How to understand all that's going on with GME [GameStop]

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ericcohen
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Re: How to understand all that's going on with GME [GameStop]

Post by ericcohen »

This is the best explanation I’ve seen.

https://www.youtube.com/watch?v=4EUbJcGoYQ4
cogito
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Re: How to understand all that's going on with GME [GameStop]

Post by cogito »

Is there really anything preventing them from following the Tesla model and just announcing a capital raise to help with their ecommerce transition, bringing in a ton of cash, and permanently hanging out at a new market cap of 10 billion or so? Crazier things have happened.
alex_686
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Re: How to understand all that's going on with GME [GameStop]

Post by alex_686 »

cogito wrote: Mon Jan 25, 2021 8:11 pm Is there really anything preventing them from following the Tesla model and just announcing a capital raise to help with their ecommerce transition, bringing in a ton of cash, and permanently hanging out at a new market cap of 10 billion or so? Crazier things have happened.
IIRC they did last December. 100m raised.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
alex_686
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Re: How to understand all that's going on with GME [GameStop]

Post by alex_686 »

Gadget wrote: Mon Jan 25, 2021 2:55 pm Good answer. Makes more sense when put that way.

Maybe I just don't fundamentally like being able to try to short a company. My rationale might be entirely emotional and have no basis in economic theory or logic.
So more thoughts on this.

First, search out the Nikola electric truck fraud from this year. Nikola is trying to be the Tesla of trucks. After all, Tesla's first name was Nikola. They had a nifty video of their truck cursing down the road. It was a really hot stock. Short sellers analyzed the video and determine that the truck was actually rolling downhill. And then other smoke and mirror tricks appeared. Now the stock price is probably closer to what it should be.

Next, consider a 130/30 fund. In this situation the portfolio manager short sells 30% of their portfolio to go long 130%. Let us unpack this a bit. If you believe that a active manager can select superior stocks then you must also believe that some stocks are better than others. Why limit the portfolio manager's skill to only pick outperforming stocks? Why not let them short the underperformers.

Or you could go a full hedge fund - as it was originally used. 100 long / 100 short. In theory this stock portfolio won't crash in a bear market. Won't rise either in a bull market - but that is kind of the point. 0% market risk, all of the return is from the manager's skill. At least in theory.

In short, you can go short a company with intentions of market manipulation or unbridled greed.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Tester83
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Re: How to understand all that's going on with GME [GameStop]

Post by Tester83 »

Gadget wrote: Mon Jan 25, 2021 2:55 pm
alex_686 wrote: Mon Jan 25, 2021 2:21 pm
Gadget wrote: Mon Jan 25, 2021 1:30 pm How do you reconcile being able to short 140% of shares? How can the number not be capped at 100%? Maybe I just don't get it.

I also thought losses were capped to what you put in on call options. Can you get in the same position and lose way more than you put in on call options? I thought they could only go down to zero.
Let us look at a corporation that has just 1 share.

Person A lends out their share to
Person B, who shorts this borrowed share by selling it to
Person C who then lends it out to
Person D, who shorts this borrowed share by selling it to
Person E.

So we are currently 300% long and 200% short, so net long 100%. Net long always have to be 100%.

As for limiting the shorts to 100%, not sure how one would do that. The securities lending process is decentralized, so no logical choke point to put the limit. Plus it is a international, so institutional investors would go offshore.

And why limit it to 100%? Why not 125% or 75%? From my viewpoint, the threat of a short squeeze is a de facto technical control that limits the short position.
Good answer. Makes more sense when put that way.

Maybe I just don't fundamentally like being able to try to short a company. My rationale might be entirely emotional and have no basis in economic theory or logic.
Can this explain how GME reach its current level of outstanding short interest + its continuous appearance on the NYSE SHO list for almost two months straight without any presence of illegal naked short selling? I'm curious if that theory (i.e., illegal short selling occurred) has merit.
Valuethinker
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Re: How to understand all that's going on with GME [GameStop]

Post by Valuethinker »

alex_686 wrote: Mon Jan 25, 2021 4:28 pm
Gadget wrote: Mon Jan 25, 2021 2:55 pm Maybe I just don't fundamentally like being able to try to short a company. My rationale might be entirely emotional and have no basis in economic theory or logic.
This position is very common. However the actual arguments against it, either on the theory side or actual practice, tends to be weak.
The argument that has some sort of legal and economic substance is the one that short sellers deliberately circulate bad rumours about companies to hit their share price. And this does happen.

But the economic value of short sellers can be huge. Don't we all wish there had been more short sellers of Enron, Worlcom, Nortel? Wirecard?

Any force that acts to countervail the tendency of financial markets to form price bubbles (positive bubbles; value investors work to eliminate negative bubbles).

In fact it is the limits to short selling that restrict its ability to normalise markets. I am not necessarily advocating removing those, I should stress, because you always want to have restrictions on the leverage of market participants.
Tingting1013
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Re: How to understand all that's going on with GME [GameStop]

Post by Tingting1013 »

Tester83 wrote: Tue Jan 26, 2021 8:14 am
Gadget wrote: Mon Jan 25, 2021 2:55 pm
alex_686 wrote: Mon Jan 25, 2021 2:21 pm
Gadget wrote: Mon Jan 25, 2021 1:30 pm How do you reconcile being able to short 140% of shares? How can the number not be capped at 100%? Maybe I just don't get it.

I also thought losses were capped to what you put in on call options. Can you get in the same position and lose way more than you put in on call options? I thought they could only go down to zero.
Let us look at a corporation that has just 1 share.

Person A lends out their share to
Person B, who shorts this borrowed share by selling it to
Person C who then lends it out to
Person D, who shorts this borrowed share by selling it to
Person E.

So we are currently 300% long and 200% short, so net long 100%. Net long always have to be 100%.

As for limiting the shorts to 100%, not sure how one would do that. The securities lending process is decentralized, so no logical choke point to put the limit. Plus it is a international, so institutional investors would go offshore.

And why limit it to 100%? Why not 125% or 75%? From my viewpoint, the threat of a short squeeze is a de facto technical control that limits the short position.
Good answer. Makes more sense when put that way.

Maybe I just don't fundamentally like being able to try to short a company. My rationale might be entirely emotional and have no basis in economic theory or logic.
Can this explain how GME reach its current level of outstanding short interest + its continuous appearance on the NYSE SHO list for almost two months straight without any presence of illegal naked short selling? I'm curious if that theory (i.e., illegal short selling occurred) has merit.
From Matt Levine:
There are 100 shares.

