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Short sellers notch $8.7B profit as SpaceX shares dip to IPO price

• ChrisArchitect 3mo ago
  [dupe] Discussion: https://news.ycombinator.com/item?id=48938001 https://news.ycombinator.com/item?id=48938001
  • WalterGR 3mo ago
    Also, highly related with significant discussion in the past 2 days: https://news.ycombinator.com/item?id=48933344 https://news.ycombinator.com/item?id=48933344 - "SpaceX stock erases all its gains and slides below IPO price in intraday trading" - latimes.com | 306 points | 1 day ago | 281 comments https://news.ycombinator.com/item?id=48920181 https://news.ycombinator.com/item?id=48920181 - "SpaceX bond worth 10% less than issue price – heading for junk bond status" - ft.com | 561 points | 2 days ago | 603 comments
• W-Stool 3mo ago
  If you make money shorting a stock, who do you make money from?
  • Analemma_ 3mo ago
    The person you sold it to after borrowing it, who paid for it at the elevated price.
  • vibcdingenjoyer 3mo ago
    Someone who bought and expected to make a profit, but reached a point where they hit their stop loss or just wanted to get out the trade at any cost and couldn’t bear to wait longer. Quite possible a redditor who frequents r/wallstreetbets and YOLOed in.
    • rtkwe 3mo ago
      They're not really making any money when they close out their short position. The money came when they first opened the short position and sold the shares. When they close they just lock in how much they're going to net off the position.
      • danlitt 3mo ago
        I don't think it makes sense to say you "made money" when you still have an open-ended liability active.
        • rtkwe 3mo ago
          I kind of get it but it's the only point when money enters the books directly from the short sale and after that they're free to do whatever they want with it.
    • solumunus 3mo ago
      Whether you buy or sell in the market you’re almost certainly trading with a market maker, not some other individual.
  • tomasphan 3mo ago
    The buyer of your short sale would lose money to you. Remember options are contracts between two parties. Shorters are selling to willing buyers at the current fair market price. So that they may survive.
  • Windchaser 3mo ago
    It's still just "buy low, sell high". You make the money from the same folks you normally would, only the order of when you buy and sell is swapped.
  • bwfan123 3mo ago
    > who do you make money from? When you own stock at a broker in a margin account, you may sign an agreement to allow the broker to lend out your stock to someone else. For lending your stock, you are entitled to a stock-borrow fee which usually is quite small say 0.25%, and paid by the borrower (short-seller). The borrower then sells the stock to someone else. At a later point, the short seller closes their position by buying it back, and returning it to you. This is roughly the mechanics of it. So, to answer your question, the short seller makes money from folks who buy high and sell low. In this specific example, the stock-borrow fee say was 5% because, the float is still low, and if the short seller borrowed at $165 after the IPO and sold it, and then bought it back at $135 and closed their position, they made money from folks who bought at $165 and sold at $135.
    • t1234s 3mo ago
      You can also sell in the money call options in anticipation the stock will go down. You keep the premium the call buyer pays.
      • mikestew 3mo ago
        But to sell the calls, you should own the stock first. Puts can be bought w/o owning the stock. Granted, the put buyer pays the premium, so you don’t get guaranteed money in your pocket like you would selling calls.
        • hiq 3mo ago
          I think you're referring to covered calls, but you can sell naked calls as well, meaning without owning the underlying.
          • mikestew 3mo ago
            You’re right, but the keyword in my post was “should”. If you have to look up “short selling” in the dictionary (as in OP’s case), naked options aren’t on the menu.
  • binyu 3mo ago
    The market just redistributes wealth from less informed players to more sophisticated/informed ones.
    • kibwen 3mo ago
      I wouldn't quite go that far. The fact that markets can remain irrational longer than participants can remain solvent means that participants with deeper pockets have an inherent advantage, even if they have less information. How quickly a random walk will take you to zero depends on how far above the baseline you start.
      • binyu 3mo ago
        > participants with deeper pockets have an inherent advantage I do think they have deeper pockets because they are more informed/sophisticated players, so the whole argument is kind of circular.
        • kibwen 3mo ago
          Not sure if you've seen the price of silver, but those spoons are going for a pretty penny these days.
        • compiler-guy 3mo ago
          If I inherit a billion dollars tomorrow, I will have zero additional information and be no more sophisticated than I am today. But I will have deeper pockets than any retail investor and will be able to withstand market irrationality longer than them.
