hot pick.
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Re: How to understand all that's going on with GME [GameStop]
This has been going on for months; they had this idea that it always pops up when a new console is available, and somehow or another Ryan Cohen (founder of Chewy.com) gets interested in it as an activist investor. I have no idea why people shorted it. I just can't explain that. But in any case, here you have someone trying to explain the short squeeze on a third grade level:
https://www.reddit.com/r/stocks/comment ... nevitable/
Now, since that was written, what happened was Cohen got three seats on the board, and he'll get his chance to try to transform their business more in line with how software is delivered nowadays. We'll see. The shorts might be permanently incinerated.
There are two things going on here, I guess. One is that you have activist investors battling it out with each other. Both famous, one a dot com founder on the board, and the other one a scumbag sort of character. This is like something out of a Saturday morning kids show. if it's just us billionaries at war with each other, there is a degree of professional courtesy.
So there are many people trying to manipulate the market. There are a lot of people on reddit, millions of them. Don't let anybody kid you, in aggregate, they have a lot of money. If there is a battle between activist investors going on, and a million redditors acting together come along and act as a multi-multi-billionaire activist investor, then the people who are accustomed to being important are going to be disappointed. This has been an issue with WSB for years now, but it's just getting bigger and in this case, a little more successful (and being right as well). There will be complaints about this, like the complaints you have about "democracy in the hands of the wrong kind of people". That sort of thing. Or, "I would have got away with it if it hadn't been for those meddling kids"
You might well wonder how people buying options can create a short squeeze, and that gets into option pricing and who the people are who would sell a call. When you sell a call, your potential losses are unlimited. There are only certain kinds of people who would sell them. As the stock moves against you, you start to create this debt associated with this call that you sold. Who are these people? Well, some of them are stockholders. They're safe. Some other ones are professional market makers and investment firms. If they're not stockholders, then when they start getting in real trouble they can buy the stock to stop the trouble. They can also buy the call back, but it always costs more than the difference between the stock and the strike price, always. so it's cheaper to buy the stock and wait it out. Some of them might buy the stock immediately anytime they can sell a call, in fact. Just to immediately make sure they are only harvesting premium. So if that's the case, you can force somebody else to buy stock at 100X your cost if they just never want to stop selling options.
I could explain what gamma is here, but it doesn't really matter for the purpose of this question. You can google that. The gamma squeeze is where people are forced to buy the stock to avoid losses on options.
There's no question that hedge fund managers and professionals are participating in what WSB. At least they openly say they do. It's a very silly group, so they are still evolving in their understanding of what it means to collectively be the biggest billionaire in the room.
https://www.reddit.com/r/stocks/comment ... nevitable/
Now, since that was written, what happened was Cohen got three seats on the board, and he'll get his chance to try to transform their business more in line with how software is delivered nowadays. We'll see. The shorts might be permanently incinerated.
There are two things going on here, I guess. One is that you have activist investors battling it out with each other. Both famous, one a dot com founder on the board, and the other one a scumbag sort of character. This is like something out of a Saturday morning kids show. if it's just us billionaries at war with each other, there is a degree of professional courtesy.
So there are many people trying to manipulate the market. There are a lot of people on reddit, millions of them. Don't let anybody kid you, in aggregate, they have a lot of money. If there is a battle between activist investors going on, and a million redditors acting together come along and act as a multi-multi-billionaire activist investor, then the people who are accustomed to being important are going to be disappointed. This has been an issue with WSB for years now, but it's just getting bigger and in this case, a little more successful (and being right as well). There will be complaints about this, like the complaints you have about "democracy in the hands of the wrong kind of people". That sort of thing. Or, "I would have got away with it if it hadn't been for those meddling kids"
You might well wonder how people buying options can create a short squeeze, and that gets into option pricing and who the people are who would sell a call. When you sell a call, your potential losses are unlimited. There are only certain kinds of people who would sell them. As the stock moves against you, you start to create this debt associated with this call that you sold. Who are these people? Well, some of them are stockholders. They're safe. Some other ones are professional market makers and investment firms. If they're not stockholders, then when they start getting in real trouble they can buy the stock to stop the trouble. They can also buy the call back, but it always costs more than the difference between the stock and the strike price, always. so it's cheaper to buy the stock and wait it out. Some of them might buy the stock immediately anytime they can sell a call, in fact. Just to immediately make sure they are only harvesting premium. So if that's the case, you can force somebody else to buy stock at 100X your cost if they just never want to stop selling options.
I could explain what gamma is here, but it doesn't really matter for the purpose of this question. You can google that. The gamma squeeze is where people are forced to buy the stock to avoid losses on options.
There's no question that hedge fund managers and professionals are participating in what WSB. At least they openly say they do. It's a very silly group, so they are still evolving in their understanding of what it means to collectively be the biggest billionaire in the room.
