Author Topic: Gamestop: Reddit vs. Wall St.  (Read 10238 times)

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Offline DrGTopic starter

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Re: Gamestop: Reddit vs. Wall St.
« Reply #25 on: January 29, 2021, 06:18:06 pm »
/--/ If they want to 'unshort' then they have to buy the shares back at the current market price.

Are you sure? I don't know, but I am not willing to accept that at face value, even if there are "tax consequences" and even if brokers or money people have specific regulations...again, I don't know, but I think that all trades (covering shorts would be a buy I guess) get recorded - right?

https://money.stackexchange.com/questions/27382/am-i-able-to-conduct-a-private-sale-of-public-shares-at-a-price-that-i-determine

« Last Edit: January 29, 2021, 06:21:10 pm by DrG »
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Offline rsjsouza

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Re: Gamestop: Reddit vs. Wall St.
« Reply #26 on: January 29, 2021, 07:33:09 pm »
The way I understood, if enough stock volume is held by private investors (perhaps waiting for it to get even more value), the short sellers will have vacuum as collateral. I am still learning about all this, thus don't take my sentence as gospel.

In any way to see it, it reeks as one more instantiation of the well known Ponzi/Madoff/Pyramid schemes. 
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Offline nctnico

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Re: Gamestop: Reddit vs. Wall St.
« Reply #27 on: January 29, 2021, 07:40:00 pm »
/--/ If they want to 'unshort' then they have to buy the shares back at the current market price.

Are you sure? I don't know, but I am not willing to accept that at face value, even if there are "tax consequences" and even if brokers or money people have specific regulations...again, I don't know, but I think that all trades (covering shorts would be a buy I guess) get recorded - right?
A very long time ago I to worked at an investment / stock trading firm to get the IT part going so I do know a little bit about it. If you sell short you are selling the shares just as if you own the shares. In the background you 'borrow' the shares from an entity who actually owns those shares. At some point that entity will want the shares back which forces the short seller to buy the shares at the market price. There is more information here:

https://www.investopedia.com/terms/s/shortcovering.asp
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Online magic

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Re: Gamestop: Reddit vs. Wall St.
« Reply #28 on: January 29, 2021, 07:55:34 pm »
Do all those shorts still exist - yes or no? Holding those shorts costs money (my understanding is that they are not interest-free loans), covering those shorts right now costs a lot of money. Are there still shorts to the tune of 120% of the stock, as was put forth?
I don't think it's know whose shorts exist or not, but the total amount of shorts has reportedly doubled over recent days. Looks like some players are willing to take the bet that the current pricing won't last for long. Reddit calls it "the hedgies are doubling down" and keeps buying.
 

Offline fourfathom

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Re: Gamestop: Reddit vs. Wall St.
« Reply #29 on: January 29, 2021, 08:10:06 pm »
As far as price goes, during the huge run-up in oil stocks an advisor I knew liked to say : "The markets can stay irrational longer than you can stay solvent".

I assume a lot of those Reddit folks are planning to lose their investment, and see it as the price of "sticking it to the man". 
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Offline DrGTopic starter

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Re: Gamestop: Reddit vs. Wall St.
« Reply #30 on: January 29, 2021, 08:53:40 pm »
/--/ If they want to 'unshort' then they have to buy the shares back at the current market price.

Are you sure? I don't know, but I am not willing to accept that at face value, even if there are "tax consequences" and even if brokers or money people have specific regulations...again, I don't know, but I think that all trades (covering shorts would be a buy I guess) get recorded - right?
A very long time ago I to worked at an investment / stock trading firm to get the IT part going so I do know a little bit about it. If you sell short you are selling the shares just as if you own the shares. In the background you 'borrow' the shares from an entity who actually owns those shares. At some point that entity will want the shares back which forces the short seller to buy the shares at the market price. There is more information here:

https://www.investopedia.com/terms/s/shortcovering.asp

Yes, I think I have an idea of what shorting a stock is. My question was specifically in reference to this part of your quote "at the current market price" as I hoped was clear by the thread that I linked. I don't think you answered that question nor did the link that you posted. It looks to me like I could, in theory and in practice, sell you 100 shares of Gamestop for $1, regardless of the current market price. I don't see any law preventing me from doing that although it would pretty much constitute a bailout of sorts. Not saying this has, or will, happen, I am raising the question.

