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this a profound (intentional?) misreading of how a short squeeze functions. the shorts are the ones who end up "holding the bag" in that they are contractually

this a profound (intentional?) misreading of how a short squeeze functions. the shorts are the ones who end up "holding the bag" in that they are contractually obligated to buy shares at current (higher) value in order to cover their position. hence the "taking on wall street" angle - institutional shorts are the chump, not the retail investors (and the institutions going long with them)

ffggvv 6y ago
no it’s not. the squeeze is what makes the price rise, but once the wsb people start taking their profits, there will no longer be a shortage of shares and it’ll work in reverse, cascading down. it doesn’t just magically stay high forever after the shorts are covered. same cascading down effect can happen if gamestop simply issues new shares even now there’s people on reddit who said they FOMOd in at 150 price point
- Spivak 6y ago
  I mean of course it doesn’t stay high once the shorts are covered. But everyone who sells to people with short positions will absolutely come out on top which is the point.
  - ffggvv 6y ago
    what about the wsb folks who were tricked into buying in at 150 today?
    - 3l3ssar 6y ago
      Anyone on WSB buying in at this price knows what they are getting into, there's no deception. It is clear you are betting on lots of other traders holding onto their shares, and hoping that the hedge funds are forced to cover and buy your shares back higher. It is also very clear at any time this could all come crumbling down. The real concern I have is the millions of people who blindly trust a financial advisor fresh out of college, who has never made a profitable trade in their life. We've all been told to buy into indexes and that we can retire rich. What happens when the market doesn't grow for 10 years? Why should the market continue to grow if the US loses its economic superiority and population growth in the US slows? At the end of the day, a share of a single stock is only worth what someone else will pay for it. The company or business behind a share does not matter for the average retail investor, since by owning shares they really don't control much of anything. This particular WSB saga is a bunch of people trying to force some hedge funds to pay them more money for their shares than they are worth. It is as simple as that.
    - aeternum 6y ago
      If the company has smart execs, it can stay high. Capital just became very cheap for GME, a good team can put it to use.
    - thysultan 6y ago
      They expect it to reach 500-1000, if they are patient and right they'll probably find gold.
- phil_e_delphian 6y ago
  no one is saying anything "magically" happens. The profit-taking has happened and will continue to happen - there are a finite number of shares to be purchased, yet shares are still being purchased by shorts. There is room for profit-taking at every cost basis except for the very top - looking at that subreddit, there are no illusions that it will literally last forever, only that selling en masse now (when shorts are actively working together to fight back) undermines the squeeze.
- totalZero 6y ago
  Short squeezes happen when shorts have to cover due to risk limits or margin requirements. Their covering impact is very aggressive (at times they're not even the ones covering, but rather their brokers or institutions), so it moves the stock. Then when things settle down, the people who are long can sell the stock more slowly. Also, there are several positive externalities to a rally. Stock price is something of a self-fulfilling prophecy, partially because companies can issue shares to raise money -- or use shares to buy another company. In some cases, a rally could lead a convertible bondholder to exercise and sell shares, effectively reducing the firm's debt. Even if this rally were to be short lived, short-sellers are unlikely to feel as comfortable selling the stock short in the future, and thus unlikely to impact the stock downward.
- lambdatronics 6y ago
  Yeah, it's definitely a bubble, it's just a question of who takes the big loss -- if Melvin has to cover now, they do, otherwise it's people who are going long at the top & holding (which is what all the r/WSB noise is promoting). This is why Citadel and Point 72 backstopped Melvin -- if they can weather this bubble, that's their best outcome. In fact, increasing the short position now might be a great move.

ffggvv 6y ago

no it’s not. the squeeze is what makes the price rise, but once the wsb people start taking their profits, there will no longer be a shortage of shares and it’ll work in reverse, cascading down. it doesn’t just magically stay high forever after the shorts are covered. same cascading down effect can happen if gamestop simply issues new shares even now there’s people on reddit who said they FOMOd in at 150 price point

Spivak 6y ago
I mean of course it doesn’t stay high once the shorts are covered. But everyone who sells to people with short positions will absolutely come out on top which is the point.
- ffggvv 6y ago
  what about the wsb folks who were tricked into buying in at 150 today?
  - 3l3ssar 6y ago
    Anyone on WSB buying in at this price knows what they are getting into, there's no deception. It is clear you are betting on lots of other traders holding onto their shares, and hoping that the hedge funds are forced to cover and buy your shares back higher. It is also very clear at any time this could all come crumbling down. The real concern I have is the millions of people who blindly trust a financial advisor fresh out of college, who has never made a profitable trade in their life. We've all been told to buy into indexes and that we can retire rich. What happens when the market doesn't grow for 10 years? Why should the market continue to grow if the US loses its economic superiority and population growth in the US slows? At the end of the day, a share of a single stock is only worth what someone else will pay for it. The company or business behind a share does not matter for the average retail investor, since by owning shares they really don't control much of anything. This particular WSB saga is a bunch of people trying to force some hedge funds to pay them more money for their shares than they are worth. It is as simple as that.
  - aeternum 6y ago
    If the company has smart execs, it can stay high. Capital just became very cheap for GME, a good team can put it to use.
  - thysultan 6y ago
    They expect it to reach 500-1000, if they are patient and right they'll probably find gold.
phil_e_delphian 6y ago
no one is saying anything "magically" happens. The profit-taking has happened and will continue to happen - there are a finite number of shares to be purchased, yet shares are still being purchased by shorts. There is room for profit-taking at every cost basis except for the very top - looking at that subreddit, there are no illusions that it will literally last forever, only that selling en masse now (when shorts are actively working together to fight back) undermines the squeeze.
totalZero 6y ago
Short squeezes happen when shorts have to cover due to risk limits or margin requirements. Their covering impact is very aggressive (at times they're not even the ones covering, but rather their brokers or institutions), so it moves the stock. Then when things settle down, the people who are long can sell the stock more slowly. Also, there are several positive externalities to a rally. Stock price is something of a self-fulfilling prophecy, partially because companies can issue shares to raise money -- or use shares to buy another company. In some cases, a rally could lead a convertible bondholder to exercise and sell shares, effectively reducing the firm's debt. Even if this rally were to be short lived, short-sellers are unlikely to feel as comfortable selling the stock short in the future, and thus unlikely to impact the stock downward.
lambdatronics 6y ago
Yeah, it's definitely a bubble, it's just a question of who takes the big loss -- if Melvin has to cover now, they do, otherwise it's people who are going long at the top & holding (which is what all the r/WSB noise is promoting). This is why Citadel and Point 72 backstopped Melvin -- if they can weather this bubble, that's their best outcome. In fact, increasing the short position now might be a great move.