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This is a short squeeze. My understanding is that hedge funds shorted the company massively, covering something like 130% the price of the company. These compan

This is a short squeeze. My understanding is that hedge funds shorted the company massively, covering something like 130% the price of the company. These companies are contractually obligated to buy the stock at whatever price it's at in the future, giving people a good reason to pile into the stock for guaranteed gains. This is causing a frenzy. Someone correct me if I'm wrong, I only learned about it yesterday.

chrisseaton 6y ago
> These companies are contractually obligated to buy the stock at whatever price it's at in the future Normally you set a limit when you short. You don’t agree to pay an unlimited amount of money.
- sidr 6y ago
  This runs completely counter to my understanding of shorting and I just checked on my brokerage - there is no limit. The unbounded losses bit is the whole point of put options instead of shorts.
  - chrisseaton 6y ago
    > Many short sellers place a stop order with their stockbroker after selling a stock short—an order to the brokerage to cover the position if the price of the stock should rise to a certain level. This is to limit the loss and avoid the problem of unlimited liability described above. In some cases, if the stock's price skyrockets, the stockbroker may decide to cover the short seller's position immediately and without his consent to guarantee that the short seller can make good on his debt of shares. https://en.wikipedia.org/wiki/Short_(finance)#Risks https://en.wikipedia.org/wiki/Short_(finance)#Risks Otherwise you'd make yourself liable for a literally unlimited sum of money. Any short could completely bankrupt your entire personal finances or your entire institution in that case.
- kangnkodos 6y ago
  If an individual shorts stock at an investment bank, there is a limit to the amount of money the individual can lose. The investment bank has some type of collateral, usually the rest of your portfolio. When your net worth hits a certain threshold, perhaps $0 net worth of your portfolio, the bet is over. You lost all your money, and you don't end up in debt. In practice, the investment bank will cut you off before you reach this point. But if you are an investment bank, there is no one controlling you on a daily basis, so you can dip into the negative in theory. The problems with doing this are: - Regulators. Once the regulator finds out you're negative, they will shut down your investment bank. Hopefully, they do this before you hit 0, but they may not get it exactly right. - Counterparties. Other investment banks will refuse to do business with you when they know you are negative, or close to it. Once this happens, it's game over. So in both cases, individual or investment bank, there is a practical limit on how much you can lose from one short bet. That limit is equal to your net worth. You could lose any amount of money up to that on one short. It's risky. There are also ways to limit your losses. You can purchase other contracts to limit your losses. This is kind of like insurance. In general, you are not required to buy this. Some people and institutions do not do this because of the expense. Most institutions structure each deal so there is no way one deal will risk the entire business. Smart people also take steps to make sure one trade does not wipe them out. But sometimes mistakes happen.
Edmond 6y ago
I am not sure how guaranteed the gains are...basically there is a common enemy right now in the form of short sellers. Once they're decimated (ie forced to buy shares at higher prices than they anticipated), I suspect a good deal of novice traders are going to still be holding shares at elevated prices. At that point they're basically holding shares worth very little compared to what they likely paid for them. The same hoard trading phenomenon seems to be happening with Blackberry. A number of insiders have already dumped shares, meaning anyone buying those shares isn't buying shares from a short seller, they're buying from people who recognize the price is outrageous compared to business fundamentals. Bottom line, short sellers are definitely going to suffer, but so are a lot of robbinhood kiddies.
- 52-6F-62 6y ago
  As I understood it, BlackBerry is a different case from GameStop—albeit some redditors are trying to make it do the same thing because it's cheaper. I've been holding that one for years for a reason.
  - Edmond 6y ago
    If you're long Blackberry, depending on how much you paid for the shares you might come out on top in the years ahead. I happen to be cautiously optimistic about the company, but that is over a longer time-frame. The stock has more than doubled in a couple of weeks and seems to open consistently higher over the past few days. I don't think that is related to any real immediate business prospects. The Facebook settlement, Amazon deal and Huawei patent sales are all good news but hardly warranting the current frenzy.
    - 52-6F-62 6y ago
      No doubt. I definitely have faith that the company itself is smarter than the current euphoria so I guess I just hope it does nothing to tarnish them because they've made major strides and frankly I'd just like to see a Canadian tech company do some good. Thankfully, yes, I got in cheap.
- 6y ago

chrisseaton 6y ago

> These companies are contractually obligated to buy the stock at whatever price it's at in the future Normally you set a limit when you short. You don’t agree to pay an unlimited amount of money.