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, but what about a margin call that would doom a large fund - that is a relevant question in my view.

What changed in the short time that buying, not selling, was halted at numerous brokerage firms? Was there an infusion of investor cash that changed RobinHood's mind about allowing buying; did they meet those requirements that quickly- the requirements that the CEO was going on about? Or was their decision to briefly not allow buying out of "an abundance of caution"? Ameritrade's decision was "to mitigate risk for our clients and our company" - which is it primarily?

The Reddit group WallStreetBets has spiked from under 1 million to over 5 million members in a CoVid year. The story is on the front page of most US "papers" today and the story is not over. This is something that sounds to me like it will demand answers to a lot of questions.

I'm really not trying to to argue about it, but I do have investment experience and those questions come to mind although I will plainly admit that I am no expert. Still, when those shorts no longer exist, you don't have to be a stock expert to speculate on what happens to the price.
« Last Edit: January 29, 2021, 09:35:13 pm by DrG »
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Offline DrGTopic starter

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Re: Gamestop: Reddit vs. Wall St.
« Reply #31 on: January 29, 2021, 08:58:14 pm »
As far as price goes, during the huge run-up in oil stocks an advisor I knew liked to say : "The markets can stay irrational longer than you can stay solvent".

I assume a lot of those Reddit folks are planning to lose their investment, and see it as the price of "sticking it to the man".

Personally, I set a much lower price on that :) but there does seem to be that aspect to the whole thing and when you turn on a big spotlight, roaches scatter.....but that doesn't mean they are gone.

Edited to add:
https://www.cnn.com/2021/01/29/investing/wallstreetbets-reddit-culture/index.html

Many celebrated WallStreetBets' war on GameStop short-sellers as a populist campaign against hedge-fund raiders looking to profit off the destruction of a well-known retail brand like GameStop. But unlike many other similar online communities, there is also a clear financial goal for the people in it.

and my personal favorite:

Enter WallStreetBets for the first time and you'll almost certainly be a bit lost.
The forum's language can be difficult to understand, even for someone who knows typical Wall Street jargon. The vocabulary specific to the subreddit is extensive, and it will almost never be explained to a newbie earnestly asking for a term's definition. Posters revel in their crudeness; homophobic epithets are tossed around as terms of affection.


I wonder what he would think about this forum?

https://www.nytimes.com/2021/01/29/business/elon-musk-gamestop-twitter.html

On Tuesday, as GameStop shares skyrocketed, Mr. Musk weighed in with a one-word tweet — “Gamestonk!!” — and a link to the Reddit forum where much of the discussion has unfolded. Mr. Musk’s message was seen as an endorsement of sorts from one of the most powerful figures on the web, and in the days that followed, investors bid up the price of GameStop to new highs.

    Gamestonk!! https://t.co/RZtkDzAewJ
    — Elon Musk (@elonmusk) January 26, 2021

It is a spectacle tailor made for Mr. Musk’s live-wire online persona. He is at once a capitalist hero, a glossy magazine celebrity and a bomb-throwing troll with 44 million Twitter followers, inhabiting his role as the chief executive of two major companies with a bravado that most corporate leaders wouldn’t dream of. The richest man in the world is also, somehow, a hero to the anti-establishment crowd, riling up the digital masses one tweet at a time.


The whole thing has this weird counter-culture, stick it to the man, feel about it, but these don't appear to be like the radical ultra right/left nutjobs, they are probably closer to folks you might see at Harbor-Freight :).

Time and a computer can be a dangerous combination.
« Last Edit: January 29, 2021, 09:47:25 pm by DrG »
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Offline Ed.Kloonk

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Re: Gamestop: Reddit vs. Wall St.
« Reply #32 on: January 29, 2021, 10:11:45 pm »
It's going to be very ugly, Wall Street is really showing its true colours.

Janet Yellen was paid by hedge fund Citadel $810,000 to speak at three events in 2019, 2020.
US Treasury Secretary for what, two days now, she should recuse herself.