A owns 90 of them, B owns 10.

A lends her 90 shares to C, who shorts them all to D.

Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but 190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.)

Short interest is 90 shares out of 100 outstanding.

Now D lends her 90 shares to E, who shorts them all to F.

Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding.
Tester83
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Re: How to understand all that's going on with GME [GameStop]

Post by Tester83 »

Tingting1013 wrote: Tue Jan 26, 2021 9:42 am
Tester83 wrote: Tue Jan 26, 2021 8:14 am
Gadget wrote: Mon Jan 25, 2021 2:55 pm
alex_686 wrote: Mon Jan 25, 2021 2:21 pm
Gadget wrote: Mon Jan 25, 2021 1:30 pm How do you reconcile being able to short 140% of shares? How can the number not be capped at 100%? Maybe I just don't get it.

I also thought losses were capped to what you put in on call options. Can you get in the same position and lose way more than you put in on call options? I thought they could only go down to zero.
Let us look at a corporation that has just 1 share.

Person A lends out their share to
Person B, who shorts this borrowed share by selling it to
Person C who then lends it out to
Person D, who shorts this borrowed share by selling it to
Person E.

So we are currently 300% long and 200% short, so net long 100%. Net long always have to be 100%.

As for limiting the shorts to 100%, not sure how one would do that. The securities lending process is decentralized, so no logical choke point to put the limit. Plus it is a international, so institutional investors would go offshore.

And why limit it to 100%? Why not 125% or 75%? From my viewpoint, the threat of a short squeeze is a de facto technical control that limits the short position.
Good answer. Makes more sense when put that way.

Maybe I just don't fundamentally like being able to try to short a company. My rationale might be entirely emotional and have no basis in economic theory or logic.
Can this explain how GME reach its current level of outstanding short interest + its continuous appearance on the NYSE SHO list for almost two months straight without any presence of illegal naked short selling? I'm curious if that theory (i.e., illegal short selling occurred) has merit.
From Matt Levine:
There are 100 shares.

A owns 90 of them, B owns 10.

A lends her 90 shares to C, who shorts them all to D.

Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but 190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.)

Short interest is 90 shares out of 100 outstanding.

Now D lends her 90 shares to E, who shorts them all to F.

Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding.
Thank you, TingTing1013.

Now given this entire framework, is GME's continued appearance on the NYSE SHO list likely due to this short interest complexity multiplied over the millions of outstanding shares? I assume it's simply difficult unwind (especially say, if the shorting daisy-chain goes even further down the line). Perhaps its not that easy to "net-out" all the interests in between to figure out where the actual stock is?
alex_686
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Re: How to understand all that's going on with GME [GameStop]

Post by alex_686 »

Tester83 wrote: Tue Jan 26, 2021 8:14 am Can this explain how GME reach its current level of outstanding short interest + its continuous appearance on the NYSE SHO list for almost two months straight without any presence of illegal naked short selling? I'm curious if that theory (i.e., illegal short selling occurred) has merit.
I would be skeptical that this would be a major cause.

Naked short selling is when you sell shares that you have not borrowed. Honestly, this happens all of the time. Lots of time sensitive trades, complex systems, things fall through the cracks. But at the end of the day the broker will tally up all of their positions. If they are naked - which is usually only a percent or two, they scramble overtime to find shares and get them covered the next day.

I have a decent understanding of the regulations and controls around this. There are multiple controls in custody, margin, and corporate treasury (risk control) which are monitored by external auditors and regulators.

Now, maybe some rough trader has a naked position sitting on their books. If so, that position would not show up in the outstanding short interest coverage. If you are cooking the books for the internal auditors you are surely not going to report the correct figures to a external public source.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
alex_686
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Re: How to understand all that's going on with GME [GameStop]

Post by alex_686 »

Tester83 wrote: Tue Jan 26, 2021 9:56 am Now given this entire framework, is GME's continued appearance on the NYSE SHO list likely due to this short interest complexity multiplied over the millions of outstanding shares? I assume it's simply difficult unwind (especially say, if the shorting daisy-chain goes even further down the line). Perhaps its not that easy to "net-out" all the interests in between to figure out where the actual stock is?
Yes and No.

No - it is pretty easy to net out. If B needs to close their positions they don't need to go to C or D or E. They can buy those shares from anybody. The back office infrastructure behind all of this is rock solid. Boom proof - both literally and figuratively.

Yes, it can be. It is called "The Short Squeeze". If you have to close out your position, you have to close out your position. If you can't make the margin call your broker will just put out a market order into the market to buy the shares needed to close your account. And if that market order is disadvantageous because there is a panic mob trying to crush through the fire exits? Well - that is life. Shorting means unlimited protentional losses.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Valuethinker
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Re: How to understand all that's going on with GME [GameStop]

Post by Valuethinker »

alex_686 wrote: Tue Jan 26, 2021 9:58 am
Tester83 wrote: Tue Jan 26, 2021 8:14 am Can this explain how GME reach its current level of outstanding short interest + its continuous appearance on the NYSE SHO list for almost two months straight without any presence of illegal naked short selling? I'm curious if that theory (i.e., illegal short selling occurred) has merit.
I would be skeptical that this would be a major cause.

Naked short selling is when you sell shares that you have not borrowed. Honestly, this happens all of the time. Lots of time sensitive trades, complex systems, things fall through the cracks. But at the end of the day the broker will tally up all of their positions. If they are naked - which is usually only a percent or two, they scramble overtime to find shares and get them covered the next day.

I have a decent understanding of the regulations and controls around this. There are multiple controls in custody, margin, and corporate treasury (risk control) which are monitored by external auditors and regulators.

Now, maybe some rough trader has a naked position sitting on their books. If so, that position would not show up in the outstanding short interest coverage. If you are cooking the books for the internal auditors you are surely not going to report the correct figures to a external public source.
Thank you for sharing your insights into this detailed and complex area (as well as others).

It is a very valuable contribution to this Forum.
Tester83
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Re: How to understand all that's going on with GME [GameStop]

Post by Tester83 »

Valuethinker wrote: Tue Jan 26, 2021 10:20 am
alex_686 wrote: Tue Jan 26, 2021 9:58 am
Tester83 wrote: Tue Jan 26, 2021 8:14 am Can this explain how GME reach its current level of outstanding short interest + its continuous appearance on the NYSE SHO list for almost two months straight without any presence of illegal naked short selling? I'm curious if that theory (i.e., illegal short selling occurred) has merit.
I would be skeptical that this would be a major cause.