          • binyu 3mo ago
            If you are completely ignorant about markets, deep pocketed and inclined to risk, chances are you are going to lose it all.
            • compiler-guy 3mo ago
  • quickthrowman 3mo ago
    When you short a stock, you borrow shares from someone who is holding that stock and their broker gets money for lending the shares and sometimes the holder of the shares lent out gets money. You sell the shares, probably to a market maker. The cash is credited to your account and held as collateral. Sometime later, the stock has fallen and you decide to close the position. You buy back the shares with the borrowed money probably from a market maker and close your position. You give the shares you borrowed back to the lender. Your net profit is sell_price - buy_price - borrow_fees, anything left is your profit. Stocks are not zero sum like options or futures, they also have no expiration date (unlike derivatives), it’s possible a short seller sold shares to someone who later profited, and then it’s also possible to buy the shares from someone who profited, even if you made a profit on shorting the stock. So the answer is “other market participants” who also may have profited on their buy or sell.
  • Bitcario 3mo ago
    Alice holds SpaceX stock and believes it will rise. Bob believes the stock will fall. Alice and Bob reach an agreement for Alice to "lend" their SpaceX stock to Bob for a small "fee". Bob immediately sells the SpaceX stock at the current market value. After some time Bob will buy back the sold SpaceX stock at the current market value (hopefully less than Bob sold it for) and return the "borrowed" SpaceX stock to Alice thereby fulfilling the original contract. It's also possible Bob's thesis on SpaceX could have been wrong and the shares could skyrocket. There's usually a provision in the contract for Alice to recall the shares she lent to Bob. In this case, Bob would be forced to buy SpaceX stock at the current market value and likely lose money on the overall trade. To answer your specific question, "Who do you make money from?" It's actually not clear. Bob selling-high and buying-low doesn't necessarily mean whom Bob sells-to and whom he buys-from are on losing sides of the trade despite Bob making a profit. E.g. the buyer of Bob's short-sell could write calls and the stock could close pass the strike on expiration and turn a small profit as well.
    • jakequist 3mo ago
      It’s also not always the case that Alice is the loser. If SpaceX stock jumps up again after the position closes, then Alice is making money and both parties are winners.
      • pbhjpbhj 3mo ago
        But then Charlie, who buys Alice's shares pays. Someone holds the bag (makes the loss) eventually. The money being made from SpaceX is money that Musk, or whoever, engineered to be lost from every pension fund that invests in Nasdaq-100; and the Nasdaq appear to have been entirely complicit, changing the rules to make it happen. I mean Trump stole in the traditional way, using insider dealing, and going to war to manipulate markets. I guess Musk had to one-up him by getting an index itself to forcibly extract money from investors to give to him. Not sure what his play is at this point, he can't be shorting his own stock, can he?
        • goatking 3mo ago
  • yieldcrv 3mo ago
    you borrow shares from a permabull and immediately sell them to whatever is buying all you owe is the number of shares you sold, the original owner doesnt care what happened as long as they get identical ones back eventually. In the meantime, you pay interest on the initial value of what you borrowed and sold You just sit on the cash later when the shares are cheaper, you buy shares on the open market and give them back to the person you borrowed from whatever cash is leftover from rebuying is your profit
  • ratelimitsteve 3mo ago
    1) borrow the stock 2) sell it 3) rebuy it at the lower price (assuming you're right) 4) give it back to whomever you borrowed it from plus a consideration for letting you hold what's theirs for a bit Whatever's left after you return the stock and pay the interest is your profit, which comes from the people who bought it from you in step 2. If you're wrong, and the price goes up, you have to replace the stock you borrowed at a higher price than you got for it and that's your loss (which could potentially be infinite, as opposed to long positions where you can only lose what you initially invested)
  • Metricon 3mo ago
    Keep in mind that unlike purchasing a stock where the most amount of money you can lose is the amount of money you spend buying the stock (assuming you didn't buy it on margin), if you directly short a stock, there's technically no limit to the amount of money you could lose. If a stock goes up 1000% after you short it, then you could lose far more money than you put into it.
    • dyauspitr 3mo ago
      You can always hedge your shorts and limit your downside. It’s not a huge issue unless you have absolutely no idea what you are doing.
