3 ms·
In short (pardon the pun), because GameStop and AMC are [most likely} still wildly overvalued - and they're expecting some [relative] amount of sanity to return
by warrenm 5y ago
In short (pardon the pun), because GameStop and AMC are [most likely} still wildly overvalued - and they're expecting some [relative] amount of sanity to return to their pricing "soon"
Shorting is supposed to be a way to hedge your bets regarding an asset you believe to be overvalued (note the word "believe"), by essentially saying, "loan me 100 shares; I'm going to sell them; I'll buy them back when the price halves (or in one week, whichever comes first), and give those repurchased shares back to you then"
It's slightly more complicated than that - but it's the basic gist
These institutional investors believe GameStop and AMC to be overvalued.
They also believe that the price should correct within the window of time they have for their shorting (1 week, 1 month, whatever).
But, so far, it appears that the price correction hasn't come - which hurts shorters
- nabla9 5y agoIf they think that retail buyers are close to being maxed out and are just holding (reasonable assumption), they can be relatively sure that there will be no another short squeeze. Price can go up somewhat, and if it keeps up, they lose some amount of money eventually, but nothing catastrophic. It's more likely that the price goes eventually down and generates good profits. If GameStop goes trough $1 billion stock sale the price will almost certainly tank.
- biofox 5y agoI haven't been following too closely, but my understanding is that if some of the parties who are short GameStop/AMC have been naked shorting, then as this drags out it becomes more likely that the failures to deliver will eventually catch up with them, forcing a squeeze. And with the volume of shares that have been traded, I doubt it's just Redditor's making this play.