This time is the same
Re: How to understand all that's going on with GME
What if GME issues more shares?BJJ_GUY wrote: ↑Sat Jan 23, 2021 2:37 pmcompound that with long investors not willingly selling, along with call options (even swaps) which force the counterparties to hold the underlying cash security to delta hedge (which mean full position because they were likely close to all in-the-money). Suddenly, the available shares to purchase to cover the shorts is dried up.MrJedi wrote: ↑Sat Jan 23, 2021 2:23 pmThere's also the feedback loop aspect. The share buying from closing the short positions will continue to drive the share price up, causing other short sellers to potentially close as well and buy shares.Bastiat wrote: ↑Sat Jan 23, 2021 2:08 pmhttps://uat.tastytrade.com/tt/learn/an- ... the-greeksaaja wrote: ↑Sat Jan 23, 2021 1:30 pmWhere can I read more about such topics from a theory standpoint. I get the gist but some of the terms and concepts fly over my head. Is there a book, article or forum you recommend by any chance.BuffMaltese wrote: ↑Sat Jan 23, 2021 11:58 am
With that said, there does seem to be a growing camp that thinks this play is only has to do with the overextended shorts, pumping and holding to force the shorts to cover in some sort of coordinated effect. I don’t agree with this mentality nor do I think you can just identify any highly shorted stock and attempt to pull off a squeeze through a coordinated effort.
Tasty Trade has a lot of good info, videos, etc.
GME has (had?) more than 70 million shares sold short (more than 100% of float, or more shares than are actually available to trade). Because shorts are selling shares they do not own, they have to borrow shares from someone else, and have to pay interest on these borrowed shares. Interest on GME shares has been as high as 45% recently, but is usually around 20%.
When a short goes to close his position, he does this by buying back the shares he sold short on the open market. Because his losses are theoretically unlimited (because the stock price can keep going up) at some point his broker will force him to cover or close his position by buying back the shares he's short on the open market. This is essentially a margin call.
The long idea here is that the shorts will face a liquidity problem and be forced to buy shares on the open market at whatever price is available when they get margin called. This is what caused VW to briefly become the most valuable company in the world a few years ago: https://moxreports.com/vw-infinity-squeeze/
As was mentioned, this is precisely what Porsche did to all the VW shorts
Diversification is protection against ignorance - WB.
Re: How to understand all that's going on with GME [GameStop]
Thanks for explaining! Many at WSB are saying the squeeze hasn't started yet, what's your opinion?firebirdparts wrote: ↑Sat Jan 23, 2021 6:17 pm This has been going on for months; they had this idea that it always pops up when a new console is available, and somehow or another Ryan Cohen (founder of Chewy.com) gets interested in it as an activist investor. I have no idea why people shorted it. I just can't explain that. But in any case, here you have someone trying to explain the short squeeze on a third grade level:
https://www.reddit.com/r/stocks/comment ... nevitable/
Now, since that was written, what happened was Cohen got three seats on the board, and he'll get his chance to try to transform their business more in line with how software is delivered nowadays. We'll see. The shorts might be permanently incinerated.
There are two things going on here, I guess. One is that you have activist investors battling it out with each other. Both famous, one a dot com founder on the board, and the other one a scumbag sort of character. This is like something out of a Saturday morning kids show. if it's just us billionaries at war with each other, there is a degree of professional courtesy.
So there are many people trying to manipulate the market. There are a lot of people on reddit, millions of them. Don't let anybody kid you, in aggregate, they have a lot of money. If there is a battle between activist investors going on, and a million redditors acting together come along and act as a multi-multi-billionaire activist investor, then the people who are accustomed to being important are going to be disappointed. This has been an issue with WSB for years now, but it's just getting bigger and in this case, a little more successful (and being right as well). There will be complaints about this, like the complaints you have about "democracy in the hands of the wrong kind of people". That sort of thing. Or, "I would have got away with it if it hadn't been for those meddling kids"
You might well wonder how people buying options can create a short squeeze, and that gets into option pricing and who the people are who would sell a call. When you sell a call, your potential losses are unlimited. There are only certain kinds of people who would sell them. As the stock moves against you, you start to create this debt associated with this call that you sold. Who are these people? Well, some of them are stockholders. They're safe. Some other ones are professional market makers and investment firms. If they're not stockholders, then when they start getting in real trouble they can buy the stock to stop the trouble. They can also buy the call back, but it always costs more than the difference between the stock and the strike price, always. so it's cheaper to buy the stock and wait it out. Some of them might buy the stock immediately anytime they can sell a call, in fact. Just to immediately make sure they are only harvesting premium. So if that's the case, you can force somebody else to buy stock at 100X your cost if they just never want to stop selling options.