Naked short selling is when you sell shares that you have not borrowed. Honestly, this happens all of the time. Lots of time sensitive trades, complex systems, things fall through the cracks. But at the end of the day the broker will tally up all of their positions. If they are naked - which is usually only a percent or two, they scramble overtime to find shares and get them covered the next day.

I have a decent understanding of the regulations and controls around this. There are multiple controls in custody, margin, and corporate treasury (risk control) which are monitored by external auditors and regulators.

Now, maybe some rough trader has a naked position sitting on their books. If so, that position would not show up in the outstanding short interest coverage. If you are cooking the books for the internal auditors you are surely not going to report the correct figures to a external public source.
Thank you for sharing your insights into this detailed and complex area (as well as others).

It is a very valuable contribution to this Forum.
Yes, thank you and to the others as well. I am enjoying learning a lot about what's going on to better comprehend the vast realm of investing (and greater appreciate the Boglehead philosophies).
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Scott S
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Re: How to understand all that's going on with GME [GameStop]

Post by Scott S »

Valuethinker wrote: Tue Jan 26, 2021 10:20 amThank you [alex_686] for sharing your insights into this detailed and complex area (as well as others).

It is a very valuable contribution to this Forum.
+1! This GameStop thing has been entertaining and illuminating. :sharebeer
"Old value investors never die, they just get their fix from rebalancing." -- vineviz
retiringwhen
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Re: How to understand all that's going on with GME [GameStop]

Post by retiringwhen »

BTW, I have been playing around with all of $40 with my young adult son with this crazy mess (we got into AMC) to simply learn how to read a chart, understand the price and how to place a limit order. Useful skills in the long-run. All of both our money is tied up in total market funds and ETFs so $40 is a good safe way to learn how to trade. We are explicitly discussing how to apply these lessons to real investing.

The other lesson is that Robinhood is really crack for investing. That app is carefully designed to impel you to trade! Charts are magically made to show maximum volatility and real analytical data is very hard to find, but the chuck-a-luck wheel of price changes happens about once a second! Amazing stuff (and crazy as all get out!)
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Tony-S
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Re: How to understand all that's going on with GME [GameStop]

Post by Tony-S »

Looking forward to the movie. I bet it will be called "GameShock." I know, it's short. :D
retiringwhen
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Re: How to understand all that's going on with GME [GameStop]

Post by retiringwhen »

Tony-S wrote: Wed Jan 27, 2021 11:47 am Looking forward to the movie. I bet it will be called "GameShock." I know, it's short. :D
How about "Gamestonk"? That gives it the Elon angle, everything he touches is gold, maybe even movies!
Maverick3320
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Re: How to understand all that's going on with GME

Post by Maverick3320 »

Marseille07 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.
Is this sarcasm? If you make 5B a year but lose 6B, what should the value of the business be?
Marseille07
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Re: How to understand all that's going on with GME

Post by Marseille07 »

Maverick3320 wrote: Wed Jan 27, 2021 1:43 pm
Marseille07 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.
Is this sarcasm? If you make 5B a year but lose 6B, what should the value of the business be?
Not sure what point you're making, GME is cashflow positive.
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Re: How to understand all that's going on with GME [GameStop]

Post by Maverick3320 »

Tester83 wrote: Sun Jan 24, 2021 11:48 am
Kris3 wrote: Sun Jan 24, 2021 11:36 am
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.
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.
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.
That's called selection bias. What percentage of people that lose - or particularly, lose it all - share it on social media?
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Re: How to understand all that's going on with GME

Post by Maverick3320 »

Marseille07 wrote: Wed Jan 27, 2021 1:48 pm
Maverick3320 wrote: Wed Jan 27, 2021 1:43 pm
Marseille07 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.
Is this sarcasm? If you make 5B a year but lose 6B, what should the value of the business be?
Not sure what point you're making, GME is cashflow positive.
"The struggling company based in Grapevine, Texas, has lost $1.6 billion over the last 12 quarters, and its stock fell for six straight years before rebounding in 2020."
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Re: How to understand all that's going on with GME

Post by Marseille07 »

Maverick3320 wrote: Wed Jan 27, 2021 1:53 pm
Marseille07 wrote: Wed Jan 27, 2021 1:48 pm
Maverick3320 wrote: Wed Jan 27, 2021 1:43 pm
Marseille07 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.
Is this sarcasm? If you make 5B a year but lose 6B, what should the value of the business be?
Not sure what point you're making, GME is cashflow positive.
"The struggling company based in Grapevine, Texas, has lost $1.6 billion over the last 12 quarters, and its stock fell for six straight years before rebounding in 2020."
Cashflow is measured differently than just rev minus expenses. Either way, 1.6B over 12 quarters isn't a 5B business losing 6B.
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Re: How to understand all that's going on with GME [GameStop]

Post by Maverick3320 »

Gadget wrote: Sun Jan 24, 2021 6:53 pm
Bryzzo2016 wrote: Sun Jan 24, 2021 3:12 pm
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.
We owe Mr. Left a thank you card. It allowed a lot of us to get in at a lower price last week. It dropped from $45 to $37 after his tweet Tuesday. Didn't age well though.
Honestly I was a little worried. I've been following this GME play for quite a while. With how condescending Citron was on twitter saying how reddit didn't understand how shorting worked and GME was doomed for failure, part of me halfway believed them. But then I watched him. It was like watching my grandparents try to use and explain technology. He gave no compelling arguments at all. There have been better counter arguments posted on wallstreetbets. He came off as desperate to get others to stop buying GME, and I think that's when everything just took off.

Assuming reddit is correct and Friday was just a gamma squeeze instead of the short squeeze, this thing could make history. It'd be millions of retail investors (combined with a billionaire in Ryan Cohen who probably owns more GME than all of reddit combined) screwing over a multi billion dollar firm. I don't feel sorry for Citron at all. Firms like them have been doing the same thing to retail investors for years. It's why the boglehead philosophy works so well; it keeps you from getting eaten alive by firms like Citron. The house almost always wins. But in this case, it looks like little money is beating big money.

