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But the question is, how do you mobilize enough people to act on something that causes market movement? As I understand it, the new thing wasn't lots of short

But the question is, how do you mobilize enough people to act on something that causes market movement? As I understand it, the new thing wasn't lots of short positions, it was that a bunch of people coordinated to make something dramatic happen. Isn't that the problem?

spiznnx 6y ago
You open a 20k position, screenshot it, and post your foolproof plan to reddit with lots of rocket emojis
akira2501 6y ago
> Isn't that the problem? Shorts have finite payoff for infinite risk. If you buy into shorts when the interest is above 100%, you _immediately_ open the door for this type of counter position to become rational. Is it really a problem that a bunch of people on a message board collectively decided to act on a rational position?
- epistasis 6y ago
  And further, these were large sophisticated investors that should have known when to get out and take their losses (as Melvin eventually did). For us small time folks we can do a limit short so that our risk exposure is limited.
  - alasdair_ 6y ago
    Is there proof Melvin actually got out? All I saw was a “source” on CNBC. EDIT: This is the story: https://www.cnbc.com/video/2021/01/27/melvin-capital-sells-out-of-gamestop.html https://www.cnbc.com/video/2021/01/27/melvin-capital-sells-o... It's full of plausible deniability phrases like "from what I understand" and it's very much a game of telephone. They could easily say "when I meant we were out of the stock, I meant that we had covered some of our positions" or similar. I can't find a non-hearsay source anywhere, neither written nor in the form of a recorded interview.
    - epistasis 6y ago
      I thought the source was Melvin. Lying about it would be extremely risky, I think? As in jail time risky? Could be wrong.
      - alasdair_ 6y ago
        Every article I can find just says “CNBC reported” or similar. And CNBC just mentions a “source”. I’ve yet to find an actual statement from Melvin.
    - ahepp 6y ago
      FT reported it as well. Not bulletproof, but I think they have a bit more reputation than CNBC. Perhaps I'm naïve, but I think to lie about such a thing would pretty clearly fall afoul of the law?
      - agar 6y ago
        An official statement would run afoul of the law, yes. A concerted effort to whisper to many people in an effort to manipulate the market would be fairly easy for the SEC to uncover in an investigation. A single false statement or two, said to a reporter as a confidential source, would be much more difficult to prosecute. The reporter might not willingly give up their source, and the company could deny everything, fire the person who "inaccurately represented our position", and claim the party acted of their own volition. Modest fine, at best.
        ahepp 6y ago
        FT has Citron on the record saying the position is closed. Muddy Waters is on the record saying the position is greatly reduced. Melvin has "people familiar with the matter".
    - Jkvngt 6y ago
      There is no actual proof that Melvin got out. No.
    - 6y ago
  - bluGill 6y ago
    Unless the big guys are convinced that they are right and have the money to not worry about a margin call. In that case they should be shorting more. If GameStop is really worthless then they win when the company finally files bankruptcy.
    - dodobirdlord 6y ago
      Not if their short positions expire before the price falls.
      - baq 6y ago
        borrows don't expire, puts don't have infinite loss potential.
        bluGill 6y ago
        You are mostly correct, but there is one exception. When you own a stock your broker keeps them for you, and can loan them out (for money - this is why brokers don't charge to hold your stocks for you). There are various ways to buy stocks and then get them transformed into a form where they cannot be shorted. If enough people do this the brokers will be forced to get those shorted shares back, which means they can buy your shares back on the market and leave you with the bill. The above has happened, but it is rare. Not letting your broker deal with holding the stock for you is a big hassle.
    - chii 6y ago
      but with this high a stock price, they could issue new shares can't they? They can survive by diluting existing shares at this price, and work out a new business model with plenty of runway.
      - dclowd9901 6y ago
        This is all presuming your average retail investor doesn't get cold feet and drop out. This is, unfortunately, going to be a situation where the sophisticated investors win out, and the people they cajoled into buying stocks will be left holding the bag. Gamestop could not reorganize quickly enough to assure investors that they actually have the ability to capitalize on this influx of investment, especially not with a historically terrible business performance.