I could explain what gamma is here, but it doesn't really matter for the purpose of this question. You can google that. The gamma squeeze is where people are forced to buy the stock to avoid losses on options.
There's no question that hedge fund managers and professionals are participating in what WSB. At least they openly say they do. It's a very silly group, so they are still evolving in their understanding of what it means to collectively be the biggest billionaire in the room.
Diversification is protection against ignorance - WB.
- firebirdparts
- Posts: 4387
- Joined: Thu Jun 13, 2019 4:21 pm
- Location: Southern Appalachia
Re: How to understand all that's going on with GME [GameStop]
I don’t know how good the data actually are, but indications are that it’s still heavily shorted. Those folks may be hanging on for dear life or they may not.
I think it would be smart for GME to issue stock and pay off all their debt. I’m sure they are still trying to catch up with what’s happened to them.
I think it would be smart for GME to issue stock and pay off all their debt. I’m sure they are still trying to catch up with what’s happened to them.
This time is the same
Re: How to understand all that's going on with GME [GameStop]
Doesn't that depend on whether you are selling a covered call or naked call? I would assume since you are selling a covered call, you own the underlying security (that you bought at a lower price) so basically you loose out on the potential profits if the buyer buys the call.firebirdparts wrote: ↑Sat Jan 23, 2021 6:17 pm ...
When you sell a call, your potential losses are unlimited. .....
Whereas in selling a naked call you don't own the underlying security so you would have to buy the underlying security if the buyer buys the call. If the market price is higher than the strike price then you would take a loss. So in theory you potential losses becomes unlimited than selling a covered call.
Re: How to understand all that's going on with GME [GameStop]
What I am wondering is why do institutional investors short a stock? Does this mean institutions such as Harvard and yale have invested in timber , so these same funds also short stocks such as gme?
How can the shorts now avoid the impossible short squeeze? Some are saying the crazy spike in the price as much as 70% intra day was just call options being exercised and market makers and the underwriters of those calls rushing to buy to cover this?
Trading was halted 3 times on Friday, is this a NYSe auto trigger in the system that prevents or freezes trading when a stock rises or crashes ×% in a certain intra day?
I never understood options, but to me it seems a cheap and easy sure shot way of market manipulation?
Soft bank did something similar with nasdaq in September, doesn't sec not block hedge funds from playing these games of manipulation of stock prices? Obviously gme is not 1 person but 100s of random folks on reddit..
And I also read possibly the high volume intra day trades was hedge funds and biggies like JPM.and others who are now super bullish and goin long on it and or to lend it out to other shorters later.
How can the shorts now avoid the impossible short squeeze? Some are saying the crazy spike in the price as much as 70% intra day was just call options being exercised and market makers and the underwriters of those calls rushing to buy to cover this?
Trading was halted 3 times on Friday, is this a NYSe auto trigger in the system that prevents or freezes trading when a stock rises or crashes ×% in a certain intra day?
I never understood options, but to me it seems a cheap and easy sure shot way of market manipulation?
Soft bank did something similar with nasdaq in September, doesn't sec not block hedge funds from playing these games of manipulation of stock prices? Obviously gme is not 1 person but 100s of random folks on reddit..
And I also read possibly the high volume intra day trades was hedge funds and biggies like JPM.and others who are now super bullish and goin long on it and or to lend it out to other shorters later.
Re: How to understand all that's going on with GME [GameStop]
Harvard, Yale, and most U.S. endowments and top foundations are not shorting stocks. They hire hedge fund managers to invest long and short in stocks (as one strategy within their absolute return asset class, or whatever name you want to give the various hedge fund strategies). Harvard used to have in-house managers who did operate like a hedge fund, but the school caved to pressure from envious academic staff who could stand that investors made more than they did. Harvard's endowment has been a mess ever since. Many of the Canadian pensions are more active traders. But again, generally the institutional allocators of capital are investing entirely in third party active managers across public and private markets.elderwise wrote: ↑Sat Jan 23, 2021 6:55 pm What I am wondering is why do institutional investors short a stock? Does this mean institutions such as Harvard and yale have invested in timber , so these same funds also short stocks such as gme?
How can the shorts now avoid the impossible short squeeze? Some are saying the crazy spike in the price as much as 70% intra day was just call options being exercised and market makers and the underwriters of those calls rushing to buy to cover this?
Trading was halted 3 times on Friday, is this a NYSe auto trigger in the system that prevents or freezes trading when a stock rises or crashes ×% in a certain intra day?
I never understood options, but to me it seems a cheap and easy sure shot way of market manipulation?
Soft bank did something similar with nasdaq in September, doesn't sec not block hedge funds from playing these games of manipulation of stock prices? Obviously gme is not 1 person but 100s of random folks on reddit..