      • anonymars 3mo ago
        It seems like a prudent warning in a thread explaining the very basics of short selling Also worth mentioning you might be on the hook to buy it back at any time; after all, the person you borrowed it from may themselves wish to sell it. If widespread, this is the basis of "short squeezes" (e.g. of GameStop fame/infamy), if a lot of short sellers are trying to buy it back at the same time
      • vl 3mo ago
        Does market closing and not trading continuously affects this? If market opens at significantly different price, you may be forced to liquidate and loose more than expected.
        • dyauspitr 3mo ago
          Hopefully you have a limit order in place. You can also do more complicated hedges with options which might cost a little bit more depending on the spread but you can guarantee your hedges.
        • quickthrowman 3mo ago
          Not if you use options. Let’s say you short a stock that is priced at $100 and you want to limit your upside risk. You can buy a call option that gives you the right but not the obligation to purchase a stock at a specific price. One call option in the US equity market gives you the option to purchase 100 shares of the underlying stock at the strike price. Let’s say you want to limit the downside (upside since we’re short) risk of your short position and you’ve sold 100 shares short at $100. You can buy a call option with with a strike price of $110 that gives you the option to buy 100 shares of stock at $110 a share, which limits your upside risk to $1000 plus the cost of the option, which let’s say in this case it expires in 90 days and costs $300 or $3/share. If 90 days pass and the stock a trading at $120/share, you will have an open short position showing a loss of $2000, but you can ‘exercise’ the call option to purchase 100 shares at $110/share which you return to the person you borrowed them from and closes out your short position with a $1000 loss, for a total loss of -$1300, including the $300 the option costs. If it is trading at $80 a share after 90 days, you buy back the shares at $80 each and return them, closing out your short position with a $2000 gain, for a total gain of $1700 after subtracting the $300 cost of the option, which expires with a vale of $0 since the share price is under the strike price of the option. You can hedge a long position with put options, it’s just the inverse of what I described. If you buy 100 shares of stock at $100/share while simultaneously buying a $100 strike put option, your downside risk is limited to the cost of the put option. If the put costs $500 (or $5/share) that is all you can ever lose as long as you exercise the put option to sell the stock for $100/share if the stock price is below $100 when the option expires.
  • mahkeiro 3mo ago
    From people who bought the stock when you started to short.
  • paxys 3mo ago
    Normal sale - buy low, sell high, pocket the difference Short selling - sell high, buy low, pocket the difference. The money is coming from the same place in both cases - other people in the market.
    • rtkwe 3mo ago
      You're missing the cost to borrow on the stock which is a daily fee to continue borrowing the stock.
  • rtkwe 3mo ago
    They're selling a borrowed stock, so any buyer on the market when you open the short position is where the money comes from. Short sellers get the money immediately and then pay fees to the people they borrowed from until they close the short position.
  • inigyou 3mo ago
    Exactly the same people you'd make money from if you sold the stock high and bought it low (ending up with the same amount of the stock)
  • xutopia 3mo ago
    You essentially purchase a share into the stock from a random person and sell it immediately on the market at the current price with a promise to sell it future value in the future. You don't actually take the money right away but a broker holds it for you. Say Acme is worth 100$ today and you think it'll go down to 80$ in a week. You give the broker a small betting fee. So you give him 101$, he makes the purchase and holds the "position" for you. During that week the price could do 2 things. The Good Scenario: Price goes down to 80$. Broker buys the stock at 80$ and pockets a nice shiny 1$. You pocket 20$. The Bad Scenario: Price goes up to 120$. Broker buys the stock at 120$ and pockets a nice shiny 1$. You owe broker 21$. I say 1$ but it's actually more complicated than that. Some brokers allow you to do short positions only if you have other stock with them as collateral which they would sell to pay for whatever loss you might have. Shorting is a risky business because shares could go up to infinity and you could lose everything with these positions. When people say they're "long on this stock" means they think it'll go up in price. "short on this stock" means they think it'll godown in price. It's lingo they love to use. So the people you make it from are from people betting the opposite as you. Another person could make the opposite bet as you and end up losing their money that you pocket.
  • KaiserPro 3mo ago
    The key word is "fungibility" as in, you give back _a_ share not the same share. So you buy a bunch of shares at x price, you agree to hand them back in n days time. You make money by selling the shares immediately and then you buy shares later at a lower price, then when you hand back the shares, the profit is the difference between ho much you sold them for, and how much you bought them back again. The risk is, you _have_ to give the shares back usually at a fixed point in time. So if the price rises, you have to pay the difference. (there is normally a fee as well, to borrow the shares.)
