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If the stock was <100% shorted, it would be a pump and dump. The moment it was >100% shorted, the hedged fund exposed themselves to financial risk. No matter

If the stock was <100% shorted, it would be a pump and dump. The moment it was >100% shorted, the hedged fund exposed themselves to financial risk. No matter how much people buy, they can't buy >100% of the shares on the market unless GameStop issues new shares. The people buying are betting that when these hedge funds need to cover, they will be covering ~120% of the number of shares (the amount of shorted stock) on the market. That covers everyone that has shares right now. So right now, its a tug of war (hence the volatility). Its a zero sum game where one side will definitely lose. You can argue that the company isn't worth anything and that buyers will get hurt, but only when <100% of the stock is shorted. edit (below): The loser will be the one holding 100% of the stock. At that point the stock would plummet because all the buyers have left. Meaning if the hedge fund loses, they are not just covering at a higher price (and thus continuing to drive it up even more), they will effectively be buying worthless stock. I consider this a battle of trading strategies. The fundamental value of the company is beside the point. Hedge funds have done this to each other before, that's why there's an existing term for it - short squeeze. Its definitely covered in a textbook for first year business school students.

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pastrami_panda 6y ago
But according to statements from e.g. Melvin Capital they closed their position at a loss already. It's very hard to tell if this is actually the case but assuming it's true that ought to change the situation, no?
- trsohmers 6y ago
  It is pretty easy to tell that Melvin was lying through their teeth when they said this... the volume for them to cover was not there, and most estimates was that it would take 6-8 days for them to actually exit their position.
  - nursur2011 6y ago
    the 6-8 days to cover is based on historical volume is my understanding. If volume spikes 10x in a day they cover much faster. Besides, this assumes 100% covering, why would they do that vs. just incrementally?
    - pastrami_panda 6y ago
      This was exactly my thinking, why wouldn't they utilize these days of extreme volume trading to their advantage. It's their bread and butter, no?
      - nowherebeen 6y ago
        Exactly. Hedge funds love volatility. They aren’t mutual funds. Hedge funds typically make the most and lose the most money during these times because they can take any side of the position as they see fit. People that invest in hedge funds know this.
        beagle3 6y ago
        They are not magicians. They are on the losing side of what turned out to be a few billions dollar bet (real money. Not notional). They usually profit from switching side quickly or making informed bets you can’t easily make - like shorting stocks. Except, they dug too deep this time. We’re seeing another LTCM meltdown in process, albeit smaller and so far more contained.
      - TuringNYC 6y ago
        Because while volume went up the price did also, so it’s costing them 10x to 20x to cover.
- fsociety 6y ago
  They would be fined minimally for lying about closing their position, peanuts compared to how much they would lose if they have to cover their shorts.
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jfengel 6y ago
I've seen this argument several times and I don't understand it. Why can't they buy >100% of the shares in exactly the same way they were able to sell >100% of the shares? They buy some shares, return them to their owners, and then buy them up again? They don't even need to buy up 100%. They only need to buy up 20%. Then they're back in the situation of being under 100% shorted, and problem no longer applies. With such a large short interest it means that a motivated or coordinated buyer can force them to cover it at highly inflated prices, and that's their fault. But doesn't seem to be impossible just because the interest is >100%, merely very expensive (perhaps bankruptcy expensive). Am I missing something?
- bananabiscuit 6y ago
  I don’t think you are missing anything. This magic 100% number is somewhat of a meme going around.
- stevofolife 6y ago
  You're also missing the fact that these hedge funds are bleeding interest per day. So buying 20% only will not suffice.
  - jfengel 6y ago
    I take it the interest is based on the current price? If so, that would make some sense: if they're paying (say) .1% per day on a stock that is worth 100x the amount you got for shorting it, you'll gradually burn through all of the cash you got for the short. You're still in a kind of race to see whether it will stay that high for long, or if people will eventually want to take their profits. But it definitely puts pressure on you to reduce your exposure to that, even at the inflated price.
- LatteLazy 6y ago
  Exactly. Short seller buys 100 shares, return shares to lender, lender sells back to short seller, repeat as many times as needed to close
  - 6y ago
savorypiano 6y ago
If a stock is shorted, someone else bought the shorted shares, creating extra supply to cover with. Percentage >100 doesn't mean they cannot cover, in theory.
boatsie 6y ago
There isn't something "magical" about > 100% short interest. It should be stated a ratio to be less confusing, rather than a percentage. It just means that if there were, say 100 shares of a company, and 120 shares sold short, it would be "120%" short. But all this means is that there are 220 shares "owned" by others. And thus, to cover, the "shorts" need only buy back 120 of those 220 shares, so there will certainly be bag holders at the end of this since the shorts don't actually need to buy up "all the shares", only 54% of them in this case. Now, of course, some of those shares are locked up by funds tracking, say the Russell 2000 index, which cannot liquidate their holdings (and may even be required to buy more as GME climbs) in order to maintain it's percentage in the fund. Other shares are held by other funds or institutions, and so on. So the reality is it is difficult for the shorts to cover quickly. This isn't a problem during "normal times" because the volatility of the stock is relatively low and thus the short margin interest that you have to pay to keep borrowing the stock is a small percentage. But as the price runs up, that interest and collateral requirements grow dramatically since the broker needs to be sure you can pay up if you have to buy the shares at the current market price.
- tashmahalic 6y ago
  If an index fund wants to maintain the same portfolio percentage of GME when GME’s stock price rises, wouldn’t the fund sell GME, rather than buy?
  - reducesuffering 6y ago
    Isn't it actually neither buy nor sell? Most common indices (by AUM) are market-cap weighted. If a total market ETF contains 0.25% of it in GME, and GME doubles in value, it's GME it holds is now 0.50%, and that's how much it should hold now, according to market-cap weight. No buying or selling. Of course there's many ETF's that aren't market-cap weighted, but the majority of funds/value is.
    - boatsie 6y ago
      That’s right, I misspoke. It could possibly require other funds that were tracking, say, the top 1000 stocks by market cap to buy, not ones tracking the regular index.
franklyt 6y ago
I don’t see how that term is applicable to a grassroots phenomenon when it purports to describe an explicit corporate strategy.
bjourne 6y ago
If I understand what you're saying is that what WSB is doing isn't anything new but something hedge funds has been doing against each other before? The novel part of it is that their "attack" is organized through a Reddit community and requires lots of people pooling their money together? If they "win", they get their money back?
- imtringued 6y ago
  The VW squeeze happened because Porsche wanted to acquire VW which means it is not going to sell shares because that would prevent the acquisition. In this case you have irrational people who decorate their broker apps with GME stocks like people decorate their rooms with wallpaper.
  - nowherebeen 6y ago
    I think too many people are underestimating WSB users. It really shows from comments like these. Disclaimer: I am not one.
    - jmiskovic 6y ago
      I spent some time with that community in last days. A fascinating bunch. There's some very well written analysis between emojis. I guess some professionals are involved, that enjoy the attention and influence they get there. Lots of inside jokes and repeated text blocks (that smell like broadcast propaganda). VERY positive energy overall.