And I also read possibly the high volume intra day trades was hedge funds and biggies like JPM.and others who are now super bullish and goin long on it and or to lend it out to other shorters later.
The next question is hard to answer. Short sellers are currently at odds with market makers and their own counter-parties. Both groups need common shares; shorts need the access physical stock to cover their short position. market makers currently need shares to hedge the exposure, which keeps growing, of the increasing call buying from retail. The retail call buyers have effectively, and successfully, created a self-reinforcing cycle in which the short squeeze and the gamma squeeze are self perpetuating. I'm going to guys the market makers will alter the implied vols and strikes for the next contract to help alleviate pressure.
This is a unique situation, so the idea of options manipulating markets on a broader scale is not really a concern -- at least not in the context of what's going on with GME.
To touch on your final question: I'll reiterate what I stated earlier in this post. The high volume trading was less likely a case of the funds changing their investment thesis in the company. It's likely entirely due to the technicals related to their current positioning. Hedge funds are being forced to buy stocks to cover their shorts. Market makers are forced to buy GME stock to hedge the massive liability created by the high number of call options that flooded the market.
Re: How to understand all that's going on with GME [GameStop]
The market makers who are selling the calls are not covered from the outset. The typically buy/sell stock to delta hedge their exposure to various as the contracts change from sell date toward expiry.Indy317 wrote: ↑Sat Jan 23, 2021 6:54 pmDoesn't that depend on whether you are selling a covered call or naked call? I would assume since you are selling a covered call, you own the underlying security (that you bought at a lower price) so basically you loose out on the potential profits if the buyer buys the call.firebirdparts wrote: ↑Sat Jan 23, 2021 6:17 pm ...
When you sell a call, your potential losses are unlimited. .....
Whereas in selling a naked call you don't own the underlying security so you would have to buy the underlying security if the buyer buys the call. If the market price is higher than the strike price then you would take a loss. So in theory you potential losses becomes unlimited than selling a covered call.
In your example a covered call reduced that limitless loss potential. Well, this is precisely what hedge funds and market makers have been buying as much GME stocks as possible -- neither wants to be exposed to unlimited losses.
Re: How to understand all that's going on with GME
Dilutes shareholders/helps shorts by adding liquidity.Samosa22 wrote: ↑Sat Jan 23, 2021 6:27 pmWhat if GME issues more shares?BJJ_GUY wrote: ↑Sat Jan 23, 2021 2:37 pmcompound that with long investors not willingly selling, along with call options (even swaps) which force the counterparties to hold the underlying cash security to delta hedge (which mean full position because they were likely close to all in-the-money). Suddenly, the available shares to purchase to cover the shorts is dried up.MrJedi wrote: ↑Sat Jan 23, 2021 2:23 pmThere's also the feedback loop aspect. The share buying from closing the short positions will continue to drive the share price up, causing other short sellers to potentially close as well and buy shares.Bastiat wrote: ↑Sat Jan 23, 2021 2:08 pmhttps://uat.tastytrade.com/tt/learn/an- ... the-greeks
Tasty Trade has a lot of good info, videos, etc.
GME has (had?) more than 70 million shares sold short (more than 100% of float, or more shares than are actually available to trade). Because shorts are selling shares they do not own, they have to borrow shares from someone else, and have to pay interest on these borrowed shares. Interest on GME shares has been as high as 45% recently, but is usually around 20%.
When a short goes to close his position, he does this by buying back the shares he sold short on the open market. Because his losses are theoretically unlimited (because the stock price can keep going up) at some point his broker will force him to cover or close his position by buying back the shares he's short on the open market. This is essentially a margin call.
The long idea here is that the shorts will face a liquidity problem and be forced to buy shares on the open market at whatever price is available when they get margin called. This is what caused VW to briefly become the most valuable company in the world a few years ago: https://moxreports.com/vw-infinity-squeeze/
As was mentioned, this is precisely what Porsche did to all the VW shorts
At their last earnings call they filed a $100M shelf offering for optionality and due to uncertainty re. COVID.
The short position at the current valuation (assuming 70M shares at $61) is over $4.2 Billion, so even if the entire $100M shelf offering were bought directly for short covering it would not do that much to alleviate their problem.
Also never really answered OP's question re. Gamma squeeze. Gamma is the derivative of the rate of change of an option's price relative to share price. Basically when someone buys a call (long option) the market maker has to buy 100 shares to cover that position. A gamma squeeze is the positive influence on a stock's price as heavy call volume drives up share price due to the market makers having to buy shares to cover the calls...which might lead to more call buying etc.