- ianai 6y ago
  Read that way, this may be really needed to correct that sort of behavior within options. Just maybe short interest above 100% is a problem to avoid in itself.
- mike00632 6y ago
  The thought of GameStop stock going up to infinity (and never coming down) doesn't seem rational.
  - myownpetard 6y ago
    It doesn't need to go to infinity. GameStop just needs to get to parity with totality of the collective assets of every short seller. Then to make good on their debt, those entities will be fully liquidated. They took on unbounded risk and have no leverage if all of the stockholders refuse to sell for anything less. The stock is less a company than a contract that can be purchased that says the other party has to pay you any price you set (assuming the stockholders are able to hold until the shorts must close their position).
    - mike00632 6y ago
      There is a lot of assumptions there. You're assuming the short sellers must cover their shorts at the highest possible price instead of, you know, waiting a day or two. You're also assuming that GameStop doesn't issue any new stock which is already not the case for AMC.
      - myownpetard 6y ago
        I'm not assuming anything, I'm just asserting that it's a rational strategy that has a possibility of succeeding. Can the short sellers stay solvent long enough to wait for the price to drop? Short squeezes can last for weeks. The answer is already no, at least some of them cannot, e.g. Melvin Capital
epistasis 6y ago
It is fairly rare for stocks to be so heavily shorted. It doesn't necessarily take a bunch of people to make the price move up, but it does take a lot of money, enough to capture most of the floating shares of stock. And in particular these folks banded together to use call options to amplify their money (and risk) as they purchased stock to drive the price up. The only thing new is that rather than a few dozen wealthy people coordinating behind closed doors to use a ton of money to cause the short squeeze, it was a ton of small time investors coordinating in public, plus a bunch of others hopping on board when they saw what was going on.
- bluGill 6y ago
  Note that for banks the law limits how much of a company you are allowed to own. For us little guys that isnisn't a problem, but for the big guys it is.
- worker767424 6y ago
  I assume hedge funds know when a short squeeze looks viable, so they know how to do it and turn a profit. If they didn't do this, that means they didn't think it could turn a net profit, so there's a decently chance people late to the party will lose a lot.
bo1024 6y ago
My understanding is that GameStop was the perfect storm. - huge amounts of short positions at like $5 (months and months ago) - some people disagreed and went long - good luck #1 for game stop: some big investors (also months ago) - good luck #2: activist investor joins board, overhaul seems likely (this month) - shorts refuse to close position, stock at $15-20 (early this month) - at this point, short squeeze is apparently likely and the momentum begins. - 2 weeks later, the escalation catches attention outside wallstreetbets A lot of long term background that seems key to how things have unfolded in that case.
- nullc 6y ago
  People have been trying to pump this trade since at least September: https://files.catbox.moe/2cp8f9.jpg https://files.catbox.moe/2cp8f9.jpg It's only recently that its caught fire, as you note.
fny 6y ago
This was heavily, heavily, heavily shorted. WSBers trigger a small squeeze at which point blood was in the water and the sharks came to feast... ...along with the entire internet. This triggers triggers more margin calls, more gains, and more attention. It's a vicious cycle and given the liquidity conditions in the market there was enough jet fuel for take off. Now add more media attention, more people finding out about WSB, and you have the mother of all short squeezes. This only became truly coordinated once the media got involved and was exacerbated more by the brokerage firms shutdown buying.
- Izkata 6y ago
  > Now add more media attention, more people finding out about WSB And to give an idea of just how big this part has blown up: Over the past 6 days, WSB went from 2 million subscribers to 5.5 million.
pengaru 6y ago
It's relatively easy to move the price on a low interest stock. The problem with GME is it was shorted something like 140% of the available floating shares. If the shorts hadn't shorted the stock so excessively, we wouldn't be talking about GME today, it's what left them exposed to so much risk. The blame lies squarely with the shorts, or the lack of regulations preventing absurdity like 140% short interest.