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pastrami_panda 6y ago

But according to statements from e.g. Melvin Capital they closed their position at a loss already. It's very hard to tell if this is actually the case but assuming it's true that ought to change the situation, no?

trsohmers 6y ago
It is pretty easy to tell that Melvin was lying through their teeth when they said this... the volume for them to cover was not there, and most estimates was that it would take 6-8 days for them to actually exit their position.
- nursur2011 6y ago
  the 6-8 days to cover is based on historical volume is my understanding. If volume spikes 10x in a day they cover much faster. Besides, this assumes 100% covering, why would they do that vs. just incrementally?
  - pastrami_panda 6y ago
    This was exactly my thinking, why wouldn't they utilize these days of extreme volume trading to their advantage. It's their bread and butter, no?
    - nowherebeen 6y ago
      Exactly. Hedge funds love volatility. They aren’t mutual funds. Hedge funds typically make the most and lose the most money during these times because they can take any side of the position as they see fit. People that invest in hedge funds know this.
      - beagle3 6y ago
        They are not magicians. They are on the losing side of what turned out to be a few billions dollar bet (real money. Not notional). They usually profit from switching side quickly or making informed bets you can’t easily make - like shorting stocks. Except, they dug too deep this time. We’re seeing another LTCM meltdown in process, albeit smaller and so far more contained.
    - TuringNYC 6y ago
      Because while volume went up the price did also, so it’s costing them 10x to 20x to cover.
fsociety 6y ago
They would be fined minimally for lying about closing their position, peanuts compared to how much they would lose if they have to cover their shorts.

