The second that the shorts have covered the price isn't going to drop to $90, it's going to drop back to $20 and most of the WSBers who were holding out for $2000 will lose their shirts. The shorts are going to lose, no doubt. But once they've lost, the stock price is probably $20. A lot of WSBers are going to be holding stock at that point, and possibly on margin. And that stock is going to be a crappy retail stock. At which point it'll be a slow drift as they cut their losses and move onto the next meme stock.

The stock price today is irrelevant if you're not going to sell, and that's what WSB Thto be saying. The price is going to drop much faster than it rose.

You're forgetting the stock is 125% over shorted. There literally isn't enough stock for shorts to cover their current positions. That's why there is potential for infinite, (huge) gains as long as everyone holds.

That's like saying that the money supply is $5.2T but the U.S. national debt is $28T, so all the money in the world couldn't pay off the U.S's debt. Technically true, but completely missing the point of how currency circulates.

In reality, when a short covers they buy back the stock and pay back the broker or market maker they borrowed it from. Then the broker or market maker sells it again. Then the short can buy back the same share, over and over again, as long as they can find someone to sell it to them. That "as long as they can find someone to sell it to them" is what's going on here - if everybody HODLs, the stock doesn't circulate, and the shorts have to pay increasing amounts to incentivize other weak hands to sell. But total short interest > 100% doesn't mean anything other than that there are a lot of shorts whose need to cover might blunt some price declines. Unless those particular shorts are right up against their margin limits, they can just hold the short position open until WSB loses interest.

Except shorts pay borrow fees but longs can hold indefinitely for free. Borrow fees on $GME often go as high as 80%

That assumes the longs are unified. The WSB community are heavily promoting Friday as the day their grand scheme comes to fruition. How many of these novice first-time investors will defect when Friday comes around and the shorters opt to wait them out? How many need to defect before panic sets in?

Shall be an interesting week.

Edit: looks like it's already falling apart, the price is down 30% on post-market trading! Expect things to get real once the market opens up.

Any trader knows that after-hours price action does not necessarily translate or carry over into RTH. It is much easier for price to be manipulated in thin after-hours trading.

Friday has nothing to do with the shorts (not the short squeeze). Friday is about the gamma squeeze because options expire on Fridays

One thing I’ve read is both a short squeeze and a gamma squeeze have never happened at the same time to this degree.

Is that true? I tried and failed to verify.

That's why there are people rallying amongst themselves to hold. A significant number of shares are with people who simply does not care if they lose it all. They want the hedge funds who are shorting to bleed mostly from the interests.

this aged badly.

I just checked it again, they're still down 15% from the market close.

Really? The stock did +135% on a single day and you complain about after hours noise

80% annualized is tiny on a daily basis - it's like 0.25%. They can afford to wait until next week when WSB has moved on to AMC and BB. Sustaining these high prices requires a continuous influx of new money; once the folks who believe GME is going to $1000 have already bought, what's left are the folks who believe it's worth $10.

It's a huge tax. You cant hold that more than a few weeks and you need a huge upside.

> you need a huge upside.

Shorting a stock at $300, when it was trading at $16 last month is pretty much the definition of huge upside.

True, but 80% a year means that you might have to inmobilize a multiple of the capital and by 6 months lose half the investment.

Note that if you short at 300 and it flash jumps to 1000 you are toast.

Except when it's already too shorted and there's nothing left to short

It seems unlikely that wallstreetbets and other retail investors are going to have much patience. They are already pumping other stocks.

this is probably the exact mentality that got the funds in this position. they have more patience than you think when it comes to making money (which is the end goal), and the other pumping is getting rooted out as shills or distractions.

GME has crashed since we wrote this 8 days ago. Do you still feel the same way?

The company could issue new stock (to get a lifeline of cash from inflated price)

I know someone who tried to convince VW management to do that during the Porche/VW squeeze. They didn't but I see no reason why another management team wouldn't act differently.