   American politics is a F U mess! And that includes most or all of the US federal government agencies.  That is a CLEAR conflict of interest. when I was US military government contractor we literally couldn't even provide free coffee at meetings because it could have been perceived as some sort of payoff. But Bill Clinton, Janet Yellen and just about every other high level US government employee is allowed to take hundreds of thousands of dollars from the same groups that they're supposed to be regulating for doing next to nothing.
There was a meme some time back that posed the idea of these individuals being made to wear their sponsor's patches not unlike motor racing drivers.
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Offline nctnico

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Re: Gamestop: Reddit vs. Wall St.
« Reply #33 on: January 29, 2021, 10:47:34 pm »
/--/ If they want to 'unshort' then they have to buy the shares back at the current market price.

Are you sure? I don't know, but I am not willing to accept that at face value, even if there are "tax consequences" and even if brokers or money people have specific regulations...again, I don't know, but I think that all trades (covering shorts would be a buy I guess) get recorded - right?
A very long time ago I to worked at an investment / stock trading firm to get the IT part going so I do know a little bit about it. If you sell short you are selling the shares just as if you own the shares. In the background you 'borrow' the shares from an entity who actually owns those shares. At some point that entity will want the shares back which forces the short seller to buy the shares at the market price. There is more information here:

https://www.investopedia.com/terms/s/shortcovering.asp

Yes, I think I have an idea of what shorting a stock is. My question was specifically in reference to this part of your quote "at the current market price" as I hoped was clear by the thread that I linked. I don't think you answered that question nor did the link that you posted. It looks to me like I could, in theory and in practice, sell you 100 shares of Gamestop for $1, regardless of the current market price.
You can. The threat you linked to does raise some good points about taxes because it isn't a loop hole you can exploit to give someone something valuable for free. You can sell me the shares for $1 but I'll have to value them for what they are actually worth (at a certain date) when I fill in my income tax forms.

Side note: Stock exchanges will allow you to set any price you want. It is up to the buyers to accept your price or not. When I was working at the stock trading firm they told me three things when it came to testing with trading platforms: 1) make sure you are in the test environment, 2 make sure you are in the test enviroment, 3) make trades with the smallest number of units only for testing. If you can sell 1 share the system will also work with selling 10,000 shares. It has happened that someone made the mistake to open the real trading environment instead of the test environment and tested with large numbers of shares at crazy low prices costing that particular company lots of money. Not all the buyers where so friendly to undo the transactions.

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,
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.

Quote
but what about a margin call that would doom a large fund - that is a relevant question in my view.
That is probably why the large funds are doubling up so they have to buy their own shares back.
« Last Edit: January 29, 2021, 11:01:56 pm by nctnico »
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Offline ebclr

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Re: Gamestop: Reddit vs. Wall St.
« Reply #34 on: January 30, 2021, 01:18:01 am »
"Additionally, I could, conceivably, keep my short position for a very long time "

It's not cheap to be short with 1400% against you
 

Offline DrGTopic starter

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Re: Gamestop: Reddit vs. Wall St.
« Reply #35 on: January 30, 2021, 01:45:02 am »

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,

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.

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.
« Last Edit: January 30, 2021, 01:46:38 am by DrG »
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Offline T3sl4co1l

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Re: Gamestop: Reddit vs. Wall St.
« Reply #36 on: January 30, 2021, 03:47:21 am »
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.

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Offline wraper

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Re: Gamestop: Reddit vs. Wall St.
« Reply #37 on: January 30, 2021, 05:49:12 am »
(Real) Explanation by CEO of Webull why you could not buy certain stocks.

 

Offline bdunham7

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Re: Gamestop: Reddit vs. Wall St.
« Reply #38 on: January 30, 2021, 06:13:31 am »
(Real) Explanation by CEO of Webull why you could not buy certain stocks.

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.
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Offline wraper

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Re: Gamestop: Reddit vs. Wall St.
« Reply #39 on: January 30, 2021, 02:20:46 pm »
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.
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.
« Last Edit: January 30, 2021, 02:40:16 pm by wraper »
 

Offline nctnico

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Re: Gamestop: Reddit vs. Wall St.
« Reply #40 on: January 30, 2021, 02:24:41 pm »
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.
Tell me about it... I understand about shares but options with straddles, butterflies and 'being at the money' is nothing for me. Though it did gave me respect for my co-workers being on the exchange floor the entire day and working out all these calculations in their heads quickly.
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Offline bdunham7

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Re: Gamestop: Reddit vs. Wall St.
« Reply #41 on: January 30, 2021, 03:45:00 pm »
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.