With GME, the highest option contract at expiry on friday was $60, meaning ALL Gamestop options expired in the money (could be exercised for shares). This, I think, has never happened before. The market makers had 0 calls that expired out of the money (could not be exercised) and thus was on the hook to issue shares for ALL of them.
Re: How to understand all that's going on with GME
Thanks for explaining, so to clarify when you say never happened before means as in for GME stock or for ANY stock??Bastiat wrote: ↑Sun Jan 24, 2021 10:29 amDilutes shareholders/helps shorts by adding liquidity.Samosa22 wrote: ↑Sat Jan 23, 2021 6:27 pmWhat if GME issues more shares?BJJ_GUY wrote: ↑Sat Jan 23, 2021 2:37 pmcompound that with long investors not willingly selling, along with call options (even swaps) which force the counterparties to hold the underlying cash security to delta hedge (which mean full position because they were likely close to all in-the-money). Suddenly, the available shares to purchase to cover the shorts is dried up.MrJedi wrote: ↑Sat Jan 23, 2021 2:23 pmThere's also the feedback loop aspect. The share buying from closing the short positions will continue to drive the share price up, causing other short sellers to potentially close as well and buy shares.Bastiat wrote: ↑Sat Jan 23, 2021 2:08 pm
https://uat.tastytrade.com/tt/learn/an- ... the-greeks
Tasty Trade has a lot of good info, videos, etc.
GME has (had?) more than 70 million shares sold short (more than 100% of float, or more shares than are actually available to trade). Because shorts are selling shares they do not own, they have to borrow shares from someone else, and have to pay interest on these borrowed shares. Interest on GME shares has been as high as 45% recently, but is usually around 20%.
When a short goes to close his position, he does this by buying back the shares he sold short on the open market. Because his losses are theoretically unlimited (because the stock price can keep going up) at some point his broker will force him to cover or close his position by buying back the shares he's short on the open market. This is essentially a margin call.
The long idea here is that the shorts will face a liquidity problem and be forced to buy shares on the open market at whatever price is available when they get margin called. This is what caused VW to briefly become the most valuable company in the world a few years ago: https://moxreports.com/vw-infinity-squeeze/
As was mentioned, this is precisely what Porsche did to all the VW shorts
At their last earnings call they filed a $100M shelf offering for optionality and due to uncertainty re. COVID.
The short position at the current valuation (assuming 70M shares at $61) is over $4.2 Billion, so even if the entire $100M shelf offering were bought directly for short covering it would not do that much to alleviate their problem.
Also never really answered OP's question re. Gamma squeeze. Gamma is the derivative of the rate of change of an option's price relative to share price. Basically when someone buys a call (long option) the market maker has to buy 100 shares to cover that position. A gamma squeeze is the positive influence on a stock's price as heavy call volume drives up share price due to the market makers having to buy shares to cover the calls...which might lead to more call buying etc.
With GME, the highest option contract at expiry on friday was $60, meaning ALL Gamestop options expired in the money (could be exercised for shares). This, I think, has never happened before. The market makers had 0 calls that expired out of the money (could not be exercised) and thus was on the hook to issue shares for ALL of them.
Secondly I keep reading online that people were saying (yes mostly on reddit) its essential for the stock to close at or above $60 for Friday and Monday will be explosive..why / how does this affect call buying / options and what parameters.
- canadianbacon
- Posts: 676
- Joined: Sun Nov 10, 2019 9:04 pm
Re: How to understand all that's going on with GME [GameStop]
A good reminder of the first chapter of Morgan Housel's "Psychology of Money", that different investors have different goals.
The shorters may be right that the long-term trajectory of GME is not good, but that doesn't mean that troublemakers with more short-term objectives can't create trouble for them along the way.
Also, I see from the article that GME stock was "138%" sold short. So maybe this is actually healthy behavior, punishing excessive short-selling activity .
The shorters may be right that the long-term trajectory of GME is not good, but that doesn't mean that troublemakers with more short-term objectives can't create trouble for them along the way.
Also, I see from the article that GME stock was "138%" sold short. So maybe this is actually healthy behavior, punishing excessive short-selling activity .
Bulls make money, bears make money, pigs get slaughtered.
Re: How to understand all that's going on with GME [GameStop]
We addressed this misleading figure in the above comments. Still, the actual % was still too high for comfort.canadianbacon wrote: ↑Sun Jan 24, 2021 10:54 am A good reminder of the first chapter of Morgan Housel's "Psychology of Money", that different investors have different goals.
The shorters may be right that the long-term trajectory of GME is not good, but that doesn't mean that troublemakers with more short-term objectives can't create trouble for them along the way.
Also, I see from the article that GME stock was "138%" sold short. So maybe this is actually healthy behavior, punishing excessive short-selling activity .
Re: How to understand all that's going on with GME [GameStop]
I'm with OP: trying to understand what's happening here as I, too, find this all fascinating. Here's my understanding so far.