This would be the most hilarious resolution to the madness. However, the cynic in me sees management spending their time selling their entire portfolio to buy back when it hits $20 again.

It takes time to put a secondary stock offering together. Unless they already had it primed and ready to go the bubble will probably pop first.

Yes true but a green shoe (to the hedge funds who need to exit) could be done more quickly.

The SEC spiked Hertz's attempt to sell stocks into a similar rally, so even if they try it's unlikely IMO that they would succeed.

Htz had declared bankruptcy at the time they tried. Gamestop hasn't and that is a very big diference.

Bankruptcy makes it a bit different, I guess, but Gamestop executives can't possibly make a good faith argument that +1000% price in the middle of a short squeeze is a correct valuation of their stock. The SEC has a lot of discretion here (both by law and in practice), and they're just not going to let a company bilk its investors like that.

"bilking investors?" Gamestop is a mature company in a mature industry w/ 20 years of annual reports, earnings releases, investor calls, SEC filings, etc. There's far more information upon which to make a decision about Gamestop than virtually any IPO, or tons of low-float, low-volume stocks out there. Could easily say you know way more about Gamestop future prospects than Uber, Airbnb, Beyond Meat, plenty more.

Discretion

* The U.S. Securities and Exchange Commission (SEC) had previously conducted multiple investigations into his business practices but had not uncovered the massive fraud.*

https://en.wikipedia.org/wiki/Bernie_Madoff

What I've been wondering is, why do people think the 125% over-shorted has to expire all at the same time and imminently?

While there isn't 125% available to buy in one go, there is trading happening, HedgeFund2 can be buying and returning their loaned shares this week, HedgeFund3 can be buying and returning theirs next week, HedgeFund4 the week after, and at no point does any group need to buy 125% of available shares all in one go; where does the time limit that causes the squeeze come from?

People are confusing the options trading that's going on as part of this with the shorting. Options do have expiration dates, but shorts just charge interest. The thing is if you own a stock and it goes down, worst case is you lose 100% of your money. If you short a stock and it doubles, you've lost 100% but there's no barrier here, the loss could keep going up to 200% or more. If you can't pay it back, the broker is on the hook for this money and therefore they have the power to actually force you to close the short position. You don't control the timing on that. It's the kind of situation where people start jumping out of windows on Wall St.

It's not that there is an expiration date, but instead that there is a collateral requirement for holding short positions in addition to the interest. As the shorted stock increases in value, the borrower must post additional collateral or close out their position. If the collateral requirements exceed the fund's capital then they'll be forced to close.

Further, all hedge funds have internal risk limits, which include limits of their exposure to a single equity. Should the collateral requirements exceed this limit, then their internal risk compliance team will ensure that the short position be at least partially closed to keep them within their limits.

I don't think there's an exogenous time limit. If the price goes up enough, your broker starts worrying that you won't be able to buy the stock in future. They then might force you to buy now, which pushes the price up further. Hence the squeeze. (Source: learning about this for about a week, completely ignorant, correct me if I'm wrong.)

They don't necessarily force you to buy it back now, but they ask you to deposit more money to cover your "on-paper" losses. The broker usually has some discretion in when to do this, but there are also regulations for how far they can let it go.

The shorts collectively have losses on paper of $35bn+, which is a lot of money even for well-capitalized Wall Street funds.

Shorts don't expire.

As someone who's new to this world of stock trading but now understands what a "short" is, could you elaborate on this?

How is it possible for a stock to be 125% over shorted? What does this mean?

If you short, you are borrowing a stock from Alice, and selling it to Bob, hoping to buy it back later from Bob at a lower price. But, you can then borrow again from Bob and sell to Charles. Ad infinitum.

The broker who is actually holding your stock can lend them out and you can indeed end up buying your own stocks more than once. You can explicitly request the broker to not do it and, in this kind of situation where 125% of the stock is shorted and some *need* to buy it... well :)

Have a read from Matt Levine's "Infinite Game" from yesterday:

https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...

