General > General Technical Chat

Gamestop: Reddit vs. Wall St.

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DrG:


--- Quote ---Additionally, I could, conceivably, keep my short position for a very long time as long as there was no margin call and I kept paying interest on the loan. Again, this would sound more like a bailout as margin requirements are set with a brokerage account - at least for the smaller guy,

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--- Quote ---In theory that is possible but it could be that the short position is covered by an option which expires at some point. Another issue is that the potential loss needs to be covered. I have seen clients of the investment firm to be required to sell at a loss because they couldn't provide the funds to cover the risk of their position. A particular nasty situation was that at some point the bank holding the accounts with the shares and derivatives had identified a new risk with certain derivative products which required several customers to add more cash into their accounts to make sure the risk was covered.

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There certainly is a strategy to sell short and buy a call option for protection / insurance and at some cost and, yes the option would absolutely have an expiration date (although buying some calls only, in a timely fashion, in the case of GameStop, would have made quite a tidy penny, I would imagine).

This is, however, something different than I said, which we both now agree is, in theory, possible.

The whole topic is beginning to remind me of years ago - all that crap with buying and selling puts and calls and covered and naked... Black–Scholes....some of the most boring areas I have ever spent time with. To have to do it for a living would have crushed my spirit for sure, but that is me and everyone finds their own way.

T3sl4co1l:
More news, apparently they ran ads on CNBC "advising" the public that, the shorts had cleared, and, y'know, you can sell your holds, don't worry about it, it's over, you're not screwing us anymore, nothing to see, wink wink nod nod saynomore saynomore.

Implying that, yes, they have very good reason to spend cable ad money trying to convince people to sell at this time.

Tim

wraper:
(Real) Explanation by CEO of Webull why you could not buy certain stocks.

bdunham7:

--- Quote from: wraper on January 30, 2021, 05:49:12 am ---(Real) Explanation by CEO of Webull why you could not buy certain stocks.

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I'm not agreeing with any conspiracy theories, but the explanation here is incomplete.  The retail brokerage platforms probably aren't the culprits, but somebody is.  The collateral requirements were not a precautionary measure, in my opinion, but rather an emergency measure to deal with a counterparty risk situation that has already happened somewhere in the system.  The counterparty risk of not being paid for your stock by a  retail investor is not a realistic scenario if the broker is following the rules.

I'm guessing that the problem was already baked in somewhere and a major player was allowed to take too much risk.  Of course, the specific situation here is a fairly radical one--but not much more ridiculous than the rest of the market right now.

wraper:

--- Quote from: bdunham7 on January 30, 2021, 06:13:31 am ---The collateral requirements were not a precautionary measure, in my opinion, but rather an emergency measure to deal with a counterparty risk situation that has already happened somewhere in the system.  The counterparty risk of not being paid for your stock by a  retail investor is not a realistic scenario if the broker is following the rules.

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The risk in the system is that 140% of all existing Gamestop shares were shorted, and around 80% for AMC IIRC. And way way less than 100% of actual shares were in free circulation. And everything piles up from there in chain reaction. Since shorts cannot cover due to meteoritic rise of price and lack of shares to buy and cover short positions. It can be said that reddit traders broke the system, but the flaw which allowed this was too greedy institutionalized short sellers.

Simple explanation for anyone who doesn't know what is short position. Basically you borrow a share. Then immediately sell it and keep the money. When you cover (close) short position, you buy the share back and return to lender. If the price drops, you gain profit since you bought the share cheaper than sold, and keep the difference. If price raises, you lose money. And price can rise basically infinitely, so you can be screwed infinitely as well.

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