GameStop (NYSE: GME / $GME) is a gaming retailer whose stock has been the subject of an ongoing battle between working class investors and hedge funds who bet against (short sold) the company's stock at levels beyond the existing number of shares (as much as 140% or 226% of the public float shorted).
It became the subject of a short squeeze in which the hedge funds who bet against the company have been forced to buy back shares they borrowed at inflated prices, which leads to a transfer of wealth from those hedge funds to the (retail) investors who like the stock. One highly-publicised such investor was Reddit user DeepFuckingValue (aka '(The) Roaring Kitty').
Links and Information
$$$$$$\ $$\ $$\ $$$$$$$$\ $$ __$$\ $$$\ $$$ |$$ _____| $$ / \__|$$$$\ $$$$ |$$ | $$ |$$$$\ $$\$$\$$ $$ |$$$$$\ $$ |\_$$ |$$ \$$$ $$ |$$ __| $$ | $$ |$$ |\$ /$$ |$$ | \$$$$$$ |$$ | \_/ $$ |$$$$$$$$\ \______/ \__| \__|\________|
- "Playing short squeezes is risky—you’re betting against some of the smartest investors in the world. But sometimes even the smart guys are wrong."
- "But if a shorted stock rises too much in price, that can create a short squeeze. A short squeeze is when short sellers start closing out their positions to avoid massive losses. As they buy, they create upward pressure on the stock price."
- "You can tell if the market hates a stock by looking at the “short percentage” of its share float. This just shows the percentage of the outstanding shares speculators are shorting."
- "Melvin is fucked. We all know that. But they may not get squeezed right away. Why? They are smart guys. They work with smart guys. They most likely purchased calls as hedges against their shares short.
- What do now? Well. The super high borrow rate is going to destroy them. If call holders (other than the self’s) hold to expiration and take ownership of the stock.. then that’s what will likely fuck Melvin if they didn’t purchased calls that offset for the difference in that 40% shares sold short that do not exist (140% sold short right now)"
- |u://Kerpl>: "Seriously what is your exit strategy here"
- |u://DeepFuckingValue>: "What’s an exit strategy?"
- |u://arsonbunny>: "Not to rain on the parade too much but there are now some really unrealistic expectations with Redditors entering the stock market. Most still seem to not understand why Gamestop was unique and think that retail will be able to replicate this over and over by just buying shorted stocks.
- Gamestop was very, very unique situation though that was only possible because of the generation of synthetic longs. Synthetic longs are not real voting shares, they're generated by buying at-the-money calls and selling an equal number of at-the-money puts. For Gamestop in the last few months, a portion of these synthetic longs become lendable shares as they settle in lending programs (mutual funds and ETF providers), marginable retail accounts and rehypothicatable hedge fund accounts. That's how Gamestop had a share float of 50.65M and around 65M shares were under short contracts. The demand for short positions exceeded the total float, meaning that synthetic longs from large institutions were being leveraged in short contracts (that's why there was a 120% short/float ratio).
- Looking at my terminal, due to the lack of stock borrow supply existing shorts were paying a 32% stock borrow fee and new shorts are paying an over 80% fee. With its low market cap and low volume it really didn't take a lot of purchase power to buy a LOT of cheap call options early on and put enough buy pressure on the market so that the shorts started getting margin calls and had to liquidate at market price once the market day closes. The price went to the moon purely because there was a massive liquidity problem created by these virtual shares.
- It will be very hard to replicate these type of squeeze conditions again because synthetic longs generally aren't leveraged for shorts. There is no other stock that has these conditions:
- Way too many are going to enter cluelessly and only end up becoming bagholders and enriching Wall Street.
- TLDR: Gonna be lots of GUH"
- "A Massachusetts man who goes by “Roaring Kitty” [(and DeepFuckingVale/DFV)] on social media helped fuel the frenzy around GameStop. His $53,000 investment in the company briefly reached $48 million in value."
Cuban "ets talk $GME shorts vs De-Fi. When someone shorts a stock that is already heavily shorted, they have to pay a fee to borrow that stock." |Mark Cuban "ets talk $GME shorts vs De-Fi. When someone shorts a stock that is already heavily shorted, they have to pay a fee to borrow that stock."://>
- "Illegal naked shorting and stock manipulation are two of Wall Street's deep, dark secrets. These practices have been around for decades and have resulted in trillions of dollars being fleeced from the American public by Wall Street. In the process, many emerging companies have been put out of business. This report will explain the magnitude of this problem, how it happens, why it has been covered up and how short sellers attack a company. It will also show how all of the participants; the short hedge funds, the prime brokers and the Depository Trust Clearing Corp. (DTCC)—make unconscionable profits while the fleecing of the small American investor continues unabated."
- "Who Profits from this Illicit Activity? — The short answer is everyone who participates. Specifically:
- The shorts — They win over ninety percent of the time. Their return on investment is enormous because they don't put any capital up when they sell short — they get cash from the sale delivered to their account. As long as the stock price remains under their short sale price, it is all profit on little investment.
- The prime brokers — The shorts need the prime brokers to aid in counterfeiting shares, which is the cornerstone of the fraud. Not only do the prime brokers get sales commissions and interest on margin accounts, they charge the shorts “interest” on borrowed shares. This can be as high as five percent per week. The prime brokers allegedly make eight to ten billion dollars a year from their short stock lend program. The prime brokers also actively short the victim companies, making large trading profits.
- The DTC — A significant amount of the counterfeiting occurs at the DTC level. They charge the shorts “interest” on borrowed shares, whether it is a legitimate stock borrow or counterfeit shares, as is the case in a vast majority of shares of a company under attack. The amount of profit that the DTC receives is unknown because it is a private company owned by the prime brokers"
- "This is not rocket science; known ownership of the GSEs shares exceeded the number of shares that were available. Counterfeiting shares of the GSEs caused their stock prices to collapse. The regulators turned a blind eye to the takedown, encouraged it or were not effective enough to recognize it and enforce the laws against market manipulation that have existed since the 1930s. The industry and the regulators have little room for a plausible deniability claim that they did not know what was occurring in the trading of the GSEs."