To quote:

> Falcone owned some bonds of a company called MAAX Holdings Inc. “After hearing rumors that a Wall Street financial services firm was shorting the MAAX bonds and also encouraging its customers to do the same, Falcone decided to seek revenge.” So he bought all the MAAX bonds. Then he bought more: Short sellers would borrow MAAX bonds (presumably from him), and then sell them to him, so that he ended up with “22 million more bonds than MAAX had ever issued.” Then he stopped lending them out, forcing the short sellers to buy bonds to cover their shorts. But there were no bonds to be bought, since he owned them all (and more).

> Falcone stated that the Wall Street firm should just keep bidding for the bonds. Falcone acknowledged that the Wall Street firm would suffer some losses doing so, but told the senior officer and the others that sometimes you are just on the wrong side of a trade.

There is 1 company, that company has 1 stock. Alice is the shorter and expects the stock to drop.

* How shorting works normally:

Alice thinks the price will lower this week. On Monday, Alice borrows a stock from Bob. She sells that stock immediately on Monday. On Friday at the end of that week, she buys a stock again and hands it back to Bob, plus a small fee for his troubles. If the stock price went down during the week, you can see that Alice made a profit.

* What happened for Gamestop:

Melvin thinks the price will lower this year. Melvin borrows a stock from Rudy. Melvin sells that stock, and unbeknown to him he sells it back to Rudy. Melvin borrows another stock from Rudy which unbeknown to him he sells again to Rudy. While there exists only 1 stock, Rudy now has 3 stocks of which he borrowed 2 to Melvin. Melvin owes Rudy 200% of all available stock, which he needs to hand back at the end of the year.

* What is the short squeeze Rudy/Reddit is currently doing on Melvin Capital?

Well, in reality, Melvin Capital has 1.5 stocks borrowed for every stock in existence (I'm not sure how much of the total stock was actually liquid, so I'm not sure how many rounds Melvin needs to go through to cover all their shorts).

Today it is the end of the year. Melvin needs to hand Rudy back the stock. However, the only person he could buy it from, is Rudy himself. Now Rudy is free to set an arbitrary price for his stock AND meanwhile buy up all other available stock at ridiculous prices. The only stock Melvin can buy, is from Rudy, or from other people at at least Rudy's price point. And Melvin needs to buy that stock to then hand it back to Rudy, after which Rudy can sell it yet again at an even higher price point for Melvin to hand it back again. Rudy makes a lot of profit, by squeezing out Melvin after making the market illiquid and overpriced. Effectively, the game is such that the entire capital of Melvin is now for Rudy. Melvin must buy something from Rudy, no matter how high Rudy sets his price.

An alternative is for Melvin to borrow another stock from Rudy, handing it back to cover for the last borrow. However, this way Melvin is only digging himself into an even deeper hole stacking up fees (the fee Melvin pays for Rudy's troubles is currently at a 130% interest rate).

* What is on the line?

Melvin Capital is 3 billion. The question is how much Reddit is Rudy, how much stock Reddit managed to control. If Reddit manages the squeeze, the squeezers will basically share among each other 3 billion. If Reddit does not manage, a lot of people will hold a lot of Gamestop stock at probably way lower prices than they bought.

Melvin Capital appears to have received a capital injection of 3 billion from Citadel today, doubling the stakes in an all or nothing with Reddit. So wallstreetbets is now standing to either gain 6 billion or losing a lot of money. Which sounds big to us, but is probably just another Wednesday for wallstreetbets...

Melvin has actually 13 Billion (AUM): https://aum13f.com/firm/melvin-capital-management-lp ? ? ?

they would be forced to liquidate their other holdings before going bankrupt no?

Due to their leverage, they have far more than 13 billion worth of exposure.