  • deleted 3mo ago
    [deleted]
  • icelancer 3mo ago
    This is actually a very good question. The funniest and simplest answer is that you make money off yourself.
  • cherryteastain 3mo ago
    Options/futures market makers
  • laughing_man 3mo ago
    When you open a short position you borrow shares from your broker's other customers. Your broker then sells those shares on the exchange. When you close your short position, your broker buys shares in that same stock from the exchange at the current price. So the people losing money are the people who bought when the market was high and sold when it was low, as always. There are two big issues with shorting a stock. One, your downside is infinite, whereas your upside is only the size of your position. If you short a medical stock worth ten cents and it zooms up to $1000 because the company discovers a cure for cancer, that's going to cost you $999.90 for every share you shorted at ten cents. If the company goes bankrupt instead, you make... ten cents for every share. If you get unlucky a single short position will wipe out all the money you made or will make shorting stocks for the next three generations. The second problem is you don't completely control your position. If you buy a stock to hold, it's yours until you decide to sell. But when you short a stock and enough the people at your brokerage holding shares in a company you shorted decide to sell, your broker will summarily close your position at the current market price because there aren't enough remaining shares for you to keep borrowing. That can be very frustrating if the stock is at a temporary peak, especially if it proceeds to go down to a price for which you would have closed at a profit. EDIT: I suppose I should add a third problem to the list. If the cost of your short goes beyond a certain percentage of your account your broker will close your position to protect himself and his other customers. That usually happens if the stock is going up quickly. When your broker closes your position, he, along with all the other brokers closing short positions, needs to buy stock, which creates a positive feedback loop. That's called a "short squeeze". You can end up with prices shooting up to ridiculous levels because people have no choice but to buy.
  • deaton 3mo ago
    Whoever lost money going long on it.
• londons_explore 3mo ago
  Insiders who have locked up stocks but still want to sell could presumably just short the stock and take out a loan secured on the stock to get the financial effects of selling, without actually selling... I wonder if that's what's happening with ~$1T of stocks currently locked up...
  • laluser 3mo ago
    That’s almost always prohibited.
    • meowkit 3mo ago
      Given the current administration’s recent market behavior I would not be shocked if people got away with exactly what OP described.
      • compiler-guy 3mo ago
        It's often prohibited by contract, not just law, so what the administration thinks is only part of the story.
        • godwinson__4-8 3mo ago
          Of course whether or not a contract is or is not enforceable as such is also a matter of law. As I understand, this IPO was unique for a variety of reasons. The fact unique terms are promulgated in a contract does not mean (at least in saner times) that they are automatically immune to regulatory scrutiny.
      • deleted 3mo ago
        [deleted]
  • tehlike 3mo ago
    You don't "short the stock" by taking a loan secured by it.
  • dominotw 3mo ago
• godwinson__4-8 3mo ago
  Interesting as some very prominent short sellers had publicly indicated they were not going to attempt this given the stock's "meme" potential and the "cult of Elon". Seems to have happened anyway. Good for those short sellers that committed. It's easy to speculate. Actually risking the bet when the market has a history of being highly irrational when it comes to Elon is another thing entirely. And the insiders haven't even been allowed to offload yet...
• ck2 3mo ago
  it is just so weird to me that nearly $9 BILLION can be created out of nowhere for nothing how can that be healthy for civilization
  • nairboon 3mo ago
    Those $9B are created the same way as when the stock would have risen. That's how most of the wealth in the stock market is created nowadays.
  • bgirard 3mo ago
    It's not created out of no where. It's traders saying that the stock is over priced and putting their money where their mouth is and taking on a big risk if they're wrong. They're extracting this money from folks that are putting upwards pressure on the stock saying it should be worth more. They're helping price the stock more efficiency and reducing index trader's expose to an overpriced stock e.g. retirement funds.
  • HEmanZ 3mo ago
    $9 Billion was not created, just exchanged, with some intermediary institutions and people making money for facilitating the transactions. It's actually more like 1 trillion of value was "lost" when the stock dropped, and $9 billion was gained by some (and equivalently lost from others) for being right about the stock dropping. Stock dropping is not literally a loss of any underlying good. It is a "assessment of how valuable something is". So when we say "omg we lost $1t in value" is not quite right. It's "we (everyone betting in the stock market) now collectively understand the value of this thing (company in this case) to be $1t less than assumed previously" In this case, massive swings in value mean that the assessed value of a thing is very uncertain. I'd say this is extremely true for spacex, where in theory many people think it could be worth a fortune, or nothing, and no one can ever know the "true" value. This is because there is not such thing as "absolute value" in the real world. And when it comes to things like stocks, "value" is just "hypothesized current value", which is a whole bunch of things combined: long term value of company, plus short term expected movement, even things like "who wants to own more of this this in the next few milliseconds", make up what a thing is estimated to be worth right now. Assuming the stock market is some oracle of absolute value will make the world look insane. Seeing it as estimated value at one point in time in a very uncertain world where nothing has "true" value and all value is just relations between people and the things they want and the things they own and can exchange, is much closer to reality.