You know that movie, "The Big Short"? In it, Jared Vennet [played by Ryan Gossling] says the following:
https://www.reddit.com/r/wallstreetbets ... find_them/
The working theory, which was effectively a catalyst for further interest and, partially, the WSB movement on this stock, is that a significant portion of the outstanding short interest is fueled by naked short selling.
The SEC banned naked short selling after the GFC. But why do people believe it's happening here? Because GME has been on the SEC's threshold list for well over a month straight:
https://www.reddit.com/r/wallstreetbets ... should_be/
What is the threshold list?
How likely is it that this stock, with all the aforementioned short interest, landed on the SEC threshold list due to "mundane reasons, such as technical anomalies or human error"? The internet thinks not likely.
So, with all the hypothesized short interest floating around, investors believe they saw, among other things, an opportunity for a short squeeze. (Ryan Cohen's entry into GME is also seen a good long-term value bet due to his work with Chewy and due to the perceived mismanagement of GME's informational assets). Again, the working theory is that there's simply not enough "available" shares around to cover all the outstanding short obligations. There's threads trying to hypothesize the "available" amount:
https://www.reddit.com/r/wallstreetbets ... gs_of_gme/
Supposedly, this analysis doesn't account for all the options that ended in-the money on Friday. Which means that roughly another 15mil shares are needed to settle those options by Tuesday.
https://www.reddit.com/r/wallstreetbets ... the_weeks/
Taking all this into account (and not even considering the derivatives angle), many believe in GME as a solid investment, whether its the short play (i.e., short squeeze) or the long play (i.e., belief in Cohen). Certainly, people have done their homework. Not sure if many truly understand the totality of risk involved. I don't. Specifically, I'm not sure 1) what exactly happens when trading is halted due to a sudden surge in price; 2) why GME can't or won't simply issue a ton of new shares; and 3) if I buy for the short play, what's my exit point (i.e., at what price do I sell)?
For #1, I read somewhere that, when trading is halted, institutional short sellers have an opportunity to "re-cover" their short positions. Retail investors who aren't used to facing such halts, can't utilize these halts to their advantage. I'm not certain about this last point, so I'm trying to research it more.
If anything, it's interesting to watch it unfold live in such a public manner (and learn a few things along the way).
You know that movie, "The Big Short"? In it, Jared Vennet [played by Ryan Gossling] says the following:
Apparently, people looked (and, if you believe the internet, one of those people was none other than Dr. Michael Burry). Specifically, they looked at all the short interest in the stock. They noticed the alarmingly high shares on loan and float %.I'm guessing most of you still don't really know what happened. Yeah, you got a soundbite you repeat so you don't sound dumb, but come on. But, there were some who saw it coming. While the whole world was having a big old party, a few outsiders and weirdos saw what no one else could ... These outsiders saw the giant lie at the heart of the economy, and they saw it by doing something the rest of the suckers never thought to do: They looked.
https://www.reddit.com/r/wallstreetbets ... find_them/
The working theory, which was effectively a catalyst for further interest and, partially, the WSB movement on this stock, is that a significant portion of the outstanding short interest is fueled by naked short selling.
https://www.investopedia.com/terms/n/nakedshorting.aspNaked shorting takes place when investors sell shorts associated with shares that they do not possess and have not confirmed their ability to possess. If the trade associated with the short needs to take place in order to fulfill the obligations of the position, then the trade may fail to complete within the required clearing time because the seller does not actually have access to the shares.
The SEC banned naked short selling after the GFC. But why do people believe it's happening here? Because GME has been on the SEC's threshold list for well over a month straight:
https://www.reddit.com/r/wallstreetbets ... should_be/
What is the threshold list?
https://www.investopedia.com/terms/t/thresholdlist.aspThe SEC implemented Regulation SHO in Jan. 2005, in an effort to reduce naked short selling practices. This type of transaction consists of shorting shares that the trader does not in fact own. When naked short selling occurs, the associated transactions will often fail to clear, since the shares in question were never really in the trader's account. By requiring that these failed transactions are regularly reported on a threshold list, the SEC and other regulators can identify clues that naked short selling may have occurred.
How likely is it that this stock, with all the aforementioned short interest, landed on the SEC threshold list due to "mundane reasons, such as technical anomalies or human error"? The internet thinks not likely.