CNBC reported that Melvin Capital closed on their GameStop position [1]. So it's basically over, right? Or is there more to it?

[1] https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...

So, from what I understand (I did not do the maths myself), despite Gamestop being the most traded stock right now, not enough has moved in the premarket for Melvin Capital to actually close their position when they claimed they did. It seems a very dubious claim.

There is no evidence that is true, and short interest is still above 130% so it sounds like a lie to discourage additional buying of gme

Where do you determine short interest figures for a stock?

Are they accurate to the hour? My impression was that this information wasn't reported at a regular cadence, but I have no idea.

Buy a dataset, get it from your broker or use a bloomberg terminal. The info available to most retail traders in their stock app of choice (and certainly true for RH) is pretty abysmal

I suspect that RH drastically limiting the information available to their users is all designed to limit analysis and make people feel more confident that they fully understand everything they are doing. People trade more when they feel more confident.

they most likely sold the position from melvin capital to another entity to hold the risk. that way melvin capital can say "oh yeah we caved in haha reddit wins" to try and calm the market, but I would wager that some private citadel fund is now about to be forced to fellate the reddit call pump

Other shorts may well have moved in. Shorting at 3$ was optimistic. Shorting at $300 is less so.

Some people are saying that Melvin Capital lied. That seems unlikely: my guess is that you'd go to jail for a long time if you lied about your purchases to manipulate the market on such a grand scale.

Did anyone end up in jail for causing the global financial crisis? Or, say, for manipulation of the interbank lending rate?

Isn't it more likely the company will go bankrupt and the traders will 'only' have their most recent £10M bonus to fall back on?

They did not lie, they just neglected to disclose how much of their shorts were closed.

Lie or go bankrupt? Hard choice.

Its cute that you think anyone in the cozy wall street / hedge fund family would go to jail for lying.

Bernie Madoff, Conrad Black, Martha Stewart

Even then, it’s more of a “jail” than a jail.

I don't know that much about it. Martha Stewart went to a minimum security prison for female inmates, and honestly, she's exactly the type of criminal that belongs in minimum security. The judge recommended they send her to her first choice prison (in Danbury) but for some reason they couldn't and they sent her to a prison she didn't want. I'm not really seeing favoritism here. She was investigated for insider trading, but those charges got dismissed and she was ultimately just convicted for lying.

An unrealized gain (ie, "everyone holding") isn't actually money though.

The sensible people will take their (massive) profits, and those who believe the "as long as everyone holds" rhetoric will be left with losses, probably on margin.

Yes and if it gaps down their broker won't be able to sell fast enough to cover the margin loan. The broker can then usually come after the person's other assets (ie traders can lose more than the cash they transferred to the account in the first place).

How does that even work, though? If I've bought a stock for $200, how could I end up owing more than what I already paid? I feel like I don't understand what situation you're describing.

Margin accounts.

You buy the stock for $200 but of the $200, $100 is money that you've borrowed. Because the stock is now at $350 your assets cover the margin easily. but if the suddenly becomes liquid and gaps down to $2, you owe $100 and only have $2 dollars in assets with which to cover your margin loan. You get a margin call and the bank force sells your stock then takes your car, your house, etc to cover the $98 you still owe.

If part of the 200 paid for your long position in the share was paid for with a margin loan, then you may only have put 40 of equity in the account with the remaining 160 paid for with a loan. You're exposed to a maximum loss of 200.

If you borrowed money to buy it (margin)

Nobody is allowed to hold GME on margin anymore. Haven't been able to for weeks.

According to Ortex it's back under 100% float to loan.

Anything over 30% is considered heavily shorted and prone to short squeezes. Ortex says it's at 95%

It's also very hard to exit a falling position. It was hard to exit a rising position this morning -- the stock was on trading hold multiple times. By the time you notice it's falling, it's too late to sell

You can manage risk with stop-loss. Its not really that hard. You can use this to "lock-in" profits without selling.

