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What happens if nobody sells? Say 40% of total shares are floating. You the hedge fund owe 60% of the shares because you shorted them. Even if your position is
by PartiallyTyped 6y ago
What happens if nobody sells? Say 40% of total shares are floating. You the hedge fund owe 60% of the shares because you shorted them. Even if your position is closed immediately (hint, it won't), you would still need to find the remaining 20% of the shares that you owe. Who will give you that 20%? Well I of course, but the difference is, I get to dictate what the market price is.
We saw this happen in 2008 with Volkswagen. 1% of the total shares were floating because Porché had purchased the remaining, the rest of the shares were owned by institutions and they were not selling them.
- thaumasiotes 6y ago> What happens if nobody sells? This has nothing to do with the ratio of short shares to float. What happens if there are 300 shares floating, 20 short shares, and nobody sells?
- PartiallyTyped 6y agoThey owe more shares than there are available and they pay interest on said shares. Even if nobody sells, the interest gets accumulated and they are bleeding.
- thaumasiotes 6y ago...yes? That's all shorting. You have to pay the borrow costs as long as you're borrowing the stock. But how is having short interest of 140% of the float different from having short interest of 80% of the float?
- bombcar 6y agoAnd that interest can get very VERY high - the cost to borrow shares when no shares are available can run to $shareprice A DAY (see "hard to borrow").
- nico_h 6y agoyeah, but how much can they bleed? Can they just give up, default and declare bankruptcy? And then all the people hoping for a short squeeze end up holding stock that is not worth much anymore?
- PartiallyTyped 6y agoThey will get margin called, their assets will be liquidated and the stocks covered.
- nico_h 6y agoyeah, but how will the stock be covered, and by whom? If there is no enough stock to buy to cover the outstanding contracts?
- PartiallyTyped 6y agoGME can always issue more shares and that will give them a sizable injection of cash.
- SilasX 6y agoI thought that takes a lot of time though, because of SEC filings, after which the bubble could be over. Or are they allowed to hold on to a bunch of ready-to-go shares? (Honestly asking and don't know, everyone please only answer if you have knowledge of how these kinds of things work and are able to identify and explain away the relevant confusions.)
- PartiallyTyped 6y agoI am not sure either tbh.
- thaumasiotes 6y agoWhat I know is basically just what I read in this article: https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops https://www.bloomberg.com/opinion/articles/2021-01-25/the-ga... However, it looks very clear that GameStop is allowed to hold on to a bunch of shares it can sell directly in the stock market, since it did exactly that: > Happily, GameStop does have an ATM offering going. It put it in place on Dec. 8, 2020, when the stock was at about $16.35. The way these things work is that GameStop disclosed that its bank could sell stock—up to $100 million worth—“from time to time” at GameStop’s request “consistent with its normal trading and sales practices”; it did not disclose any particular schedule, and has not yet reported if any shares have been sold, or how many, or when. So I don’t know if GameStop had sold the whole $100 million before Friday’s wild run, or if it had any stock left over to sell; if it had any left over, I don’t know if it sold it all on Friday. I hope it did!