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It's a short squeeze. The guys left holding the bag are people that are covering their short positions in the company. The average retail investor is not shorti

It's a short squeeze. The guys left holding the bag are people that are covering their short positions in the company. The average retail investor is not shorting stocks.. There will probably also be some people that try to jump on the trend too late but that isn't who is being hurt right now.

Traster 6y ago
The second that the shorts have covered the price isn't going to drop to $90, it's going to drop back to $20 and most of the WSBers who were holding out for $2000 will lose their shirts. The shorts are going to lose, no doubt. But once they've lost, the stock price is probably $20. A lot of WSBers are going to be holding stock at that point, and possibly on margin. And that stock is going to be a crappy retail stock. At which point it'll be a slow drift as they cut their losses and move onto the next meme stock. The stock price today is irrelevant if you're not going to sell, and that's what WSB Thto be saying. The price is going to drop much faster than it rose.
- Aloha 6y ago
  I dont feel bad for the guy who loses two grand at the casino, why should I feel bad for them?
  - coryfklein 6y ago
    You should feel bad for the human being who loses two grand at the casino!
    - nicholasluimy 6y ago
      empathize yes. Sympathy? Probably not
- freeone3000 6y ago
  It's also very hard to exit a falling position. It was hard to exit a rising position this morning -- the stock was on trading hold multiple times. By the time you notice it's falling, it's too late to sell
  - kevinsundar 6y ago
    You can manage risk with stop-loss. Its not really that hard. You can use this to "lock-in" profits without selling.
    - nullc 6y ago
      That isn't how a stop-loss actually works. You aren't guaranteed execution above a particular price. You could lock in gains using puts, but when you go and price out doing so you'll see exactly how much the market values the risk in the position.
      - sokoloff 6y ago
        So, I was on the wrong direction of this trade, having bought puts on Monday and Tuesday. The stock rocketed up today and the puts rose about 20% as well (which is crazy and counter-intuitive). So, I was entirely wrong and made money anyway. Once I realized I couldn't account for what was happening, was totally wrong on the direction, and being offered a token gain to get out, I got out. Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.
        kshacker 6y ago
        > Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility. Because the higher you are, the closer you are to a crash. Peaks take time to build, but crashes can happen overnight (or premarket).
        FabHK 6y ago
        The put is just another instrument that trades. What will under normal circumstances keep a put close to the "correct" price? Well, if the price goes too high, people will start writing puts, driving the price down. If you write a put, you're long the stock. To hedge yourself, you'll need to short it. To the extent that that is difficult right now, nobody will be willing to write puts. (Strictly speaking, the put is so out of the money right now, that one would not have to short much today. But as soon as the stock price falls and approaches the strike, the writer of the put would need to start shorting. "Hey, anyone got some shares I could borrow?") On the other hand, if you want to take a negative view on the company, buying a put is sensible thing to do. That'll drive the price of the puts up.
- silexia 6y ago
  I sold a GME call option with a strike price of $320 and expiration in July today for $200. A pump and dump by novices is easy money if you know how to play it. Everyone knows this is going to crash, the question is when?
  - solaxun 6y ago
    You got balls, yes the IVOL is insane and that's a nice premium, but if for some reason you have a repeat of today, you're out $20K plus. This thing will crater, yeah, but shorting it is insane and option volatility is ridiculous right now.
    - undefined1 6y ago
      > but if for some reason you have a repeat of today, you're out $20K plus Can you expand on this? Why would they be on the line for $20k+ (or anything) after selling the option?
      - rgossiaux 6y ago
        The option seller needs to buy the stock to deliver the shares when the option expires, so if the price continues rising their losses are unbounded (by contrast, their gains are bounded by how much they originally sold the option for).
        ra7 6y ago
        > The option seller needs to buy the stock to deliver the shares when the option expires Not just when the option expires. You can be assigned anytime after you sell an option.
        undefined1 6y ago
        Oh, but that depends on how you sell it? Correct me if wrong, but my understanding with Robinhood is that you Sell to Close (by default anyway), which just goes back into the market. No further obligation?