I am also convinced that big firms like Citron are paying off and have been paying off investing websites everywhere. You would think media would love a David beating Goliath story in the markets. Instead, wsb is being villified in every article I read. It's like we're supposed to feel sorry for billionaires that lost while they were attempting to crush a company that creates thousands of small paying jobs. And they all pretend that wsb is trying to collude and manipulate the market. But Citron is doing exactly that too. So are big firms everywhere. Before their first "delayed" event on inauguration day, they sold tons of shares to drop the price and try to scare everyone. It was timed literally minutes before their tweet. It just didn't work well enough.

I'm now heavily invested in GME, and I almost don't care if it moons in a short squeeze. I think the company is still undervalued if it had a normal P/E ratio for an e-commerce video game company. At this point, I hate Citron and Melvin Capital enough to hold my shares out of spite. It won't drop to what I paid for them.

Short selling should be illegal anyway. I don't understand how it isn't.
If short selling were illegal, would the people on WSB be making money on GME right now?
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Re: How to understand all that's going on with GME

Post by Maverick3320 »

Marseille07 wrote: Wed Jan 27, 2021 1:57 pm
Maverick3320 wrote: Wed Jan 27, 2021 1:53 pm
Marseille07 wrote: Wed Jan 27, 2021 1:48 pm
Maverick3320 wrote: Wed Jan 27, 2021 1:43 pm
Marseille07 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.
Is this sarcasm? If you make 5B a year but lose 6B, what should the value of the business be?
Not sure what point you're making, GME is cashflow positive.
"The struggling company based in Grapevine, Texas, has lost $1.6 billion over the last 12 quarters, and its stock fell for six straight years before rebounding in 2020."
Cashflow is measured differently than just rev minus expenses. Either way, 1.6B over 12 quarters isn't a 5B business losing 6B.
Cashflow can be irrelevant, just like the 5B figure is irrelevant to the valuation of a firm. I picked the number 6B to illustrate that.

"A company can post a net loss for a period but receive enough cash from borrowing or other cash inflows to offset the loss and create positive cash flow."

https://www.investopedia.com/ask/answers/05/060105.asp
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Re: How to understand all that's going on with GME

Post by Marseille07 »

Maverick3320 wrote: Wed Jan 27, 2021 2:01 pm
Marseille07 wrote: Wed Jan 27, 2021 1:57 pm
Maverick3320 wrote: Wed Jan 27, 2021 1:53 pm
Marseille07 wrote: Wed Jan 27, 2021 1:48 pm
Maverick3320 wrote: Wed Jan 27, 2021 1:43 pm

Is this sarcasm? If you make 5B a year but lose 6B, what should the value of the business be?
Not sure what point you're making, GME is cashflow positive.
"The struggling company based in Grapevine, Texas, has lost $1.6 billion over the last 12 quarters, and its stock fell for six straight years before rebounding in 2020."
Cashflow is measured differently than just rev minus expenses. Either way, 1.6B over 12 quarters isn't a 5B business losing 6B.
Cashflow can be irrelevant, just like the 5B figure is irrelevant to the valuation of a firm. I picked the number 6B to illustrate that.

"A company can post a net loss for a period but receive enough cash from borrowing or other cash inflows to offset the loss and create positive cash flow."

https://www.investopedia.com/ask/answers/05/060105.asp
What are we even arguing again? Feel free to value GME however you want.
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Re: How to understand all that's going on with GME [GameStop]

Post by Maverick3320 »

Gadget wrote: Sun Jan 24, 2021 9:21 pm
dboeger1 wrote: Sun Jan 24, 2021 8:22 pm I've seen a number of people saying things along the lines of "the shorts were wrong in overestimating GME's bankruptcy risk". I wouldn't really care to debate the point except I do think it's key in understanding how this whole situation came to be. GME was losing gobs of money and getting worse with time DESPITE overall growth in the video game industry, ESPECIALLY during the pandemic. It was so bad, they had been consistently losing market share to competitors in the declining physical video game market. Amazon, Best Buy, Walmart, and others consistently grew their physical game sales by beating Gamestop at the one thing they specialize in. And their biggest differentiator, used game trades, is declining over time, in large part because of their own stupid greed and devaluing the program over and over again against their customers' wishes for years. And their turnaround thesis doesn't look a whole lot better. They are waaaay behind their competitors when it comes to online game sales, both physical and digital. It puts them in direct competition with a lot of their key business partners as well, which sounds like a recipe for disaster.

Whether GME will go bankrupt or not is a mystery, but let's get one thing clear: GME is an absolute dumpster fire of a company, and it's going to take some serious work, a generous helping of miraculous luck, and an incredibly short memory on the part of their customers for them to return to profit at even a fraction of their current size. Just saying they have a lot of revenue as a company doesn't really say much. Give me unlimited resources and I'll create a company with more revenue by tomorrow. I can't guarantee it'll be very profitable though.

I think the market shorting GME to such exaggerated levels was probably a big mistake (well, clearly, in retrospect), but I also think it would be a mistake to assume GME is a great long investment because of it's recent run-up. There are very legitimate reasons why the short interest was what it was. For a long-term buy-and-hold index investor with less risk tolerance, I wouldn't touch GME with a 10-foot pole.
That's an opinion, but you conveniently skip all the positive news.

Sure, total revenue tanked during COVID. They had to close down a bunch of their most unprofitable locations. But their e-commerce sales rose 300% year over year.

If you are really interested, you should read Ryan Cohen's SEC filing. The short summary is that he says previous management failed to push the company towards e-commerce and that's what their vision should be in the future. Basically, a chewy.com for video games.

On the digital front, they now have a deal with Microsoft where they get a percentage of all digital sales from every xbox console sold. I don't know if the details are posted, but that's revenue they never saw previously.

Gamestop's new path forward includes selling computer parts. Kind of like becoming a build-a-bear store at the mall but for PCs. I like that idea. You can't go anywhere these days and get PC parts that fit together well. You pretty much have to research online and do your homework. WSB posters suspect that their recent deal with Microsoft includes some sort of PC sales with Windows for their PC build plan, but that's just speculation. But they have said they were going to sell PC parts in the future.

You are also missing all the devote followers on Reddit. Let's say there are 2 million people making money off GME stock. That's probably underestimating, because most people reading wallstreetbets don't subscribe or post because half (or most of) the content is juvenile. And let's face it, the demographic on reddit likely plays video games. I personally, have already made enough money on this that I will buy every video game I ever need from Gamestop exclusively. I can apparently even get the stupid Pokemon cards my kids want at Gamestop online. Who cares if I have Amazon prime. Amazon never made me this kind of money, so I'm naturally loyal to GME now.