sidr 6y ago
This runs completely counter to my understanding of shorting and I just checked on my brokerage - there is no limit. The unbounded losses bit is the whole point of put options instead of shorts.
- chrisseaton 6y ago
  > Many short sellers place a stop order with their stockbroker after selling a stock short—an order to the brokerage to cover the position if the price of the stock should rise to a certain level. This is to limit the loss and avoid the problem of unlimited liability described above. In some cases, if the stock's price skyrockets, the stockbroker may decide to cover the short seller's position immediately and without his consent to guarantee that the short seller can make good on his debt of shares. https://en.wikipedia.org/wiki/Short_(finance)#Risks https://en.wikipedia.org/wiki/Short_(finance)#Risks Otherwise you'd make yourself liable for a literally unlimited sum of money. Any short could completely bankrupt your entire personal finances or your entire institution in that case.
kangnkodos 6y ago
If an individual shorts stock at an investment bank, there is a limit to the amount of money the individual can lose. The investment bank has some type of collateral, usually the rest of your portfolio. When your net worth hits a certain threshold, perhaps $0 net worth of your portfolio, the bet is over. You lost all your money, and you don't end up in debt. In practice, the investment bank will cut you off before you reach this point. But if you are an investment bank, there is no one controlling you on a daily basis, so you can dip into the negative in theory. The problems with doing this are: - Regulators. Once the regulator finds out you're negative, they will shut down your investment bank. Hopefully, they do this before you hit 0, but they may not get it exactly right. - Counterparties. Other investment banks will refuse to do business with you when they know you are negative, or close to it. Once this happens, it's game over. So in both cases, individual or investment bank, there is a practical limit on how much you can lose from one short bet. That limit is equal to your net worth. You could lose any amount of money up to that on one short. It's risky. There are also ways to limit your losses. You can purchase other contracts to limit your losses. This is kind of like insurance. In general, you are not required to buy this. Some people and institutions do not do this because of the expense. Most institutions structure each deal so there is no way one deal will risk the entire business. Smart people also take steps to make sure one trade does not wipe them out. But sometimes mistakes happen.

Edmond 6y ago

I am not sure how guaranteed the gains are...basically there is a common enemy right now in the form of short sellers. Once they're decimated (ie forced to buy shares at higher prices than they anticipated), I suspect a good deal of novice traders are going to still be holding shares at elevated prices. At that point they're basically holding shares worth very little compared to what they likely paid for them. The same hoard trading phenomenon seems to be happening with Blackberry. A number of insiders have already dumped shares, meaning anyone buying those shares isn't buying shares from a short seller, they're buying from people who recognize the price is outrageous compared to business fundamentals. Bottom line, short sellers are definitely going to suffer, but so are a lot of robbinhood kiddies.

52-6F-62 6y ago
As I understood it, BlackBerry is a different case from GameStop—albeit some redditors are trying to make it do the same thing because it's cheaper. I've been holding that one for years for a reason.
- Edmond 6y ago
  If you're long Blackberry, depending on how much you paid for the shares you might come out on top in the years ahead. I happen to be cautiously optimistic about the company, but that is over a longer time-frame. The stock has more than doubled in a couple of weeks and seems to open consistently higher over the past few days. I don't think that is related to any real immediate business prospects. The Facebook settlement, Amazon deal and Huawei patent sales are all good news but hardly warranting the current frenzy.
  - 52-6F-62 6y ago
    No doubt. I definitely have faith that the company itself is smarter than the current euphoria so I guess I just hope it does nothing to tarnish them because they've made major strides and frankly I'd just like to see a Canadian tech company do some good. Thankfully, yes, I got in cheap.
6y ago