- mrkstu 6y ago
  They can cover their initial capital outlay pretty easily by selling a small number of shares on the way up.
  - bilbo0s 6y ago
    So mathematically, this is a pyramid scheme for the redditors. The people that buy at the inflated price fund the people who bought before them. The hope being that hedge funds will buy at the inflated price. I also had a horrible thought, what if someone came in and bought short positions at inflated prices with his lunchbox money instead? Then that person is trying to wait out the redditors. Wow. So many angles. Too rich for my blood.
- swiley 6y ago
  They won't lose their shirts, just the beer money they spent on a meme. Plenty of them really don't care.
  - deleted 6y ago
    [deleted]
  - ahepp 6y ago
    you may be overestimating the responsibility of the people involved I remember reading about people mortgaging their house to get into bitcoin, etc. I don't know how the coming days will play out, but I'm quite confident when this is all over we'll be treated to stories in the NYT about how someone lost their life savings, alongside calls for regulation.
    - swiley 6y ago
      I used to hang out in that subreddit before I deleted my account. Most of them are a) lurking b) goofing around with maybe a few hundred dollars (I was in that category) c) people from hedge funds There was a tiny minority that did stupid things like buy $20k of options on credit cards but there's a minority of stupid people like that everywhere.
    - imtringued 6y ago
      That subreddit was built around losing money on bad trades.
  - xmprt 6y ago
    Things may have changed since you last used reddit but now I regularly see people playing with $1000s of dollars joking about buying weekly options and trading on leverage that they don't have and then not understanding the implications of that when things come crashing down.
    - nrmitchi 6y ago
      There's been a lot more of this in the last 8 months when it's been pretty difficult to actually lose in the stock market.
- restingrobot 6y ago
  You're forgetting the stock is 125% over shorted. There literally isn't enough stock for shorts to cover their current positions. That's why there is potential for infinite, (huge) gains as long as everyone holds.
  - alexfoo 6y ago
    According to Ortex it's back under 100% float to loan.
    - delaaxe 6y ago
      Anything over 30% is considered heavily shorted and prone to short squeezes. Ortex says it's at 95%
  - oars 6y ago
    As someone who's new to this world of stock trading but now understands what a "short" is, could you elaborate on this? How is it possible for a stock to be 125% over shorted? What does this mean?
    - xenocratus 6y ago
      The broker who is actually holding your stock can lend them out and you can indeed end up buying your own stocks more than once. You can explicitly request the broker to not do it and, in this kind of situation where 125% of the stock is shorted and some *need* to buy it... well :) Have a read from Matt Levine's "Infinite Game" from yesterday: https://www.bloomberg.com/opinion/articles/2021-01-26/will-wallstreetbets-face-sec-scrutiny-after-gamestop-rally https://www.bloomberg.com/opinion/articles/2021-01-26/will-w... To quote: > Falcone owned some bonds of a company called MAAX Holdings Inc. “After hearing rumors that a Wall Street financial services firm was shorting the MAAX bonds and also encouraging its customers to do the same, Falcone decided to seek revenge.” So he bought all the MAAX bonds. Then he bought more: Short sellers would borrow MAAX bonds (presumably from him), and then sell them to him, so that he ended up with “22 million more bonds than MAAX had ever issued.” Then he stopped lending them out, forcing the short sellers to buy bonds to cover their shorts. But there were no bonds to be bought, since he owned them all (and more). > Falcone stated that the Wall Street firm should just keep bidding for the bonds. Falcone acknowledged that the Wall Street firm would suffer some losses doing so, but told the senior officer and the others that sometimes you are just on the wrong side of a trade.
- 0000011111 6y ago
  $20 is about 10* the 52 wk low of the stock.
superfrank 6y ago
That's the idea, but there will also be a bunch of retail traders who get caught up in the frenzy and end up losing too much when the bubble pops. Maybe it's their own fault for being greedy, but they do still exist. It won't only be hedge funds left holding the bag. Also, there is a worry about multiple hedge funds going bankrupt and causing a cascading effect when they are forced to close out other positions which would hurt average people. I'm not blaming WSB for this, the hedge funds got caught being greedy and deserve everything they're getting, but we do need to try to prevent their failures from affecting the market as a whole.