Just look at all the charity posts on wallstreetbets. They aren't donating appreciated shares to a DAF like you'd see on bogleheads. They're buying video games and Gamestop gift cards to send to children's hospitals and other charities.
1. Move toward e-commerce. Oh, they are going to compete with Steam now? Let's see how that works out.
2. Deal with Microsoft: possibly positive - hard to say without more details.
3. Selling computer parts. What? So in addition to Steam as a new competitor, let's add Amazon and Newegg. Brilliant plan.
4. Ah yes, the devoted Reddit followers. The great thing about these types of crowds - and if this crowd can make boomer jokes, I'll generalize based on age as well - is that shinier things always come along, and with the neckbeard crowd, they come quickly.

"I personally, have already made enough money on this that I will buy every video game I ever need from Gamestop exclusively." That's a pretty silly financial move. You're making loyalty statements to try and justify a financial move, which brings us back to point #4.

Last but not least, GME hasn't made you any money; in fact, you could argue that short sellers made you this money, could you not?
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Re: How to understand all that's going on with GME [GameStop]

Post by audioengr »

csantiago wrote: Sun Jan 24, 2021 7:11 pm
Gadget wrote: Sun Jan 24, 2021 6:53 pm Short selling should be illegal anyway. I don't understand how it isn't.
It is in other parts of the world, just not in America.

Excellent post though. Remember in 2008, the hedge funds blamed regular people for taking on too much debt—not the bailed out banks for handing out all those rotten loans. This time, shorts are over leveraged—they’ve shorted more than the float—and somehow the retail traders who noticed this are to blame for GME’s volatility? Nuh uh.

PS naked shorting was made illegal by the SEC in 2008, it’s just not being enforced.
There a multiple posts on WSB about the participants sticking it to the big investors who "screwed over the little guys" in the GFC. Like some of the above posters, this has become a chance to return the favor.
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Re: How to understand all that's going on with GME [GameStop]

Post by sco »

Gadget wrote: Sun Jan 24, 2021 6:53 pm
Bryzzo2016 wrote: Sun Jan 24, 2021 3:12 pm
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.
Short selling should be illegal anyway. I don't understand how it isn't.
That’s ridiculous, so people should only be able to bet that a company will outperform?
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Re: How to understand all that's going on with GME [GameStop]

Post by Oregano »

audioengr wrote: Wed Jan 27, 2021 2:41 pm
csantiago wrote: Sun Jan 24, 2021 7:11 pm
Gadget wrote: Sun Jan 24, 2021 6:53 pm Short selling should be illegal anyway. I don't understand how it isn't.
It is in other parts of the world, just not in America.

Excellent post though. Remember in 2008, the hedge funds blamed regular people for taking on too much debt—not the bailed out banks for handing out all those rotten loans. This time, shorts are over leveraged—they’ve shorted more than the float—and somehow the retail traders who noticed this are to blame for GME’s volatility? Nuh uh.

PS naked shorting was made illegal by the SEC in 2008, it’s just not being enforced.
There a multiple posts on WSB about the participants sticking it to the big investors who "screwed over the little guys" in the GFC. Like some of the above posters, this has become a chance to return the favor.
That's nonsense. That is the story that the people who started the rally (who were probably wealthy already) use to get the herd to jump in. Rile 'em up with emotions and convince 'em to HODL (wait, wrong speculation.)
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Re: How to understand all that's going on with GME [GameStop]

Post by Oregano »

Oregano wrote: Wed Jan 27, 2021 9:58 pm
audioengr wrote: Wed Jan 27, 2021 2:41 pm
csantiago wrote: Sun Jan 24, 2021 7:11 pm
Gadget wrote: Sun Jan 24, 2021 6:53 pm Short selling should be illegal anyway. I don't understand how it isn't.
It is in other parts of the world, just not in America.

Excellent post though. Remember in 2008, the hedge funds blamed regular people for taking on too much debt—not the bailed out banks for handing out all those rotten loans. This time, shorts are over leveraged—they’ve shorted more than the float—and somehow the retail traders who noticed this are to blame for GME’s volatility? Nuh uh.

PS naked shorting was made illegal by the SEC in 2008, it’s just not being enforced.
There a multiple posts on WSB about the participants sticking it to the big investors who "screwed over the little guys" in the GFC. Like some of the above posters, this has become a chance to return the favor.
That's nonsense. That is the story that the people who started the rally (who were probably wealthy already) use to get the herd to jump in. Rile 'em up with emotions and convince 'em to HODL (wait, wrong speculation.)
P.S. You think there aren't hedge funds playing this on the long side now, too? No one really cares about any ethics here, they are all just trying to make money.
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Re: How to understand all that's going on with GME [GameStop]

Post by fwellimort »

One thing for sure, Gamestop after all this as a company might be valued more.

This whole fiasco of the coming short squeeze is advertising this company in a relatively positive light (the company that set David vs Goliath) and making the name of the company known.

Don't underestimate free advertisement and constant mentions of the company in reddit for the younger generation.
For all we know, the younger generation from this incident might decide one day to 'check out gamestop.com' to buy a game/game accessories/hardware and if the prices are competitive enough, there will be enough younger generation that will stay loyal to the company.

Then there's always that mysterious cult like effect of r/wallstreetbets on Gamestop. Maybe people on r/wallstreetbets will purchase items on Gamestop 'for the lulz' from time to time to fit in the subreddit (especially if Gamestop capitalizes on r/wallstreetbets crowd and sells meme figurines that remind terms like '💎🙌'). Maybe many of those people who win big from this incident will decide to 'give back' to Gamestop by signing up for membership (which Gamestop can capitalize by trying to lure these people to using its products over time).

Honestly, the future is a mystery. But one things for sure. This incident is a massive free advertisement to the rest of the world about a company called Gamestop in which a new CEO will be stepping in and bettering the company.
Last edited by fwellimort on Wed Jan 27, 2021 10:05 pm, edited 2 times in total.
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Re: How to understand all that's going on with GME [GameStop]

Post by tomphilly »

Oregano wrote: Wed Jan 27, 2021 9:58 pm
audioengr wrote: Wed Jan 27, 2021 2:41 pm
csantiago wrote: Sun Jan 24, 2021 7:11 pm
Gadget wrote: Sun Jan 24, 2021 6:53 pm Short selling should be illegal anyway. I don't understand how it isn't.
It is in other parts of the world, just not in America.