I minimize my news consumption to preserve my mental health, so I was not aware that the short interest in GME had exceeded 100%.  I'm sure someone took notice of that and understood the opportunity it provided for a crowdsourced short squeeze riot.  Allowing this to happen is essentially removing the protections against 'naked' short selling.  It is allowing certain players to take risks that other people pay for.  As I said, the risk was never that the retail investor from Robinhood would become a counterparty default, and I don't think it was that Webull or Robinhood themselves were the counterparty risk either. 

Greed and stupidity will always be there, but the real flaw in all of this IMO is the clearing system itself.  The fact that a stock trade takes 2 days to settle is absurd.  Every share of every stock should have an ID# and every investor entity should have an ID#.  The transaction should take place instantly, like Bitcoin before it became popular.  Specific share IDs would be have their ownership changed to the new ID# and the appropriate account is credited instantly.  If the share you bought is from a short seller, they have to provide specific IDs and the broker and clearinghouse are responsible for verifying that the two parties actually have the funds or rights to sell the specific stocks, whichever is the case.  This would eliminate naked shorts and the sort of thing going on right now, plus a lot of other shortcomings in the current system.  But those rules would be more difficult to exploit and the big traders would lose some of their arbitrage opportunities.
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Offline wraper

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Re: Gamestop: Reddit vs. Wall St.
« Reply #42 on: January 30, 2021, 07:56:26 pm »
 

Offline DrGTopic starter

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Re: Gamestop: Reddit vs. Wall St.
« Reply #43 on: January 31, 2021, 07:31:13 pm »
Majority Shareholder, Gamestop - SNL
~2:11-3:58

« Last Edit: January 31, 2021, 07:35:19 pm by DrG »
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Offline Ed.Kloonk

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Re: Gamestop: Reddit vs. Wall St.
« Reply #44 on: January 31, 2021, 10:47:11 pm »
Yawntube says upload has not made video available in my country.

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Offline DrGTopic starter

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Re: Gamestop: Reddit vs. Wall St.
« Reply #45 on: February 01, 2021, 12:20:45 am »
Yawntube says upload has not made video available in my country.

That's surprising to me. This was the "cold open" from the TV show Saturday Night Live (from yesterday in the US).  The whole skit is pretty good (although sadly, too true), especially the GameStop part. SNL was a favorite of mine when it first came out and I never thought that the cast thereafter made it to the same level, although it is debatable in a generational context.

This article in australianonlinenews even mentions the skit https://australianonlinenews.com.au/2021/02/01/snl-cold-open-asks-gamestop-traders-marjorie-taylor-greene-and-tom-brady-if-the-us-still-works/
« Last Edit: February 01, 2021, 12:43:51 am by DrG »
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Offline ve7xen

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Re: Gamestop: Reddit vs. Wall St.
« Reply #46 on: February 01, 2021, 01:09:25 am »
I minimize my news consumption to preserve my mental health, so I was not aware that the short interest in GME had exceeded 100%.  I'm sure someone took notice of that and understood the opportunity it provided for a crowdsourced short squeeze riot.  Allowing this to happen is essentially removing the protections against 'naked' short selling.  It is allowing certain players to take risks that other people pay for.  As I said, the risk was never that the retail investor from Robinhood would become a counterparty default, and I don't think it was that Webull or Robinhood themselves were the counterparty risk either.

Correct me if I'm wrong, but I don't think anyone was naked shorting GME. It seems that if you allow short selling at all, this situation is basically impossible to prevent. Since in a short you immediately sell the borrowed stock back onto the market, that borrowed stock can then (through any number of normal trades) end up in the hands of a market maker that lends it again to support a short trade. So it's not hard for the short interest to exceed the number of shares; fundamentally it's the same thing as if I borrow $100 from Alice to lend to Bob; $200 is owed but there is only actually $100 in the system.