- GordonS 6y ago
  > Also, there is a worry about multiple hedge funds going bankrupt Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...
  - caddemon 6y ago
    Isn't this complicated a bit by the way shorts work? Like when you buy $n of stock, it is impossible to lose more than $n. But with shorting you could lose unpredictable amounts if shit hits the fan. I agree it's not a good look for a hedge fund to have put themselves in this position, but I think it was more about believing they couldn't lose so extraordinarily badly, not that they couldn't lose at all.
    - nrmitchi 6y ago
      I know this has been discussed elsewhere, and it's kind of against the narrative, but my understanding is that typically if you're shorting like this, you would hedge your potential losses by buying calls. Ie, if you short at $20/share, and want to limit to 100% losses (excluding premium), you could buy calls at $40. If the price skyrocketed past here, you have the calls. There is obviously much more complex math to optimize this. I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them). It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).
hbosch 6y ago
Many of those shorts are exiting their positions, or already have, and taken their losses. They're the ones who can afford their losses. Perhaps there are some funds still holding out their end of the short war, but by the time this is all over... like over over... it will be retail traders selling inflated positions to other retail traders.
- codesnik 6y ago
  well, true, but people are still reporting very high amount of short positions.
- fumar 6y ago
  Is this data available anywhere?
- minor3 6y ago
  The short interest is still extremely high and likely a number of firms are already liquidating their positions to pay off GME. The squeeze should be on Friday when every option expires in the money.
- delaaxe 6y ago
  No, the short float is still hight. Old short have covered but new ones have replaced them
  - bilbo0s 6y ago
    Wait? Wouldn't new ones be shorts against the inflated prices? It could easily be other retail investors shorting the reddit pump and dump. I suppose as long as no one innocent is hurt, it doesn't really matter if some redditors and hedge funds are cleaned out. But it seems more and more likely that the only thing that will have been done here in the end is to enrich the market makers.
    - delaaxe 6y ago
      This is being framed as retailers vs. institutional but in reality there's both on each side.
adrr 6y ago
They paid the price when the stock increased in price being forced to buy shares at higher price to cover. Stock is going to normalize and go back down. Retail investors bought the stock at $50+, they are posting screenshots to WSB. When people start liquidating their position, you need a buyer on the other end of the transaction. And you’ll end up with a collapse in the price as there are way more sellers than buyers. Someone is going to be holding the bag and it’s going to be anyone who purchased above $50. It’s going to be similar scenario of a failed merger and merger arbitrage guys trying unravel their positions.
rtkwe 6y ago
For the people with the stock now to make real money they'll have to sell eventually either to the people who've shorted or to a normal investor right? Then after the short position closes the stock price will fall at least some because the demand will fall. Unless the only person buying stocks near the end is the shorter and everyone unloads their shares to them someone's buying above the price $GME will fall to.
SatvikBeri 6y ago
There were 70MM shares of gamestop short around the beginning of the month: https://www.marketbeat.com/stocks/NYSE/GME/short-interest/ https://www.marketbeat.com/stocks/NYSE/GME/short-interest/ Around 1BB shares of gamestop have been bought/sold over the last two weeks. So shorts covering represent at most 7% of the volume.
- hagy 6y ago
  I think it's disingenuous to compare those two numbers. The mass majority of that trading is alogos trading within short time spans, not entities entering or exiting long positions. This includes all the market makers that have to hedge options under the insane stock volatility by exiting and enter both short and long positions as the stock moves. It further includes every flavor of HFT that can potentially syphon some value from high volatility combined with momentum. This volume doesn't tell us anything about the actual change in stock held by various entities nor how easily 70MM shares could be obtained from entities.
cma 6y ago
> It's a short squeeze. The guys left holding the bag are people that are covering their short positions in the company. The average retail investor is not shorting stocks. If the hedge fund blows up, the brokerages that loaned them the stocks to short are left holding the bag, and if that blows up SIPC/brokerage insurance, many retail investors or taxpayers may be left holding the bag.

