5 ms·

Why are you assuming those calls weren’t hedged by the MM that sold them to Gill? And besides, it would be very easy to acquire those shares if they needed to.

Why are you assuming those calls weren’t hedged by the MM that sold them to Gill? And besides, it would be very easy to acquire those shares if they needed to. I’m sure GameStop would be happy to print a few million fresh, crisp shares to sell to the unlucky market maker that got caught with their pants down. GameStop literally created $1B worth of shares out of nowhere and sold them on the open market last week.

vessenes 2y ago
As to the former, the L2 trades seem to show the first two trade blocks getting hedged, and the rest not and just getting put on the books naked. There were some large price spikes at his first two purchases, then nothing, or negative. Nothing / negative price changes don't look like someone was buying even a medium percentage of the underlying to hedge. As to the latter, I've never managed a public company, so take this with an (extra) grain of salt. That said, I bet that those shares sold to the public last week (two weeks ago?) had an S1 attached, a cooling off period, and an SEC review period. If so, GME shot that shot already between now and Jun 20 date and wouldn't be able to do a new offering in that timeframe. As a side note, the Gills shares were all purchased subsequent to the GME share issuance as far as I know, and don't seem to have moved the market up at all. We'll see what the next few days holds!
- therobots927 2y ago
  You still didn’t answer my main point which is what is stopping MMs from hedging those calls?? Average daily volume is 30M shares. You have no proof that it would be difficult for them to hedge if they had to.
  - vessenes 2y ago
    They can hedge, (and probably are, now). When they hedge though, 1) They will drive up the price. Most of any given ADV is going to be algo-traded back and forth shares, so they will drive up the price more than you expect from the volumes 2) Those shares will get taken off the market, can't be lent out to shorts, can't be lent out to other market makers. This will constrain buy-side liquidity 3) The rising price will force a higher hedging requirement from shorts unrelated to Gills, and a higher hedging requirement to those who wrote the calls. 4) They will then go back to 1) and do it again. It looks like someone tried to do the hedge you describe on 2mm shares on Monday Jun 3, that's when the price went from $22 to $40. Price went down to 26 over the the next couple of days, and Gills posted his holdings. We're up to low $30s today. TLDR: Someone seems to have tried that, and found out there's a lot less liquidity than they wanted.
    - therobots927 2y ago
      Thanks for explaining it, tbh I hadn’t been paying attention and also don’t know where to find or how to interpret the data you’re talking about. That being said, one key assumption you’re making is that there are no motivated sellers. I don’t have the numbers in front of me but institutions own a lot of GME shares, and likely lent their shares to short sellers. As soon as they sell that significantly improves the situation for the call sellers.
      - vessenes 2y ago
        Oh for sure, price rises mean more selling. One sort of unique thing about GME is that a very unusual percentage of holdings seem to be held by ... r/wsb and r/superstonk retail holders, and they have talked themselves into never selling. There are literally videos of Frodo watching a giant green candlestick trade rising out of mordor over there today. So, the social engineering part is a big deal, too. It's not like someone at Susquehanna is like "cool, made my bag, how do we unwind?" In fact, Susquehanna is short here.
        therobots927 2y ago
        That is a good point, but at the same time short % of float is much lower than it was in January 2021, so that’s a headwind that didn’t exist (even though it now has the superstonk tailwind) Anyways I hope you made some money on the move today. How are you accessing L2 data and how did you know how to infer that the calls weren’t hedged and that the call seller was having a hard time hedging?
        vessenes 2y ago
        Agreed on short interest differences! I did make a little, but just play money. Most serious brokers offer level 2 data on subscription, eg interactive brokers. I’m not a public markets guy so I’ll leave off on trading qs for now, enjoy the ride though.

vessenes 2y ago

As to the former, the L2 trades seem to show the first two trade blocks getting hedged, and the rest not and just getting put on the books naked. There were some large price spikes at his first two purchases, then nothing, or negative. Nothing / negative price changes don't look like someone was buying even a medium percentage of the underlying to hedge. As to the latter, I've never managed a public company, so take this with an (extra) grain of salt. That said, I bet that those shares sold to the public last week (two weeks ago?) had an S1 attached, a cooling off period, and an SEC review period. If so, GME shot that shot already between now and Jun 20 date and wouldn't be able to do a new offering in that timeframe. As a side note, the Gills shares were all purchased subsequent to the GME share issuance as far as I know, and don't seem to have moved the market up at all. We'll see what the next few days holds!

therobots927 2y ago
You still didn’t answer my main point which is what is stopping MMs from hedging those calls?? Average daily volume is 30M shares. You have no proof that it would be difficult for them to hedge if they had to.
- vessenes 2y ago
  They can hedge, (and probably are, now). When they hedge though, 1) They will drive up the price. Most of any given ADV is going to be algo-traded back and forth shares, so they will drive up the price more than you expect from the volumes 2) Those shares will get taken off the market, can't be lent out to shorts, can't be lent out to other market makers. This will constrain buy-side liquidity 3) The rising price will force a higher hedging requirement from shorts unrelated to Gills, and a higher hedging requirement to those who wrote the calls. 4) They will then go back to 1) and do it again. It looks like someone tried to do the hedge you describe on 2mm shares on Monday Jun 3, that's when the price went from $22 to $40. Price went down to 26 over the the next couple of days, and Gills posted his holdings. We're up to low $30s today. TLDR: Someone seems to have tried that, and found out there's a lot less liquidity than they wanted.
  - therobots927 2y ago
    Thanks for explaining it, tbh I hadn’t been paying attention and also don’t know where to find or how to interpret the data you’re talking about. That being said, one key assumption you’re making is that there are no motivated sellers. I don’t have the numbers in front of me but institutions own a lot of GME shares, and likely lent their shares to short sellers. As soon as they sell that significantly improves the situation for the call sellers.
    - vessenes 2y ago
      Oh for sure, price rises mean more selling. One sort of unique thing about GME is that a very unusual percentage of holdings seem to be held by ... r/wsb and r/superstonk retail holders, and they have talked themselves into never selling. There are literally videos of Frodo watching a giant green candlestick trade rising out of mordor over there today. So, the social engineering part is a big deal, too. It's not like someone at Susquehanna is like "cool, made my bag, how do we unwind?" In fact, Susquehanna is short here.
      - therobots927 2y ago
        That is a good point, but at the same time short % of float is much lower than it was in January 2021, so that’s a headwind that didn’t exist (even though it now has the superstonk tailwind) Anyways I hope you made some money on the move today. How are you accessing L2 data and how did you know how to infer that the calls weren’t hedged and that the call seller was having a hard time hedging?
        vessenes 2y ago
        Agreed on short interest differences! I did make a little, but just play money. Most serious brokers offer level 2 data on subscription, eg interactive brokers. I’m not a public markets guy so I’ll leave off on trading qs for now, enjoy the ride though.