You could track each individual share and ensure that each is only part of one uncovered position, but this then creates two classes of shares with different values, that would have to trade separately. Since this means entering a short position you have to sell into the lower value 'uncovered stock' market, I'm not sure how it would work but it'd certainly be very different than what we have today and I suspect it just wouldn't work at all.

I still really don't grok the excuses being given by WeBull and others. When I as a retail investor trade a stock, 'somebody' confirms the execution of that trade, and this takes some time. The trade isn't settled immediately, and the price (assuming I have placed a limit order) needs to be determined, so it's not like they're just recording my interest and executing it later - some sense of a trade *is* executed in real-time. So presumably the clearance platform has found a match, and recorded the transaction, regardless of whether the actual assets have been transferred, it is recorded against actual assets, and in effect 'in escrow'. I don't see where the counterparty risk is here - if it's just the volume or something that makes them nervous, then this risk has always existed and it doesn't make sense to stop trading of specific securities and not shut down, rate limit, disallow trades on margin, or do *something* that is neutral to reduce the across-the-board risk. Really not getting how this isn't blatant market manipulation.
« Last Edit: February 01, 2021, 01:11:50 am by ve7xen »
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Offline Marco

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Re: Gamestop: Reddit vs. Wall St.
« Reply #47 on: February 01, 2021, 03:17:39 pm »
In the background you 'borrow' the shares from an entity who actually owns those shares.
Only daytraders, the big guys only have to prove they looked up the shares were available for borrowing on the day they went short. They have to buy in somewhere between T+4 to T+13 depending on a couple circumstances in theory ... but  in the past they have had tricks to reset the clock and/or pass the short position around. Given that stocks can and will have large amounts of fail to delivers for months, ie. they are on the threshold list, I'm pretty sure the hedgefunds still have tricks to reset the clock and/or pass the short position around.

They deliver when they give up hope or when the SEC regulator starts thinking that despite relying on the hedge funds for his future job prospects, they are making him look just a little too bad. But all the risk they accumulate in the mean time, not least of which regulatory, still costs real money ... another hedge fund isn't going to cooperate with what the SEC could start calling securities fraud at any moment for free and the counterparty risk costs money too.
 

Offline Marco

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Re: Gamestop: Reddit vs. Wall St.
« Reply #48 on: February 01, 2021, 03:29:07 pm »
Correct me if I'm wrong, but I don't think anyone was naked shorting GME. It seems that if you allow short selling at all, this situation is basically impossible to prevent. Since in a short you immediately sell the borrowed stock back onto the market, that borrowed stock can then (through any number of normal trades) end up in the hands of a market maker that lends it again to support a short trade.
You can get a short squeeze even from borrowing, but consistent fail to deliver is a defacto proof of naked shorting. Last I looked Gamestop was still on the NYSE Threshold list, so they are naked shorting. Naked shorting is the standard way to short for the big guys, they borrow at T+4 at the earliest ... but in this case likely T+as long as they can get away with.
 

Offline Scrts

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Re: Gamestop: Reddit vs. Wall St.
« Reply #49 on: February 01, 2021, 03:37:40 pm »
Correct me if I'm wrong, but I don't think anyone was naked shorting GME. It seems that if you allow short selling at all, this situation is basically impossible to prevent. Since in a short you immediately sell the borrowed stock back onto the market, that borrowed stock can then (through any number of normal trades) end up in the hands of a market maker that lends it again to support a short trade.
You can get a short squeeze even from borrowing, but consistent fail to deliver is a defacto proof of naked shorting. Last I looked Gamestop was still on the NYSE Threshold list, so they are naked shorting. Naked shorting is the standard way to short for the big guys, they borrow at T+4 at the earliest ... but in this case likely T+as long as they can get away with.

They will push brokers to either let them wait or issue a 2nd round of shorts to cover shorts... so far, that didn't work out, because hedge funds sold many long term investments to cover losses. This resulted in commonly traded stock like Amazon or Tesla going down last week. You can also see that media is extensively pushing some false information that hedge funds exited the shorts.

I bought 3 GME shares. Probably going to lose everything (even though I've put contingent order with trailing loss stop), but I still want to f... those funds.
 


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