So, with all the hypothesized short interest floating around, investors believe they saw, among other things, an opportunity for a short squeeze. (Ryan Cohen's entry into GME is also seen a good long-term value bet due to his work with Chewy and due to the perceived mismanagement of GME's informational assets). Again, the working theory is that there's simply not enough "available" shares around to cover all the outstanding short obligations. There's threads trying to hypothesize the "available" amount:
https://www.reddit.com/r/wallstreetbets ... gs_of_gme/
Supposedly, this analysis doesn't account for all the options that ended in-the money on Friday. Which means that roughly another 15mil shares are needed to settle those options by Tuesday.
https://www.reddit.com/r/wallstreetbets ... the_weeks/
Taking all this into account (and not even considering the derivatives angle), many believe in GME as a solid investment, whether its the short play (i.e., short squeeze) or the long play (i.e., belief in Cohen). Certainly, people have done their homework. Not sure if many truly understand the totality of risk involved. I don't. Specifically, I'm not sure 1) what exactly happens when trading is halted due to a sudden surge in price; 2) why GME can't or won't simply issue a ton of new shares; and 3) if I buy for the short play, what's my exit point (i.e., at what price do I sell)?
For #1, I read somewhere that, when trading is halted, institutional short sellers have an opportunity to "re-cover" their short positions. Retail investors who aren't used to facing such halts, can't utilize these halts to their advantage. I'm not certain about this last point, so I'm trying to research it more.
If anything, it's interesting to watch it unfold live in such a public manner (and learn a few things along the way).
Re: How to understand all that's going on with GME
Not an expert, but here is my explanation.elderwise wrote: ↑Sun Jan 24, 2021 10:50 am
Thanks for explaining, so to clarify when you say never happened before means as in for GME stock or for ANY stock??
Secondly I keep reading online that people were saying (yes mostly on reddit) its essential for the stock to close at or above $60 for Friday and Monday will be explosive..why / how does this affect call buying / options and what parameters.
Closing above $60 meant they were money good and the market makers had to pay up.
Now there are listed options with 70 and 115 strikes, or something like that. The goal/hope is that market makers will, yet again, be in the position of buying stock to delta hedge their exposure (since they are the ones selling those call options). If the stock price climbs toward the 70 strike price the gamma picks up again. On the other side of the equation remains the short sellers who can hang on if their prime broker allows, they can cover the short (which means paying up for the physical stock, thus pushing up price more), or they may get called out of the position by their counter-party forcing a cover (which still forces them to buy cash stocks and puts upward pressure on the stock).
Re: How to understand all that's going on with GME [GameStop]
So is it still a *good idea to go long on GME tomorrow morning at market open? Is it too late now?
*By good idea I mean going for at least 3X gains using money that one can afford to lose and still be able to sleep well.
*By good idea I mean going for at least 3X gains using money that one can afford to lose and still be able to sleep well.
Diversification is protection against ignorance - WB.
Re: How to understand all that's going on with GME [GameStop]
Great commentary, and I quoted this specific passage as I think it's key. I have been casually following WSB for over a year for entertainment, and I think there is absolutely a level of underestimation by the institutions involved here. Not only do the users at WSB have money, but perhaps more importantly, their risk tolerance is off the charts. It's almost a rite of passage on that sub to post proof of six-figure losses on a gamble in the market. Read through it quickly...you'll see folks selling their cars, taking out loans, cashing out retirement accounts to get in on this...and they won't be dissuaded until they're left with nothing or have struck it rich.firebirdparts wrote: ↑Sat Jan 23, 2021 6:17 pm There are a lot of people on reddit, millions of them. Don't let anybody kid you, in aggregate, they have a lot of money. If there is a battle between activist investors going on, and a million redditors acting together come along and act as a multi-multi-billionaire activist investor, then the people who are accustomed to being important are going to be disappointed.
Re: How to understand all that's going on with GME [GameStop]
The money's real, but I'd take any posts re: "folks selling their cars, taking out loans, cashing out retirement accounts to get in on this...and they won't be dissuaded until they're left with nothing or have struck it rich" with a grain of salt. WSB has been around for like 10+ years? I doubt it would've lasted that long if members, en masse, seriously did this. Remember, a large part of their posting (whether its true or not) is also for the LOLZ.Kris3 wrote: ↑Sun Jan 24, 2021 11:36 amGreat commentary, and I quoted this specific passage as I think it's key. I have been casually following WSB for over a year for entertainment, and I think there is absolutely a level of underestimation by the institutions involved here. Not only do the users at WSB have money, but perhaps more importantly, their risk tolerance is off the charts. It's almost a rite of passage on that sub to post proof of six-figure losses on a gamble in the market. Read through it quickly...you'll see folks selling their cars, taking out loans, cashing out retirement accounts to get in on this...and they won't be dissuaded until they're left with nothing or have struck it rich.firebirdparts wrote: ↑Sat Jan 23, 2021 6:17 pm There are a lot of people on reddit, millions of them. Don't let anybody kid you, in aggregate, they have a lot of money. If there is a battle between activist investors going on, and a million redditors acting together come along and act as a multi-multi-billionaire activist investor, then the people who are accustomed to being important are going to be disappointed.