spiznnx 6y ago

You open a 20k position, screenshot it, and post your foolproof plan to reddit with lots of rocket emojis

akira2501 6y ago

> Isn't that the problem? Shorts have finite payoff for infinite risk. If you buy into shorts when the interest is above 100%, you _immediately_ open the door for this type of counter position to become rational. Is it really a problem that a bunch of people on a message board collectively decided to act on a rational position?

epistasis 6y ago
And further, these were large sophisticated investors that should have known when to get out and take their losses (as Melvin eventually did). For us small time folks we can do a limit short so that our risk exposure is limited.
- alasdair_ 6y ago
  Is there proof Melvin actually got out? All I saw was a “source” on CNBC. EDIT: This is the story: https://www.cnbc.com/video/2021/01/27/melvin-capital-sells-out-of-gamestop.html https://www.cnbc.com/video/2021/01/27/melvin-capital-sells-o... It's full of plausible deniability phrases like "from what I understand" and it's very much a game of telephone. They could easily say "when I meant we were out of the stock, I meant that we had covered some of our positions" or similar. I can't find a non-hearsay source anywhere, neither written nor in the form of a recorded interview.
  - epistasis 6y ago
    I thought the source was Melvin. Lying about it would be extremely risky, I think? As in jail time risky? Could be wrong.
    - alasdair_ 6y ago
      Every article I can find just says “CNBC reported” or similar. And CNBC just mentions a “source”. I’ve yet to find an actual statement from Melvin.
  - ahepp 6y ago
    FT reported it as well. Not bulletproof, but I think they have a bit more reputation than CNBC. Perhaps I'm naïve, but I think to lie about such a thing would pretty clearly fall afoul of the law?
    - agar 6y ago
      An official statement would run afoul of the law, yes. A concerted effort to whisper to many people in an effort to manipulate the market would be fairly easy for the SEC to uncover in an investigation. A single false statement or two, said to a reporter as a confidential source, would be much more difficult to prosecute. The reporter might not willingly give up their source, and the company could deny everything, fire the person who "inaccurately represented our position", and claim the party acted of their own volition. Modest fine, at best.
      - ahepp 6y ago
        FT has Citron on the record saying the position is closed. Muddy Waters is on the record saying the position is greatly reduced. Melvin has "people familiar with the matter".
  - Jkvngt 6y ago
    There is no actual proof that Melvin got out. No.
  - 6y ago
- bluGill 6y ago
  Unless the big guys are convinced that they are right and have the money to not worry about a margin call. In that case they should be shorting more. If GameStop is really worthless then they win when the company finally files bankruptcy.
  - dodobirdlord 6y ago
    Not if their short positions expire before the price falls.
    - baq 6y ago
      borrows don't expire, puts don't have infinite loss potential.
      - bluGill 6y ago
        You are mostly correct, but there is one exception. When you own a stock your broker keeps them for you, and can loan them out (for money - this is why brokers don't charge to hold your stocks for you). There are various ways to buy stocks and then get them transformed into a form where they cannot be shorted. If enough people do this the brokers will be forced to get those shorted shares back, which means they can buy your shares back on the market and leave you with the bill. The above has happened, but it is rare. Not letting your broker deal with holding the stock for you is a big hassle.
  - chii 6y ago
    but with this high a stock price, they could issue new shares can't they? They can survive by diluting existing shares at this price, and work out a new business model with plenty of runway.
    - dclowd9901 6y ago
      This is all presuming your average retail investor doesn't get cold feet and drop out. This is, unfortunately, going to be a situation where the sophisticated investors win out, and the people they cajoled into buying stocks will be left holding the bag. Gamestop could not reorganize quickly enough to assure investors that they actually have the ability to capitalize on this influx of investment, especially not with a historically terrible business performance.
ianai 6y ago
Read that way, this may be really needed to correct that sort of behavior within options. Just maybe short interest above 100% is a problem to avoid in itself.
mike00632 6y ago
The thought of GameStop stock going up to infinity (and never coming down) doesn't seem rational.
- myownpetard 6y ago
  It doesn't need to go to infinity. GameStop just needs to get to parity with totality of the collective assets of every short seller. Then to make good on their debt, those entities will be fully liquidated. They took on unbounded risk and have no leverage if all of the stockholders refuse to sell for anything less. The stock is less a company than a contract that can be purchased that says the other party has to pay you any price you set (assuming the stockholders are able to hold until the shorts must close their position).
  - mike00632 6y ago
    There is a lot of assumptions there. You're assuming the short sellers must cover their shorts at the highest possible price instead of, you know, waiting a day or two. You're also assuming that GameStop doesn't issue any new stock which is already not the case for AMC.
    - myownpetard 6y ago
      I'm not assuming anything, I'm just asserting that it's a rational strategy that has a possibility of succeeding. Can the short sellers stay solvent long enough to wait for the price to drop? Short squeezes can last for weeks. The answer is already no, at least some of them cannot, e.g. Melvin Capital