deleted 6y ago

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jfengel 6y ago

I've seen this argument several times and I don't understand it. Why can't they buy >100% of the shares in exactly the same way they were able to sell >100% of the shares? They buy some shares, return them to their owners, and then buy them up again? They don't even need to buy up 100%. They only need to buy up 20%. Then they're back in the situation of being under 100% shorted, and problem no longer applies. With such a large short interest it means that a motivated or coordinated buyer can force them to cover it at highly inflated prices, and that's their fault. But doesn't seem to be impossible just because the interest is >100%, merely very expensive (perhaps bankruptcy expensive). Am I missing something?

bananabiscuit 6y ago
I don’t think you are missing anything. This magic 100% number is somewhat of a meme going around.
stevofolife 6y ago
You're also missing the fact that these hedge funds are bleeding interest per day. So buying 20% only will not suffice.
- jfengel 6y ago
  I take it the interest is based on the current price? If so, that would make some sense: if they're paying (say) .1% per day on a stock that is worth 100x the amount you got for shorting it, you'll gradually burn through all of the cash you got for the short. You're still in a kind of race to see whether it will stay that high for long, or if people will eventually want to take their profits. But it definitely puts pressure on you to reduce your exposure to that, even at the inflated price.
LatteLazy 6y ago
Exactly. Short seller buys 100 shares, return shares to lender, lender sells back to short seller, repeat as many times as needed to close
- 6y ago

savorypiano 6y ago

If a stock is shorted, someone else bought the shorted shares, creating extra supply to cover with. Percentage >100 doesn't mean they cannot cover, in theory.

boatsie 6y ago

There isn't something "magical" about > 100% short interest. It should be stated a ratio to be less confusing, rather than a percentage. It just means that if there were, say 100 shares of a company, and 120 shares sold short, it would be "120%" short. But all this means is that there are 220 shares "owned" by others. And thus, to cover, the "shorts" need only buy back 120 of those 220 shares, so there will certainly be bag holders at the end of this since the shorts don't actually need to buy up "all the shares", only 54% of them in this case. Now, of course, some of those shares are locked up by funds tracking, say the Russell 2000 index, which cannot liquidate their holdings (and may even be required to buy more as GME climbs) in order to maintain it's percentage in the fund. Other shares are held by other funds or institutions, and so on. So the reality is it is difficult for the shorts to cover quickly. This isn't a problem during "normal times" because the volatility of the stock is relatively low and thus the short margin interest that you have to pay to keep borrowing the stock is a small percentage. But as the price runs up, that interest and collateral requirements grow dramatically since the broker needs to be sure you can pay up if you have to buy the shares at the current market price.

tashmahalic 6y ago
If an index fund wants to maintain the same portfolio percentage of GME when GME’s stock price rises, wouldn’t the fund sell GME, rather than buy?
- reducesuffering 6y ago
  Isn't it actually neither buy nor sell? Most common indices (by AUM) are market-cap weighted. If a total market ETF contains 0.25% of it in GME, and GME doubles in value, it's GME it holds is now 0.50%, and that's how much it should hold now, according to market-cap weight. No buying or selling. Of course there's many ETF's that aren't market-cap weighted, but the majority of funds/value is.
  - boatsie 6y ago
    That’s right, I misspoke. It could possibly require other funds that were tracking, say, the top 1000 stocks by market cap to buy, not ones tracking the regular index.

franklyt 6y ago

I don’t see how that term is applicable to a grassroots phenomenon when it purports to describe an explicit corporate strategy.

bjourne 6y ago

If I understand what you're saying is that what WSB is doing isn't anything new but something hedge funds has been doing against each other before? The novel part of it is that their "attack" is organized through a Reddit community and requires lots of people pooling their money together? If they "win", they get their money back?

imtringued 6y ago
The VW squeeze happened because Porsche wanted to acquire VW which means it is not going to sell shares because that would prevent the acquisition. In this case you have irrational people who decorate their broker apps with GME stocks like people decorate their rooms with wallpaper.
- nowherebeen 6y ago
  I think too many people are underestimating WSB users. It really shows from comments like these. Disclaimer: I am not one.
  - jmiskovic 6y ago
    I spent some time with that community in last days. A fascinating bunch. There's some very well written analysis between emojis. I guess some professionals are involved, that enjoy the attention and influence they get there. Lots of inside jokes and repeated text blocks (that smell like broadcast propaganda). VERY positive energy overall.