That isn't how a stop-loss actually works. You aren't guaranteed execution above a particular price.

You could lock in gains using puts, but when you go and price out doing so you'll see exactly how much the market values the risk in the position.

So, I was on the wrong direction of this trade, having bought puts on Monday and Tuesday.

The stock rocketed up today and the puts rose about 20% as well (which is crazy and counter-intuitive). So, I was entirely wrong and made money anyway. Once I realized I couldn't account for what was happening, was totally wrong on the direction, and being offered a token gain to get out, I got out.

Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.

> Someone was bidding up $50 puts expiring in 3.5 weeks and buying contracts today, while the shares were in the mid-300s. That's insane implied volatility.

Because the higher you are, the closer you are to a crash. Peaks take time to build, but crashes can happen overnight (or premarket).

The put is just another instrument that trades. What will under normal circumstances keep a put close to the "correct" price? Well, if the price goes too high, people will start writing puts, driving the price down.

If you write a put, you're long the stock. To hedge yourself, you'll need to short it. To the extent that that is difficult right now, nobody will be willing to write puts. (Strictly speaking, the put is so out of the money right now, that one would not have to short much today. But as soon as the stock price falls and approaches the strike, the writer of the put would need to start shorting. "Hey, anyone got some shares I could borrow?")

On the other hand, if you want to take a negative view on the company, buying a put is sensible thing to do. That'll drive the price of the puts up.

That's just a cheap way to bet on the trade being played out by then: buy some deeply out of the money puts with a relatively low premium today (the further out of the money, the lower the premium... so you can afford to buy more) with the expectation that they'll be deeply in the money in a few weeks. Works a treat... as long as you're not wrong on direction, magnitude or timing.

> The stock rocketed up today and the puts rose about 20% as well

This is called IV expansion.

The implied volatility isn't insane if the underlying is, you know, insanely volatile.

If it gaps down stop loss orders won't execute at the stop loss order price (because there is no buyer at that price). Therefore previous paper profits are not locked in with certainty with stop loss orders. You need prices to swoop down in an orderly way with sufficient liquidity for stop losses to work in the way I think many imagine they do.

It would execute at the gap right?

It would go to the first buyer under the limit. So for example if you had a stop loss at $200 and the stock went from $201 to $2, it would sell for $2.

tldr; When your stop-loss is hit, it executes at the best price available at the time, which (as far as I know) has no guarantees.

I think a good example of this is the Ethereum flash-crash on Coinbase in.... 2017? Something happened (IIRC someone submitted a very large market-sell, maybe by accident), but it completely wiped out half of the order book.

This triggered all of the stop-losses that people had submitted. But... almost the entire order book was gone. So they sold very low. Which triggered more stop-losses. Which sold lower, and so on.

In the end stop-losses ended up largely selling to one super-lucky-account-that-I'm-sure-set-this-up-as-a-joke-and-forgot-about-it who had a limit buy in for 10c/ETH.

IIRC the price was ~350 when this started. When people were able to start buying again, the price jumped up again (obviously).

But this lucky person was able to buy ~5k ETH at 10c, because all the stop-losses triggered.

¯\_(ツ)_/¯

Stop loss is really the wrong term mathematically. In truth, a "stop loss" is really better thought of as a "max price". If you set it up to sell when the prices drops to $320, you are guaranteed that it will sell at a price below $320, not that it will sell at $320.

In truth, you are not even guaranteed to be able to find a buyer.

> If you set it up to sell when the prices drops to $320, you are guaranteed that it will sell at a price below $320, not that it will sell at $320.

IIRC, that’s closer than the naive interpretation (“you will sell at exactly $320 if the price drops to or below that level”), but it's still not quite right. Unless I'm mistaken, a stop-loss @ $320 is actually “if the price is at or below $320, submit a market sell order”. In theory, it could execute above $320, though at or below is vastly more likely. And, as you note, you aren't guaranteed it will execute at all.