Excellent post though. Remember in 2008, the hedge funds blamed regular people for taking on too much debt—not the bailed out banks for handing out all those rotten loans. This time, shorts are over leveraged—they’ve shorted more than the float—and somehow the retail traders who noticed this are to blame for GME’s volatility? Nuh uh.

PS naked shorting was made illegal by the SEC in 2008, it’s just not being enforced.
There a multiple posts on WSB about the participants sticking it to the big investors who "screwed over the little guys" in the GFC. Like some of the above posters, this has become a chance to return the favor.
That's nonsense. That is the story that the people who started the rally (who were probably wealthy already) use to get the herd to jump in. Rile 'em up with emotions and convince 'em to HODL (wait, wrong speculation.)
Exactly. I don't believe the narrative that this is an investor class war at all. There are just as many WSB'ers shorting GME as there are hedge funds longing it. And that they're fighting unethical short trades to save a company is hogwash - last March WSB was full of SPY short YOLO gain porn and tons of applause.
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Re: How to understand all that's going on with GME [GameStop]

Post by 000 »

tomphilly wrote: Wed Jan 27, 2021 10:03 pm
Oregano wrote: Wed Jan 27, 2021 9:58 pm
audioengr wrote: Wed Jan 27, 2021 2:41 pm
csantiago wrote: Sun Jan 24, 2021 7:11 pm
Gadget wrote: Sun Jan 24, 2021 6:53 pm Short selling should be illegal anyway. I don't understand how it isn't.
It is in other parts of the world, just not in America.

Excellent post though. Remember in 2008, the hedge funds blamed regular people for taking on too much debt—not the bailed out banks for handing out all those rotten loans. This time, shorts are over leveraged—they’ve shorted more than the float—and somehow the retail traders who noticed this are to blame for GME’s volatility? Nuh uh.

PS naked shorting was made illegal by the SEC in 2008, it’s just not being enforced.
There a multiple posts on WSB about the participants sticking it to the big investors who "screwed over the little guys" in the GFC. Like some of the above posters, this has become a chance to return the favor.
That's nonsense. That is the story that the people who started the rally (who were probably wealthy already) use to get the herd to jump in. Rile 'em up with emotions and convince 'em to HODL (wait, wrong speculation.)
Exactly. I don't believe the narrative that this is an investor class war at all. There are just as many WSB'ers shorting GME as there are hedge funds longing it. And that they're fighting unethical short trades to save a company is hogwash - last March WSB was full of SPY short YOLO gain porn and tons of applause.
Oh, boy. A lot to unpack here.

First of all, do you have any evidence at all for this claim: "There are just as many WSB'ers shorting GME as there are hedge funds longing it."

Second, were WSBers allows to naked short SPY in March?
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Re: How to understand all that's going on with GME [GameStop]

Post by GregG3 »

If the news of massive losses resulting from short positions in GME by certain hedge funds are true then we have on full display what a failure of risk management practices by professional players looks like. If somebody enters a position and start reacting only when losses exceed 350% then something for sure is not right with hedge fund.
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Re: How to understand all that's going on with GME [GameStop]

Post by Scott S »

GregG3 wrote: Wed Jan 27, 2021 10:41 pmIf the news of massive losses resulting from short positions in GME by certain hedge funds are true then we have on full display what a failure of risk management practices by professional players looks like. If somebody enters a position and start reacting only when losses exceed 350% then something for sure is not right with hedge fund.
Risk management by hedge funds, oh, my sweet summer child... :wink:
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Re: How to understand all that's going on with GME [GameStop]

Post by Maverick3320 »

fwellimort wrote: Wed Jan 27, 2021 10:01 pm One thing for sure, Gamestop after all this as a company might be valued more.

This whole fiasco of the coming short squeeze is advertising this company in a relatively positive light (the company that set David vs Goliath) and making the name of the company known.

Don't underestimate free advertisement and constant mentions of the company in reddit for the younger generation.
For all we know, the younger generation from this incident might decide one day to 'check out gamestop.com' to buy a game/game accessories/hardware and if the prices are competitive enough, there will be enough younger generation that will stay loyal to the company.

Then there's always that mysterious cult like effect of r/wallstreetbets on Gamestop. Maybe people on r/wallstreetbets will purchase items on Gamestop 'for the lulz' from time to time to fit in the subreddit (especially if Gamestop capitalizes on r/wallstreetbets crowd and sells meme figurines that remind terms like '💎🙌'). Maybe many of those people who win big from this incident will decide to 'give back' to Gamestop by signing up for membership (which Gamestop can capitalize by trying to lure these people to using its products over time).

Honestly, the future is a mystery. But one things for sure. This incident is a massive free advertisement to the rest of the world about a company called Gamestop in which a new CEO will be stepping in and bettering the company.
Or, more likely, the increased attention to r/wallstreetbets will lead more intelligent, wealthy people to use the subreddit as a means to leverage the "cult" to make money....since that's what's already happening.
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Re: How to understand all that's going on with GME [GameStop]

Post by Maverick3320 »

Kris3 wrote: Sun Jan 24, 2021 11:36 am
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.
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.
You're assuming the activist investors and some of the key leaders at WSB are mutually exclusive entities.
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Re: How to understand all that's going on with GME

Post by Donethat96 »

ResearchMed wrote: Sat Jan 23, 2021 10:43 am
What kind of mayhem, and where?

RM
Really? You honestly don't know what he's referring to? It's been national news, class action lawsuits have been filed in Federal Court, Congressional hearings have been announced, hedge funds have been bailed out, AOC and Ted Cruz are both outraged. But maybe your 3 fund portfolio has not been effected. So I guess nothing happened?
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Re: How to understand all that's going on with GME

Post by qwertyjazz »

1rl9DS5gl2 wrote: Fri Jan 29, 2021 3:12 pm
ResearchMed wrote: Sat Jan 23, 2021 10:43 am
What kind of mayhem, and where?

