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What I've been wondering is, why do people think the 125% over-shorted has to expire all at the same time and imminently? While there isn't 125% available to b

What I've been wondering is, why do people think the 125% over-shorted has to expire all at the same time and imminently? While there isn't 125% available to buy in one go, there is trading happening, HedgeFund2 can be buying and returning their loaned shares this week, HedgeFund3 can be buying and returning theirs next week, HedgeFund4 the week after, and at no point does any group need to buy 125% of available shares all in one go; where does the time limit that causes the squeeze come from?

dash2 6y ago
I don't think there's an exogenous time limit. If the price goes up enough, your broker starts worrying that you won't be able to buy the stock in future. They then might force you to buy now, which pushes the price up further. Hence the squeeze. (Source: learning about this for about a week, completely ignorant, correct me if I'm wrong.)
- dmurray 6y ago
  They don't necessarily force you to buy it back now, but they ask you to deposit more money to cover your "on-paper" losses. The broker usually has some discretion in when to do this, but there are also regulations for how far they can let it go. The shorts collectively have losses on paper of $35bn+, which is a lot of money even for well-capitalized Wall Street funds.
thrwyoilarticle 6y ago
Shorts don't expire.
svachalek 6y ago
People are confusing the options trading that's going on as part of this with the shorting. Options do have expiration dates, but shorts just charge interest. The thing is if you own a stock and it goes down, worst case is you lose 100% of your money. If you short a stock and it doubles, you've lost 100% but there's no barrier here, the loss could keep going up to 200% or more. If you can't pay it back, the broker is on the hook for this money and therefore they have the power to actually force you to close the short position. You don't control the timing on that. It's the kind of situation where people start jumping out of windows on Wall St.
hagy 6y ago
It's not that there is an expiration date, but instead that there is a collateral requirement for holding short positions in addition to the interest. As the shorted stock increases in value, the borrower must post additional collateral or close out their position. If the collateral requirements exceed the fund's capital then they'll be forced to close. Further, all hedge funds have internal risk limits, which include limits of their exposure to a single equity. Should the collateral requirements exceed this limit, then their internal risk compliance team will ensure that the short position be at least partially closed to keep them within their limits.

dash2 6y ago

I don't think there's an exogenous time limit. If the price goes up enough, your broker starts worrying that you won't be able to buy the stock in future. They then might force you to buy now, which pushes the price up further. Hence the squeeze. (Source: learning about this for about a week, completely ignorant, correct me if I'm wrong.)

dmurray 6y ago
They don't necessarily force you to buy it back now, but they ask you to deposit more money to cover your "on-paper" losses. The broker usually has some discretion in when to do this, but there are also regulations for how far they can let it go. The shorts collectively have losses on paper of $35bn+, which is a lot of money even for well-capitalized Wall Street funds.

thrwyoilarticle 6y ago

Shorts don't expire.

svachalek 6y ago

People are confusing the options trading that's going on as part of this with the shorting. Options do have expiration dates, but shorts just charge interest. The thing is if you own a stock and it goes down, worst case is you lose 100% of your money. If you short a stock and it doubles, you've lost 100% but there's no barrier here, the loss could keep going up to 200% or more. If you can't pay it back, the broker is on the hook for this money and therefore they have the power to actually force you to close the short position. You don't control the timing on that. It's the kind of situation where people start jumping out of windows on Wall St.

hagy 6y ago

It's not that there is an expiration date, but instead that there is a collateral requirement for holding short positions in addition to the interest. As the shorted stock increases in value, the borrower must post additional collateral or close out their position. If the collateral requirements exceed the fund's capital then they'll be forced to close. Further, all hedge funds have internal risk limits, which include limits of their exposure to a single equity. Should the collateral requirements exceed this limit, then their internal risk compliance team will ensure that the short position be at least partially closed to keep them within their limits.