Traster 6y ago

The second that the shorts have covered the price isn't going to drop to $90, it's going to drop back to $20 and most of the WSBers who were holding out for $2000 will lose their shirts. The shorts are going to lose, no doubt. But once they've lost, the stock price is probably $20. A lot of WSBers are going to be holding stock at that point, and possibly on margin. And that stock is going to be a crappy retail stock. At which point it'll be a slow drift as they cut their losses and move onto the next meme stock. The stock price today is irrelevant if you're not going to sell, and that's what WSB Thto be saying. The price is going to drop much faster than it rose.

Aloha 6y ago
I dont feel bad for the guy who loses two grand at the casino, why should I feel bad for them?
- coryfklein 6y ago
  You should feel bad for the human being who loses two grand at the casino!
  - nicholasluimy 6y ago
    empathize yes. Sympathy? Probably not
freeone3000 6y ago
It's also very hard to exit a falling position. It was hard to exit a rising position this morning -- the stock was on trading hold multiple times. By the time you notice it's falling, it's too late to sell
- kevinsundar 6y ago
  You can manage risk with stop-loss. Its not really that hard. You can use this to "lock-in" profits without selling.
  - nullc 6y ago
    That isn't how a stop-loss actually works. You aren't guaranteed execution above a particular price. You could lock in gains using puts, but when you go and price out doing so you'll see exactly how much the market values the risk in the position.
    - sokoloff 6y ago
      So, I was on the wrong direction of this trade, having bought puts on Monday and Tuesday. The stock rocketed up today and the puts rose about 20% as well (which is crazy and counter-intuitive). So, I was entirely wrong and made money anyway. Once I realized I couldn't account for what was happening, was totally wrong on the direction, and being offered a token gain to get out, I got out. Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.
      - kshacker 6y ago
        > Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility. Because the higher you are, the closer you are to a crash. Peaks take time to build, but crashes can happen overnight (or premarket).
        FabHK 6y ago
        The put is just another instrument that trades. What will under normal circumstances keep a put close to the "correct" price? Well, if the price goes too high, people will start writing puts, driving the price down. If you write a put, you're long the stock. To hedge yourself, you'll need to short it. To the extent that that is difficult right now, nobody will be willing to write puts. (Strictly speaking, the put is so out of the money right now, that one would not have to short much today. But as soon as the stock price falls and approaches the strike, the writer of the put would need to start shorting. "Hey, anyone got some shares I could borrow?") On the other hand, if you want to take a negative view on the company, buying a put is sensible thing to do. That'll drive the price of the puts up.
silexia 6y ago
I sold a GME call option with a strike price of $320 and expiration in July today for $200. A pump and dump by novices is easy money if you know how to play it. Everyone knows this is going to crash, the question is when?
- solaxun 6y ago
  You got balls, yes the IVOL is insane and that's a nice premium, but if for some reason you have a repeat of today, you're out $20K plus. This thing will crater, yeah, but shorting it is insane and option volatility is ridiculous right now.
  - undefined1 6y ago
    > but if for some reason you have a repeat of today, you're out $20K plus Can you expand on this? Why would they be on the line for $20k+ (or anything) after selling the option?
    - rgossiaux 6y ago
      The option seller needs to buy the stock to deliver the shares when the option expires, so if the price continues rising their losses are unbounded (by contrast, their gains are bounded by how much they originally sold the option for).
      - ra7 6y ago
        > The option seller needs to buy the stock to deliver the shares when the option expires Not just when the option expires. You can be assigned anytime after you sell an option.
      - undefined1 6y ago
        Oh, but that depends on how you sell it? Correct me if wrong, but my understanding with Robinhood is that you Sell to Close (by default anyway), which just goes back into the market. No further obligation?
mrkstu 6y ago
They can cover their initial capital outlay pretty easily by selling a small number of shares on the way up.
- bilbo0s 6y ago
