Normally, when you short a share, your broker has to go find somebody who already owns it and they "borrow" it from there and allow you to "sell" it short. But if you can believe this, the very, very largest Wall Street firms, (Citadel, Sigma2, etc.) those with trillion dollar balance sheets got a special exemption from the SEC : rather than having to "find" shares to borrow, they can "manufacture" shares, using their massive balance sheets as collateral. This is how 140% of GameStonk can be shorted. It is this unfair playing field that r/wallstreetbets is fighting against. Since the short exceeds the float, it is possible that there could be an "infinite" short squeeze, that even if they took the company private by buying every available share, there would still be another 40% outstanding they would have to cover. HOLD!
I didn't know about this special exemption. I thought it was just that B borrows a share from A, sells it to C, and then D borrows the same share from C to sell it to E. That way a single share has been shorted twice, and both B and D need to buy that share to pay back the loaned share.
So R quickly buys that share from E and refuses to sell it. Now B and D are screwed, because they both desperately need that share to pay back the loan that's about to run out tomorrow.
> So they shorted Gamestop (GME) from $20, to $10, to $4. Their greed kept compounding. They kept doing it again, and again, for months. Making billions of dollars, and almost bankrupting this company.
I haven’t followed the history. In what specific way did driving the share price itself down lead GameStop to near bankruptcy?
While I do think shorting is a valid counter to the perpetual sunshine inflation of the stock market, and I do agree that Nikola got what it deserved in shorting, I just love that Elon Musk probably destroyed a couple billion dollars of craven shorting with a single word tweet.
Nice explanation. Thanks for the link. How does someone recognize when stock (and 140% of it) is being shorted? i.e. how did they see this opportunity?
The best breakdown is not succinct, but comes through the mailing list / column Money Stuff by Matt Levine. He's done three days of coverage of the various aspects of this as it's progressed.
It's not a short read, but is very easy to follow. I highly suggest subscribing!
From what I understand, investors shorted 150% of stocks, so when people start buying the shares and the share prices, the investors are forced to sell their shorts, thus increasing the price and the whole things snowballs
>As a result of the belief among the pro investor crowd that GameStop was, essentially, doomed, they began shorting the stock -- essentially betting on it to fail. This happens all the time to a variety of stocks with very little fanfare. It is the way of the modern stock market.
This article somehow missed the abnormal part where there were more short positions than shares in circulation. It's like doing fractional reserve banking with stocks except without any regulations. A short squeeze is just a bank run with this analogy. This does not happen all the time. It's entirely dependent on those who kept shorting the stock without making sure that they can cover their shorts.
Matt Levine: "Every day people email me to say “I don’t understand how more than 100% of a company’s shares can be shorted, isn’t that illegal?” No, it is fine. I wrote about it on Monday"
Essentially there was a hedge fund who was heavily short in GameStop stock to the tunes of many millions. Once the subreddit community of WallStreetBets started applying buy pressure it made the shorts either add more/cover; or have to sell and when they do it adds buy pressure to the book. Led to a big gamma squeeze and this fund got caught off guard with poor risk management and the stock surged so much letting the small joe win for once in a game of smoke screen tactics by larger funds
i am fairly clueless about the stock market, and would love an explanation for the following: there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here?
And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a David Goliath situation. Some billionaires lost their shirt, and other billionaires made a shit load of money. This is like David standing up to Goliath, until Davids dad comes in and gives Goliath a proper ass whooping. Is this what happened?
> there seems to be no discussion about the company’s fundamentals, it seems to be all about bankrupting hedge funds. That makes no sense to me. Am I being naive here?
The official punchline is "buy high, sell never". A short seller's deepest nightmare is a trader that is behaving extremely irrationally by holding a failing asset and never selling it. You cannot screw such a retail trader by being faster because being slow is the entire point.
>And in the final analysis, it seems to me like the bigger driver of GME’s stock was not retail redditors, but companies like Vanguard etc. So, this isnt even a David Goliath situation. Some billionaires lost their shirt, and other billionaires made a shit load of money. This is like David standing up to Goliath, until Davids dad comes in and gives Goliath a proper ass whooping. Is this what happened?
Everyone knows that those who will make the biggest gains are those who bought GME when it was in the single digits. Nobody else expects to get rich off of the short squeeze.
The irony is that short sellers think that this will be a temporary squeeze and thus all they have to do is short even more and sell the inflated stock to cover their interest and just wait out until all their shorts are in the money again. The problem with this strategy is that you are betting against irrational traders who have zero intention of selling, ever.