To be precise: As soon as a trade <= 320 is printed, the stop loss turns into a market sell order. It could sell over 320, it could sell under 320 (though much more likely the latter).

There are also stop limits, vs stops which just sell at market. there’s also OCOs and OSOs that can make things interesting.

with a stop limit, you'll simply be left holding the stock if it drops below your limit. depending on what you expect the market to do, this could actually leave you in a worse position (ex, if the value keeps dropping). I'm sure you know this, but, understanding your exit from a speculative position is just as important as your entry.

Someone has to be around to buy the stock. Stop-loss or not. Once all this implodes, there will be a ton of retail investors left holding the bag.

not really. you're going to get killed because shorters have been hunting for stop losses all day for the past week.

I dont feel bad for the guy who loses two grand at the casino, why should I feel bad for them?

You should feel bad for the human being who loses two grand at the casino!

empathize yes. Sympathy? Probably not

I sold a GME call option with a strike price of $320 and expiration in July today for $200. A pump and dump by novices is easy money if you know how to play it. Everyone knows this is going to crash, the question is when?

Why do you call it a pump and dump by novices when it seems to be the opposite that was being done by shorters, they just got caught and now they have to pay, seems like the novices just beat them at their own game. [0]

[0, as posted by colllectorof] https://lbry.tv/@rossmanngroup:a/why-mainstream-media-s-slan...

Most people on WSB understand the game here is a short squeeze. They all expect the stock to return to $5-50 when the squeeze is done. That means that the ones who currently own GME or it's call options plan to sell those in short order when whatever target price is achieved.

Hence my calling it a pump and dump... They are pumping the stock up with highly positive videos like the one you posted and comments on WSB to get the price higher faster so they can sell and make a max profit. But for this to happen, they are going to need a buyer who buys at the very top.

Who is that buyer going to be? No savvy investor will go near buying a pump and dump with a ten foot pole. Sadly, it will be the newbies on WSB and the newbies watching this Rossmann video who buy at the top and lose everything as it plummets down.

You might say, "Well I am not going to be that newbie"... But only a very few will sell at the top... Maybe 1-5%. A few more will make solid returns. But all that profit for those guys on top will come from gullible retail investors. That is why MSM is calling BS.

But that buyer must be the shorter right? That's shorting, the shorter must return his borrowed stocks. So the people with the stock have a guaranteed buyer in the near future. That so dangerous about shorting, the losses are unbound. I'm just a noob correct me if I'm wrong.

The buyer could be anyone. But if the stock is so overpriced that no one will buy it except people forced to by margin calls, then what you are describing is a short squeeze... short squeezes are illegal.

Shit. You wrote a naked call on GME today? That’s insane. Even if you think you know what your doing. This is the steam roller. And you’re the guy picking up the penny in front of it.

But, the premiums can be pretty juicy.

Looking at the 29Jan 320 Call options, if you were good, and called today’s top. Then you could’ve wrote the call at 145. Then held it for 90 mins, when it bottomed out at 89. Netting you a cool $56 per contract.

If you wrote 1 contract on this play, then 56 x 1 x 100 = $5600.

So, $5600 of net profit in 90 minutes. If you’re lucky. It’s best to have a large war chest to play this strategy.

But, if you’re unlucky, then a short squeeze can even happen during normal trading hours, and it would probably wipe you out.

You can call the wrong top, and the spreads are so wide, that the loss is heavier to exit the position.

And if you ran this strategy yesterday, at a lower price point, and held it overnight, then you would’ve been wiped out this morning, when the stock spiked in overnight off-market trading. So it’s best to keep this strategy to a daytrade.

I don’t recommend this strategy to anyone. The odds of you consistently calling the top, correctly, all the time, is very low.