- "Naked short selling is cute terminology developed by Wall Street to confuse the fact that this is simply a method of counterfeiting shares of U.S. publicly traded companies. At a speech at the Mayflower Hotel in Washington D.C. on November 16, 2007, former SEC Chairman Harvey Pitt stated, ―Phantom shares created by naked shorting are analogous to counterfeit money.
- The counterfeiting of shares is not new and it has been debated at the SEC for a decade.
- The following 1988 Forbes article titled, ―Naked Came the Short Sellers, shows that counterfeiting of U.S. securities is not a new scheme. The 1988 article describes in simple terms what is still happening in today‘s markets but it is no longer a small company problem:
- ―Not surprisingly, naked shorting and massive bear raids have sparked a nasty debate. Small struggling companies claim that naked short-selling can destroy them. The price of their stock slips initially under the pressure of naked selling, which creates margin calls that force some holders to sell, which then causes other investors to lose confidence. The shorts loosen a stone and an avalanche ensues. A promising company is snuffed out."
No. Ticker Company Perf Half 1 GME GameStop Corp. 7826.83% 2 KOSS Koss Corporation 3052.71% 3 GEVO Gevo, Inc. 1714.29% 4 BNGO Bionano Genomics, Inc. 1282.11% 5 SUNW Sunworks, Inc. 1275.19% 6 SOL ReneSola Ltd 1257.38% 7 OEG Orbital Energy Group, Inc. 1239.30% 8 MARA Marathon Patent Group, Inc. 1065.17% 9 ACRS Aclaris Therapeutics, Inc. 818.14% 10 FCEL FuelCell Energy, Inc. 806.55% 11 SPWR SunPower Corporation 764.69%
r/WallStreetBets and r/SuperStonk
|Strawpoll.me://17148571/r> (27% <$50k pa, 16% $50-75k, 12% $75-100k,...)
∣Reddit:/wallstreetbets/deleted(2018)/WSB Demographics Survey Results: A Portrait of Glory> (37% 18-22, 36% 23-29, 16% 30-35, ...)
- "Synthetic options can be used for a number of reasons. One reason an investor will enter into a synthetic position is to alter an already existing position when expectations change. This can allow for a position to be altered without closing the pre-existing position. For example, if you are already holding a long position on a stock, and you are worried about downside risk, you might enter into a synthetic call option position by buying a put option."
- "Synthetic shares and short sales can be created with combinations of puts, calls and interest-earning bank accounts. The combination of one written put with exercise price X with one call with the same exercise price along with a bank account having a value of X on expiration day is equivalent to a share. Suppose this synthetic share is substituted for a share in a Black-Scholes hedged portfolio. If N is the number of synthetic shares, M the number of written calls then:
V = N(C - P + (pvX)) - MC = (N-M)C - NP + NpvX)
N/M = h = ∂C/∂S.
- "If the price of the stock were to go to $100.50 the cost of the written puts would go to $2,702 a decrease of $100. The value of the written calls would go to $3,766 an increase of $102, an almost exact offset for the change in the value of the puts. Similarly a decrease in stock price brings a nearly exact offset and no net change in the value of the portfolio.
- For a large price increase to $200 per share the effects are that the value of the puts go to zero and the value of the calls goes to $30,764 on the negative side because the calls are written calls. This means the cost of the written calls to the investor increased from $3,664 to $30,764, a loss for the portfolio holder of $27,100. This is only partially offset by the decline in the cost of the written puts from $2,802 to 0. The net loss on the portfolio as a result of the stock price increase is $24,298."
Shorting GME via ETFs
- "APs, like Citadel, use ETFs to provide liquidity. When there are lots of buyers (GME in January), it’s their job to make sure those buyers have sellers to reduce volatility. Yes, stopping squeezes is a large part of their job. They do this by buying ETF shares and selling the GME inside. BUT the SEC has made a series of exemptions for APs that allows them to sell ETF shares up to 6 days before depositing the securities needed for creation. It’s selling before buying, and not locating shares to borrow. That’s naked shorting, up to 50,000 shares at a time. And the securities needed for deposit within 6 days, the ones naked shorted? They go unreported as part of bona fide market making. That’s where (some of) the shares are. In this post, I go looking for them."
- "Various “financial instruments” can be combined to create synthetic positions. These often include options, and, with respect to the positions they aim to “synthesize”, they are frequently cheaper and carry the benefit nondisclosure. This SEC risk alert from 2013 discusses the potential for the combination of ‘profit and nondisclosure’ to promote dishonest (and possibly fraudulent) bookkeeping. This post discusses these positions, the bookkeeping tricks, how hedging is involved, and how it might all relate to GME."
- "The system is rigged in favor of HFT firms. Because computers are really good at finding derivatives for cheap to hedge sales for profit, naked short selling is no longer part of the system, it is the system, short term, over and over and over. What we're seeing might be the product, and possibly the unraveling - of that system."
|Marketbeat.com://FTXD/Short Interest> (2021/12/24)
- Outstanding Shares 900,000 shares
- Percentage of Shares Shorted 4.04%
|Etfchannel.com://ETFs holding GME> (2021/12/24)
|ETF||Component||% of ETF|
- XRT — SHORT INTEREST
- Shares Short 19,310,000
- Chg. from Last Month -2,830,000
- Shares Outstanding 3,400,000
- % of Shares Short 567.94%
- Days to Cover 4.3
np = 2293 [= 16 [= Lp7