  So mathematically, this is a pyramid scheme for the redditors. The people that buy at the inflated price fund the people who bought before them. The hope being that hedge funds will buy at the inflated price. I also had a horrible thought, what if someone came in and bought short positions at inflated prices with his lunchbox money instead? Then that person is trying to wait out the redditors. Wow. So many angles. Too rich for my blood.
swiley 6y ago
They won't lose their shirts, just the beer money they spent on a meme. Plenty of them really don't care.
- deleted 6y ago
  [deleted]
- ahepp 6y ago
  you may be overestimating the responsibility of the people involved I remember reading about people mortgaging their house to get into bitcoin, etc. I don't know how the coming days will play out, but I'm quite confident when this is all over we'll be treated to stories in the NYT about how someone lost their life savings, alongside calls for regulation.
  - swiley 6y ago
    I used to hang out in that subreddit before I deleted my account. Most of them are a) lurking b) goofing around with maybe a few hundred dollars (I was in that category) c) people from hedge funds There was a tiny minority that did stupid things like buy $20k of options on credit cards but there's a minority of stupid people like that everywhere.
  - imtringued 6y ago
    That subreddit was built around losing money on bad trades.
- xmprt 6y ago
  Things may have changed since you last used reddit but now I regularly see people playing with $1000s of dollars joking about buying weekly options and trading on leverage that they don't have and then not understanding the implications of that when things come crashing down.
  - nrmitchi 6y ago
    There's been a lot more of this in the last 8 months when it's been pretty difficult to actually lose in the stock market.
restingrobot 6y ago
You're forgetting the stock is 125% over shorted. There literally isn't enough stock for shorts to cover their current positions. That's why there is potential for infinite, (huge) gains as long as everyone holds.
- alexfoo 6y ago
  According to Ortex it's back under 100% float to loan.
  - delaaxe 6y ago
    Anything over 30% is considered heavily shorted and prone to short squeezes. Ortex says it's at 95%
- oars 6y ago
  As someone who's new to this world of stock trading but now understands what a "short" is, could you elaborate on this? How is it possible for a stock to be 125% over shorted? What does this mean?
  - xenocratus 6y ago
    The broker who is actually holding your stock can lend them out and you can indeed end up buying your own stocks more than once. You can explicitly request the broker to not do it and, in this kind of situation where 125% of the stock is shorted and some *need* to buy it... well :) Have a read from Matt Levine's "Infinite Game" from yesterday: https://www.bloomberg.com/opinion/articles/2021-01-26/will-wallstreetbets-face-sec-scrutiny-after-gamestop-rally https://www.bloomberg.com/opinion/articles/2021-01-26/will-w... To quote: > Falcone owned some bonds of a company called MAAX Holdings Inc. “After hearing rumors that a Wall Street financial services firm was shorting the MAAX bonds and also encouraging its customers to do the same, Falcone decided to seek revenge.” So he bought all the MAAX bonds. Then he bought more: Short sellers would borrow MAAX bonds (presumably from him), and then sell them to him, so that he ended up with “22 million more bonds than MAAX had ever issued.” Then he stopped lending them out, forcing the short sellers to buy bonds to cover their shorts. But there were no bonds to be bought, since he owned them all (and more). > Falcone stated that the Wall Street firm should just keep bidding for the bonds. Falcone acknowledged that the Wall Street firm would suffer some losses doing so, but told the senior officer and the others that sometimes you are just on the wrong side of a trade.
0000011111 6y ago
$20 is about 10* the 52 wk low of the stock.

superfrank 6y ago

That's the idea, but there will also be a bunch of retail traders who get caught up in the frenzy and end up losing too much when the bubble pops. Maybe it's their own fault for being greedy, but they do still exist. It won't only be hedge funds left holding the bag. Also, there is a worry about multiple hedge funds going bankrupt and causing a cascading effect when they are forced to close out other positions which would hurt average people. I'm not blaming WSB for this, the hedge funds got caught being greedy and deserve everything they're getting, but we do need to try to prevent their failures from affecting the market as a whole.