RM
Really? You honestly don't know what he's referring to? It's been national news, class action lawsuits have been filed in Federal Court, Congressional hearings have been announced, hedge funds have been bailed out, AOC and Ted Cruz are both outraged. But maybe your 3 fund portfolio has not been effected. So I guess nothing happened?
Strangely enough I think you just made the best argument for a 3 fund portfolio anywhere. The world can be blowing up and we can just keep getting rich slowly. From a personal finance perspective, keep investing and buy diversified cheap funds. That is it
There is a political piece to this but that is outside the personal finance and this board.
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Re: How to understand all that's going on with GME [GameStop]

Post by cyndiego »

Okay this is the fundamental thing I can't figure out, and no one has answered: HOW are the hedge funds going to get out of the coming short squeeze? Do they have a way out, short of going bankrupt or regulatory shenanigans? So far all the media coverage and brokerage limits have only made them look desperate and dishonest, which makes me think... they are stuck. You guys are smart -- if you were a hedge fund, what would you be planning to do right now? :confused
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Re: How to understand all that's going on with GME [GameStop]

Post by Scooter57 »

cyndiego wrote: Sat Jan 30, 2021 11:22 am if you were a hedge fund, what would you be planning to do right now? :confused
Calling up the legislators I own to make sure they put through my bailout.
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Re: How to understand all that's going on with GME [GameStop]

Post by perfectuncertainty »

The explanations have been on point so far but I'll add one clarification. But it is summarized nicely in this quick read Pulling Back the Curtain: The Role of an Options Market Maker

The WSB crowd is using Robin Hood to buy a lot of call options. As explained earlier the market maker will buy stocks against the options they sell to hedge the trade. All very well. The caveat is that when the WSB are buying the call options they are buying them out of the money (OTM) so the market maker has a larger risk because of the implied volatility and they are forced into frenzied buying driving the price higher so they are hedged on the upside and the downside.

A few data points:
  • The Implied Volatility (IV) of GME for the front contracts is well over 700%
  • The GME options have huge backwardation
  • According to the TW option chain, the expected move between now and the close on February 5 is $242.31
  • The at the money (ATM) call options have approximately a $10 spread between the bid and the ask prices. Remember one option contract is 100 shares underlying in the contract so that's a $1,000 price just for the privilege of playing. If I buy a $330 call contract on GME it will cost me $16,665 and if I sell it immediately (with no price change in GME) I will get $15,675. Effectively $990 lost just on the bid-ask spread.
  • The increment in strike prices on the option chains is now several dollars wide (2.50 up to 10.00) versus single dollar strikes as the volatility has exploded.
Last edited by perfectuncertainty on Sat Jan 30, 2021 12:16 pm, edited 1 time in total.
Tester83
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Re: How to understand all that's going on with GME [GameStop]

Post by Tester83 »

cyndiego wrote: Sat Jan 30, 2021 11:22 am Okay this is the fundamental thing I can't figure out, and no one has answered: HOW are the hedge funds going to get out of the coming short squeeze? Do they have a way out, short of going bankrupt or regulatory shenanigans? So far all the media coverage and brokerage limits have only made them look desperate and dishonest, which makes me think... they are stuck. You guys are smart -- if you were a hedge fund, what would you be planning to do right now? :confused
There's really two questions, with two potentially different responses. The difference is between "old" shorts and "new" shorts, where old ones were opened pre-GME mania (i.e., the over-extension) and new ones were opened at the start of, or during, this hype train.

Old ones:

Your options are quite limited. It's safe to assume these holders overextended their risk and were not financially prepared for the vast price increase which lead to 1) higher daily premium payments and 2) larger margin requirements. So, the obvious play is to buy stock, cut losses, and get out. Or, you liquidate/borrow to maintain your premium payments and margin requirements, then hang on and hope the hype train dies down. You could also make a side deal with a large shareholder to release/sell shares (as the HFs did w/ Porsche during the VW squeeze).

Some people claim HF's may be using "dirty" tactics to derail the hype train: lying about their short position, throwing out other "potential" short targets to split the public's focus (and money), bash the retail movement in the media, etc. Such tactics are often sensationalized (like you see in movies or TV shows). But do HFs' really do this in real life? Who knows.

New Ones:

New shorts are taking advantage of the fact that, I believe all sides, know to be very likely true: this stock price won't stay high for long. At some point, it will inevitably fall back down to whatever "reasonable market price" that may be. New shorts take advantage of that by opening such positions as the hype train continues to climb the peaks (and perhaps sell as it rolls down the other side, only to wait and open new ones as it climbs back up the next peak).

Now, I'm assuming HFs did due diligence and proper risk management, so they're not opening themselves up to short positions which could blow up in their face like the old shorts (i.e., larger than anticipated interest payments, suddenly high margin call). So, what do they do? They could do all the things listed above, but, more importantly, they can wait.

This is a game of chicken, a measure of who has the better momentum.

The long side believes they have the advantage, as they really just have to buy and hold, no interest payments to make, no margin calls, etc. The other side will not want to keep bleeding money, not have to liquidate to cover margin calls due to sudden price surges, etc. Of course, they would also need to maintain regular buy-side pressure, just to ensure the price keeps going up (or even staying flat).

The short side believes they can wait it out. The interest payments aren't much vs. the potential payoff of the shorts. The public moves on from things quickly. The public panics: once they see the price drop like a rock, others will follow (though, given the vast drops shorts have artificially created, this doesn't really seem to work, for now). But, risk management analysis has lead to the conclusion that profit is likely if they just wait it out, and (hopefully) a proper exit strategy is available should things turn sideways.

So each side is searching, reviewing, and scrutinizing any signals and indicators they can find: is retail moving on to AMC? Silver? BB? Would the SEC really step in and halt trading? Are Market Makers properly delta hedging the options they write? Is there really a risk that brokers, or clearinghouses, or whoever, will stop allowing retail to buy GME? Are WSB really buying billboard across America as a pledge of their resolve to stay in GME? Is Congress really going to do anything?

It's all a waiting game, trying to determine what the next catalyst for movement will be ("Is the gamma squeeze coming?" "Did Roaring Kitty sell all his shares?" "Is GME going to issue new stock shares?").

IMO, the winners are those who have a proper plan to handle whatever the next catalyst for movement is. And it could be a long wait.
Tester83
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Re: How to understand all that's going on with GME [GameStop]

Post by Tester83 »

perfectuncertainty wrote: Sat Jan 30, 2021 11:59 am The explanations have been on point so far but I'll add one clarification. But it is summarized nicely in this quick read Pulling Back the Curtain: The Role of an Options Market Maker

The WSB crowd is using Robin Hood to buy a lot of call options. As explained earlier the market maker will buy stocks against the options they sell to hedge the trade. All very well. The caveat is that when the WSB are buying the call options they are buying them out of the money (OTM) so the market maker has a larger risk because of the implied volatility and they are forced into frenzied buying driving the price higher so they are hedged on the upside and the downside.

