General > General Technical Chat

Gamestop: Reddit vs. Wall St.

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DrG:

--- Quote from: Ed.Kloonk on January 31, 2021, 10:47:11 pm ---Yawntube says upload has not made video available in my country.

--- End quote ---

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/

ve7xen:

--- Quote from: bdunham7 on January 30, 2021, 03:45:00 pm ---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.
--- End quote ---

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.

Marco:

--- Quote from: nctnico on January 29, 2021, 07:40:00 pm ---In the background you 'borrow' the shares from an entity who actually owns those shares.

--- End quote ---
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.

Marco:

--- Quote from: ve7xen on February 01, 2021, 01:09:25 am ---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.
--- End quote ---
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.

Scrts:

--- Quote from: Marco on February 01, 2021, 03:29:07 pm ---
--- Quote from: ve7xen on February 01, 2021, 01:09:25 am ---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.
--- End quote ---
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.

--- End quote ---

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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