GordonS 6y ago
> Also, there is a worry about multiple hedge funds going bankrupt Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...
- caddemon 6y ago
  Isn't this complicated a bit by the way shorts work? Like when you buy $n of stock, it is impossible to lose more than $n. But with shorting you could lose unpredictable amounts if shit hits the fan. I agree it's not a good look for a hedge fund to have put themselves in this position, but I think it was more about believing they couldn't lose so extraordinarily badly, not that they couldn't lose at all.
  - nrmitchi 6y ago
    I know this has been discussed elsewhere, and it's kind of against the narrative, but my understanding is that typically if you're shorting like this, you would hedge your potential losses by buying calls. Ie, if you short at $20/share, and want to limit to 100% losses (excluding premium), you could buy calls at $40. If the price skyrocketed past here, you have the calls. There is obviously much more complex math to optimize this. I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them). It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).

hbosch 6y ago

Many of those shorts are exiting their positions, or already have, and taken their losses. They're the ones who can afford their losses. Perhaps there are some funds still holding out their end of the short war, but by the time this is all over... like over over... it will be retail traders selling inflated positions to other retail traders.

codesnik 6y ago
well, true, but people are still reporting very high amount of short positions.
fumar 6y ago
Is this data available anywhere?
minor3 6y ago
The short interest is still extremely high and likely a number of firms are already liquidating their positions to pay off GME. The squeeze should be on Friday when every option expires in the money.
delaaxe 6y ago
No, the short float is still hight. Old short have covered but new ones have replaced them
- bilbo0s 6y ago
  Wait? Wouldn't new ones be shorts against the inflated prices? It could easily be other retail investors shorting the reddit pump and dump. I suppose as long as no one innocent is hurt, it doesn't really matter if some redditors and hedge funds are cleaned out. But it seems more and more likely that the only thing that will have been done here in the end is to enrich the market makers.
  - delaaxe 6y ago
    This is being framed as retailers vs. institutional but in reality there's both on each side.

adrr 6y ago

They paid the price when the stock increased in price being forced to buy shares at higher price to cover. Stock is going to normalize and go back down. Retail investors bought the stock at $50+, they are posting screenshots to WSB. When people start liquidating their position, you need a buyer on the other end of the transaction. And you’ll end up with a collapse in the price as there are way more sellers than buyers. Someone is going to be holding the bag and it’s going to be anyone who purchased above $50. It’s going to be similar scenario of a failed merger and merger arbitrage guys trying unravel their positions.

rtkwe 6y ago

For the people with the stock now to make real money they'll have to sell eventually either to the people who've shorted or to a normal investor right? Then after the short position closes the stock price will fall at least some because the demand will fall. Unless the only person buying stocks near the end is the shorter and everyone unloads their shares to them someone's buying above the price $GME will fall to.

SatvikBeri 6y ago

There were 70MM shares of gamestop short around the beginning of the month: https://www.marketbeat.com/stocks/NYSE/GME/short-interest/ https://www.marketbeat.com/stocks/NYSE/GME/short-interest/ Around 1BB shares of gamestop have been bought/sold over the last two weeks. So shorts covering represent at most 7% of the volume.

hagy 6y ago
I think it's disingenuous to compare those two numbers. The mass majority of that trading is alogos trading within short time spans, not entities entering or exiting long positions. This includes all the market makers that have to hedge options under the insane stock volatility by exiting and enter both short and long positions as the stock moves. It further includes every flavor of HFT that can potentially syphon some value from high volatility combined with momentum. This volume doesn't tell us anything about the actual change in stock held by various entities nor how easily 70MM shares could be obtained from entities.

cma 6y ago

> It's a short squeeze. The guys left holding the bag are people that are covering their short positions in the company. The average retail investor is not shorting stocks. If the hedge fund blows up, the brokerages that loaned them the stocks to short are left holding the bag, and if that blows up SIPC/brokerage insurance, many retail investors or taxpayers may be left holding the bag.