epistasis 6y ago

It is fairly rare for stocks to be so heavily shorted. It doesn't necessarily take a bunch of people to make the price move up, but it does take a lot of money, enough to capture most of the floating shares of stock. And in particular these folks banded together to use call options to amplify their money (and risk) as they purchased stock to drive the price up. The only thing new is that rather than a few dozen wealthy people coordinating behind closed doors to use a ton of money to cause the short squeeze, it was a ton of small time investors coordinating in public, plus a bunch of others hopping on board when they saw what was going on.

bluGill 6y ago
Note that for banks the law limits how much of a company you are allowed to own. For us little guys that isnisn't a problem, but for the big guys it is.
worker767424 6y ago
I assume hedge funds know when a short squeeze looks viable, so they know how to do it and turn a profit. If they didn't do this, that means they didn't think it could turn a net profit, so there's a decently chance people late to the party will lose a lot.

bo1024 6y ago

My understanding is that GameStop was the perfect storm. - huge amounts of short positions at like $5 (months and months ago) - some people disagreed and went long - good luck #1 for game stop: some big investors (also months ago) - good luck #2: activist investor joins board, overhaul seems likely (this month) - shorts refuse to close position, stock at $15-20 (early this month) - at this point, short squeeze is apparently likely and the momentum begins. - 2 weeks later, the escalation catches attention outside wallstreetbets A lot of long term background that seems key to how things have unfolded in that case.

nullc 6y ago
People have been trying to pump this trade since at least September: https://files.catbox.moe/2cp8f9.jpg https://files.catbox.moe/2cp8f9.jpg It's only recently that its caught fire, as you note.

fny 6y ago

This was heavily, heavily, heavily shorted. WSBers trigger a small squeeze at which point blood was in the water and the sharks came to feast... ...along with the entire internet. This triggers triggers more margin calls, more gains, and more attention. It's a vicious cycle and given the liquidity conditions in the market there was enough jet fuel for take off. Now add more media attention, more people finding out about WSB, and you have the mother of all short squeezes. This only became truly coordinated once the media got involved and was exacerbated more by the brokerage firms shutdown buying.

Izkata 6y ago
> Now add more media attention, more people finding out about WSB And to give an idea of just how big this part has blown up: Over the past 6 days, WSB went from 2 million subscribers to 5.5 million.

pengaru 6y ago

It's relatively easy to move the price on a low interest stock. The problem with GME is it was shorted something like 140% of the available floating shares. If the shorts hadn't shorted the stock so excessively, we wouldn't be talking about GME today, it's what left them exposed to so much risk. The blame lies squarely with the shorts, or the lack of regulations preventing absurdity like 140% short interest.