Re: How to understand all that's going on with GME [GameStop]
Like any investment, you gotta do your homework and see if you understand the risks well enough to take them, whether its for the short play (i.e., long on short squeeze) or long play (i.e., long on the stock w/r/t Cohen).
For the short play, this event is rather unprecedented. A common comparison (though the factors and catalyst seem way different) is the VW short squeeze. I believe it went from €200 to €1000.
https://www.ft.com/content/0a58b63a-429 ... aabef39a26
How high could this go? Who knows. But you better have an exit strategy if you're not willing to let it ride for the long play.
Re: How to understand all that's going on with GME [GameStop]
That's fair, and plenty of "proof" posts have been manipulated images without question. It's difficult to tell what proportion of the membership is actually involved. Tactically, I think it was a mistake for Citron's Andrew Left to antagonize them last week.Tester83 wrote: ↑Sun Jan 24, 2021 11:48 am The money's real, but I'd take any posts re: "folks selling their cars, taking out loans, cashing out retirement accounts to get in on this...and they won't be dissuaded until they're left with nothing or have struck it rich" with a grain of salt. WSB has been around for like 10+ years? I doubt it would've lasted that long if members, en masse, seriously did this. Remember, a large part of their posting (whether its true or not) is also for the LOLZ.
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Re: How to understand all that's going on with GME [GameStop]
It's too late now in my opinion. Ask yourself if GME would be valued at 15B with 5B in rev and shrinking by 30% YoY.
Re: How to understand all that's going on with GME [GameStop]
I might have messed up the terminology. I meant to say buying GME shares in the hopes of profiting from (infinite) short squeeze.Marseille07 wrote: ↑Sun Jan 24, 2021 12:41 pmIt's too late now in my opinion. Ask yourself if GME would be valued at 15B with 5B in rev and shrinking by 30% YoY.
Diversification is protection against ignorance - WB.
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Re: How to understand all that's going on with GME [GameStop]
We don't know if short squeeze is still remaining or has already taken place. Are you certain that the likes of Citron are still out there holding their short position?Samosa22 wrote: ↑Sun Jan 24, 2021 12:55 pmI might have messed up the terminology. I meant to say buying GME shares in the hopes of profiting from (infinite) short squeeze.Marseille07 wrote: ↑Sun Jan 24, 2021 12:41 pmIt's too late now in my opinion. Ask yourself if GME would be valued at 15B with 5B in rev and shrinking by 30% YoY.
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Re: How to understand all that's going on with GME [GameStop]
I will buy a little bit on my IRA.
Just to see how it plays out.
Just to see how it plays out.
Re: How to understand all that's going on with GME [GameStop]
I have no clue. What I have read is that short squeeze hasn't even started yet....but of course this could be incorrect, and I have no way of evaluating the situation by myself. But I have almost decided to throw in at least $10K just in case this indeed is a historical squeeze. But I am wondering should I go in deep like $50K or something.Marseille07 wrote: ↑Sun Jan 24, 2021 1:07 pmWe don't know if short squeeze is still remaining or has already taken place. Are you certain that the likes of Citron are still out there holding their short position?Samosa22 wrote: ↑Sun Jan 24, 2021 12:55 pmI might have messed up the terminology. I meant to say buying GME shares in the hopes of profiting from (infinite) short squeeze.Marseille07 wrote: ↑Sun Jan 24, 2021 12:41 pmIt's too late now in my opinion. Ask yourself if GME would be valued at 15B with 5B in rev and shrinking by 30% YoY.
Diversification is protection against ignorance - WB.
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Re: How to understand all that's going on with GME [GameStop]
I don't know how big 10K or 50K is with respect to your NW, but if you can afford to lose then it's not a bad idea to try your luck.Samosa22 wrote: ↑Sun Jan 24, 2021 1:18 pmI have no clue. What I have read is that short squeeze hasn't even started yet....but of course this could be incorrect, and I have no way of evaluating the situation by myself. But I have almost decided to throw in at least $10K just in case this indeed is a historical squeeze. But I am wondering should I go in deep like $50K or something.Marseille07 wrote: ↑Sun Jan 24, 2021 1:07 pmWe don't know if short squeeze is still remaining or has already taken place. Are you certain that the likes of Citron are still out there holding their short position?Samosa22 wrote: ↑Sun Jan 24, 2021 12:55 pmI might have messed up the terminology. I meant to say buying GME shares in the hopes of profiting from (infinite) short squeeze.Marseille07 wrote: ↑Sun Jan 24, 2021 12:41 pmIt's too late now in my opinion. Ask yourself if GME would be valued at 15B with 5B in rev and shrinking by 30% YoY.