• jacobgold 3mo ago
  I completely understood the idea of Starlink and expected that it would be successful and useful, which it is. I've worked in data centers for decades now, and I am incredibly skeptical of the "data centers in space" sales pitch. It seems like an actual scam. Data centers submerged in the ocean or placed in the desert seem much more promising. But I have only an enthusiast's understanding of rockets and physics, so I'm genuinely open-minded to the possibility. Is there anyone credible who thinks this is a plausible pathway for SpaceX to make huge amounts of profit?
  • onli 3mo ago
    No. It really is a scam. Everyone with understanding of the physics involved wrote so. Heat dissipation + radiation + launch cost make it a no-go.
    • markasoftware 3mo ago
      Heat dissipation isn't as big a concern as it seems: the weight of the solar panels is significantly larger than that of the heatsinks you'd need per typical modern gpu
      • olyjohn 3mo ago
        The cooling is not an issue for their current designs. Look at their AI1 Satellite specs. They clearly have the cooling figured out. The thing is that it's not a datacenter, it's a single rack. A single rack that weighs multiple tons. You can figure out the weight of the thing based on the total power output, and "power to weight ratio" from SpaceX's own diagrams. Then look up how much it costs to launch per ton, and even look up what they are projecting it will cost with Starship. Even if they get costs down, it's still astronomical. I just can't figure out who would pay that much money to put a rack into space. There's no way the power savings are worth it. Unless you have some niche where you need your workload in space, I can't see the value at all.
        • deleted 3mo ago
          [deleted]
• throwaway7783 3mo ago
  Does anyone think here shortselling should be banned?
  • ashtonshears 3mo ago
    No, nobody who has basic financial market literacy thinks that
    • throwaway7783 3mo ago
      Lots of downvotes and one condescending remark, but no knowledge shared :(
• agustechbro 3mo ago
  okay, but shorts have to take profits sooner than latter, so upside is comming
  • deleted 3mo ago
    [deleted]
• zugi 3mo ago
  SpaceX has accomplished spectacular things in reusable launch vehicles and space-based networking. It will soon restore the heavy launch capability that the US lost when it retired the Saturn V in the 1970s, but in an affordable and sustainable manner. SpaceX is almost single-handedly keeping the US ahead in space. I'm bullish on SpaceX as a company in terms of technical accomplishment. Buying SPCX would make sense at about 1/4 of its IPO price. The IPO price and subsequent rise was inflated via hype and artificial supply restriction, i.e. publicly selling just 4% of the total company ownership.
  • jackmott42 3mo ago
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  • amanaplanacanal 3mo ago
    Yes but... All the "value" in SpaceX is in AI. Actual space launches are a tiny part of the portfolio. Talking about launch capability is almost off topic when taking about SpaceX valuation.
• sharts 3mo ago
  “SpaceX has created 8.7B of wealth and GDP growth within weeks!”
• nikolay 3mo ago
  Well, that's a market economy, so deal with it!
  • mmooss 3mo ago
    Is disregarding laws, defrauding shareholders, and corruptly buying government contracts - as just a few examples - a 'market economy'? Is there a market for those government contracts, other than the market for the president's favor?
• tsoukase 3mo ago
  I like Elon so much because of one reason: his multi trillion business adds completely new values without taking a single cent away from small retailers and owners, as new big corps do through various legit and not so ways. In contrast, Bezos has closed innumerable stores and every tech giant killed competition in online services. Name it socialism for the poor, but I don't care about his success as long as it doesn't interfere with other's business. His EV was successful, his social media/AI OK but his space data center will fail and from now on he sells hype, a very fancy, trendy, sexy -name it- and expensive hype. Laws of physics don't allow it to be viable. We have a joke that originally applied to politicians and now to him: you can fool one for a long time, you can fool many for a short time, but you can't fool many for a long time.
• Raghav1478 3mo ago
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