A few data points:
  • The Implied Volatility (IV) of GME for the front contracts is well over 700%
  • The GME options have huge backwardation
  • According to the TW option chain, the expected move between now and the close on February 5 is $242.31
  • The at the money (ATM) call options have approximately a $10 spread between the bid and the ask prices. Remember one option contract is 100 shares underlying in the contract so that's a $1,000 price just for the privilege of playing. If I buy a $330 call contract on GME it will cost me $16,665 and if I sell it immediately (with no price change in GME) I will get $15,675. Effectively $990 lost just on the bid-ask spread.
Just wanted to add a unique niche that may affect the pricing of deep ITM options:

Yesterday, WSB learned that, to get around the GME share buy limit, they could simply buy calls and execute them immediately. I'm told call writers caught on, and started increasing premiums to take advantage of this demand. Who knows if it's sustainable, but definitely another wrench to throw onto the already complex pricing model of options.
perfectuncertainty
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Re: How to understand all that's going on with GME [GameStop]

Post by perfectuncertainty »

Tester83 wrote: Sat Jan 30, 2021 12:09 pm
perfectuncertainty wrote: Sat Jan 30, 2021 11:59 am The explanations have been on point so far but I'll add one clarification. But it is summarized nicely in this quick read Pulling Back the Curtain: The Role of an Options Market Maker

The WSB crowd is using Robin Hood to buy a lot of call options. As explained earlier the market maker will buy stocks against the options they sell to hedge the trade. All very well. The caveat is that when the WSB are buying the call options they are buying them out of the money (OTM) so the market maker has a larger risk because of the implied volatility and they are forced into frenzied buying driving the price higher so they are hedged on the upside and the downside.

A few data points:
  • The Implied Volatility (IV) of GME for the front contracts is well over 700%
  • The GME options have huge backwardation
  • According to the TW option chain, the expected move between now and the close on February 5 is $242.31
  • The at the money (ATM) call options have approximately a $10 spread between the bid and the ask prices. Remember one option contract is 100 shares underlying in the contract so that's a $1,000 price just for the privilege of playing. If I buy a $330 call contract on GME it will cost me $16,665 and if I sell it immediately (with no price change in GME) I will get $15,675. Effectively $990 lost just on the bid-ask spread.
Just wanted to add a unique niche that may affect the pricing of deep ITM options:

Yesterday, WSB learned that, to get around the GME share buy limit, they could simply buy calls and execute them immediately. I'm told call writers caught on, and started increasing premiums to take advantage of this demand. Who knows if it's sustainable, but definitely another wrench to throw onto the already complex pricing model of options.
I hadn't heard that one yet. That's awesome :P
cyndiego
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Re: How to understand all that's going on with GME [GameStop]

Post by cyndiego »

Thank you Tester83 and perfectuncertainty, for your detailed replies! I just learned a LOT.

A couple comments:
-- Perfectuncertainty, you say the WSBers are buying calls, but from lurking on r/wsb it looked to me like an awful lot of people buying a few regular shares here and there. But I dunno -- maybe a small number doing big calls matters more?

-- I think the HFs were definitely doing sleazy stuff already -- shutting down Robinhood buys but not sells, and shutting down that UK platform (sorry don't remember the name). Even if all that was somehow legal, certainly retail traders feel betrayed and outraged. They even limited buys on American Airlines?! Personally, I was in process of moving from VG to Schwab, and now I'm rethinking and watching how Schwab responds very carefully. And I and a lot of other people suddenly learned about brokerages selling trade flow. (btw, I gather VG does NOT do this? Can this be verified?)

-- I think the knockon effects down the line are even more fascinating! The AMC etc. pumps weren't all a distraction -- my impression is they are still on the menu as part of an overall strategy (to the extent that the collective have one...)

-- What do you guys think about the possibility of GME issuing new stock? Is that likely, and what would the result be?

-- Tester83, if I understand you the hedge funds/shorters options are to take the huge loss, wait (maybe even double down), or possibly play both sides? Is that it? That suggests that if wsb "holds the line", they're right and they will win? Alternatively, if they simply delay and keep the stock price on a plateau, can they simply gradually buy the same few shares over and over again and avoid the pain of the big squeeze?

-- I've been shocked at the lack of transparency for data, like the percent of float shorted. The reported numbers are all over the place. Anyone know the best source or current numbers?
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midareff
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Re: How to understand all that's going on with GME [GameStop]

Post by midareff »

Why would I want to understand any of it?
perfectuncertainty
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Re: How to understand all that's going on with GME [GameStop]

Post by perfectuncertainty »

midareff wrote: Sat Jan 30, 2021 1:25 pm Why would I want to understand any of it?
Ignorance is bliss.
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Helo80
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Re: How to understand all that's going on with GME [GameStop]

Post by Helo80 »

Cycle wrote: Wed Jan 27, 2021 9:58 pm This is a decent explanation on wsb. Presumably Friday would be the first day Melvin starts to have to cover, ie when the squeeze happens and shares price can literally go to the moon or people can liquidate at low prices... Will be entertaining how this unfolds.

Note reddit has profanity https://www.reddit.com/r/wallstreetbets ... my_secret/


Dang, removed b/c likely mods don't want to get involved with SEC and market manipulation claims.

WSB just needs to become a hedge fund on Wall Street, and then redditors can go to "idea dinners" with other redditors.
Thank God for Wall Street Bets.
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midareff
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Re: How to understand all that's going on with GME [GameStop]

Post by midareff »

perfectuncertainty wrote: Sat Jan 30, 2021 1:28 pm
midareff wrote: Sat Jan 30, 2021 1:25 pm Why would I want to understand any of it?
Ignorance is bliss.
So it is...... OTOH, @ 73 y/o and this bull having graced me with more than I would ever need why would I want to?
cyndiego
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Re: How to understand all that's going on with GME [GameStop]

Post by cyndiego »

midareff wrote: Sat Jan 30, 2021 1:35 pm
perfectuncertainty wrote: Sat Jan 30, 2021 1:28 pm
midareff wrote: Sat Jan 30, 2021 1:25 pm Why would I want to understand any of it?
Ignorance is bliss.
So it is...... OTOH, @ 73 y/o and this bull having graced me with more than I would ever need why would I want to?
If you read r/wsb, a big motivator is that Millenials think they will NEVER be able to have the financial gains and security that Boomers did, so their only option is to gamble and try to exploit new tech and social media... Can you blame them?
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