6 ms·

Thanks, that's a great explanation of what I probably the most likely outcome. Humor me for a second - what happens the the (unlikely event) they ALL hold unti

by grecy 6y ago

Thanks, that's a great explanation of what I probably the most likely outcome. Humor me for a second - what happens the the (unlikely event) they ALL hold until it hits $10,000, and the "infinity squeeze" really does happen?

PragmaticPulp 6y ago
> Humor me for a second - what happens the the (unlikely event) they ALL hold until it hits $10,000, and the "infinity squeeze" really does happen? At some point, you can't squeeze infinite money out of short sellers. In theory, if they're still short when the price passes a threshold higher than their margin limits, they'll get margin called and forced to sell. If the brokers and clearing houses didn't get the risk math right, they'll have to cover some of the difference. This is part of why RH had to pay (a lot) extra into collateral pools just to trade GME at all today. I don't exactly know which parties bear the risk in extreme scenarios. Practically speaking, if they suspect a squeeze is happening they'll start competing against each other to get order fills. If they all set sell limits at $10K, they risk losing out to someone who sets their sell at $9999. That person risks losing out to someone who sells at $9800, and so on down the line. Again, there isn't actually infinite money to be extracted from the system, so it becomes a competition to sell before your WSB peers. Even worse, the subreddit will be full of posts about "buy the dip" and "diamond hands" that encourage the naive players to not exit the trade. This creates more room for savvy players to get their sells in before the situation resolves and the price comes crashing back down. Again, it's a race to the bottom. Sadly, much of the profit going to WSBers will come not from hedge funds, but from other WSBers who think they're "buying the dip" or front-running a short squeeze when in reality they're just buying shares from other WSBers.
- deleted 6y ago
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thatguy0900 6y ago
The hedge funds have to pay them, when they go out of business the brokerages are on the hook. Realistically the govt will bail them out or change the rules of the game.

by grecy 6y ago

PragmaticPulp 6y ago

> Humor me for a second - what happens the the (unlikely event) they ALL hold until it hits $10,000, and the "infinity squeeze" really does happen? At some point, you can't squeeze infinite money out of short sellers. In theory, if they're still short when the price passes a threshold higher than their margin limits, they'll get margin called and forced to sell. If the brokers and clearing houses didn't get the risk math right, they'll have to cover some of the difference. This is part of why RH had to pay (a lot) extra into collateral pools just to trade GME at all today. I don't exactly know which parties bear the risk in extreme scenarios. Practically speaking, if they suspect a squeeze is happening they'll start competing against each other to get order fills. If they all set sell limits at $10K, they risk losing out to someone who sets their sell at $9999. That person risks losing out to someone who sells at $9800, and so on down the line. Again, there isn't actually infinite money to be extracted from the system, so it becomes a competition to sell before your WSB peers. Even worse, the subreddit will be full of posts about "buy the dip" and "diamond hands" that encourage the naive players to not exit the trade. This creates more room for savvy players to get their sells in before the situation resolves and the price comes crashing back down. Again, it's a race to the bottom. Sadly, much of the profit going to WSBers will come not from hedge funds, but from other WSBers who think they're "buying the dip" or front-running a short squeeze when in reality they're just buying shares from other WSBers.

deleted 6y ago
[deleted]

thatguy0900 6y ago

The hedge funds have to pay them, when they go out of business the brokerages are on the hook. Realistically the govt will bail them out or change the rules of the game.