And the crazy phenomenon going on right now, is that the retail traders, are somewhat collectively operating like a hive mind. Whether they can really succeed to achieve their objective of hitting $1000/share, remains to be seen. But, I’m not going to challenge this one, at this time.

You are probably right. It would suck if the stock went to $1,000 and the buyer of my call option exercised at that point. That would be a loss of $68,000.

On the other hand, if I am right that this is about the peak, then I get $20,000.

I could either close my position, or I could potentially buy the same call option strike with a shorter expiration for cheaper... Most likely the run up on GME will be over by then. If not, I could just buy another call option with a further strike on top of it.

Perhaps my strategy should be selling call options dated for 79 days from now with a strike of 320 for $190... Then buy call options for when I think this thing will end... Say 9 days out with the same strike for $152. If things go crazy high, then I can use my buy call option to cover the sell call option. If it doesn't, then my profit is $192-152 = $40.

My theory is the stock has run insanely high, and even Elon Musk has made comments that are priced in. At this point, WSB users may have all their money they want in this play invested... Who else comes in to sustain the current price or drive it higher? What if GME execs decide to sell some shares to raise funds? Or if the SEC asks them to to stop the short squeeze? The stock almost reached the WSB pie in the sky goal of $1000... How many people are going to make sure they aren't the last fool in the stock holding the bag?

But if I am really wrong, and the stock went to $5000 on a short squeeze, that would hurt. $5000-320= 4,680 x 100= $468,000.

I probably should buy a shorter run buy side call option to cover my risk. $20,000 with high probability outcome vs $468,000 with a low probability outcome...

Who exactly sells call options anyways? Someone has to be selling these naked in order to provide the volume that is out there, right? Probably people doing it behind an LLC shield so they can't take unlimited losses and will leave their broker ("too big to fail") holding the bag?

Did you close your position for a profit?

Or did you get margin called?

GME shot up to 452, then 90 minutes later, it fell to 126.

I got scared after this thread and entered a market order to sell on the open today.

Wise choice. That looked like a scary spike, when it shot up to 452. You might’ve gotten margin called, or worse, just have your position liquidated, and you eat the loss.

But, that was today’s scary high. Then, it fell to the depths of 126, just 90 minutes later. Crazy.

Looks like you were not right :)

Well, good luck either way!

You got balls, yes the IVOL is insane and that's a nice premium, but if for some reason you have a repeat of today, you're out $20K plus. This thing will crater, yeah, but shorting it is insane and option volatility is ridiculous right now.

I agree with you... There is a (small) risk the stock goes to $1,000 or $5,000. My portfolio won't face any margin calls even with those numbers though... And eventually the price will come back down.

I think it was Ben Graham who said the markets can remain irrational longer than you can remain solvent.

Nope. It's usually ascribed to J M Keynes, buy apparently it was actually one A. Gary Shilling: https://quoteinvestigator.com/2011/08/09/remain-solvent/

Eventually it will come down, yes. But you're the option seller, so you can be assigned anytime. I assume this is a naked call you sold (not covered). So you might be forced to buy shares at a really high price and deliver at $320. The big risk with selling options is early assignment.

Option sellers eat like birds and go to the bathroom like elephants.

I agree, I put in a market order to close the position last night and it filled at market open, so I am safely out.

Maybe OP thinks it literally can't go tits up?

No you'll just get assigned and lose $500k.

Just buy an lower priced call as a hedge to define your risk. If you get assigned you could land a pile of GME that goes to zero.

No one is dumb enough to sell a call. Apparently we found one guy.

Opening a spread would make you a ton of money for sure, but seems unlikely one would be sold.

That would give him a bull position and cost money, which probably is not what he had in mind.

Perhaps you mean he could buy a higher priced call.

> but if for some reason you have a repeat of today, you're out $20K plus

Can you expand on this? Why would they be on the line for $20k+ (or anything) after selling the option?

The option seller needs to buy the stock to deliver the shares when the option expires, so if the price continues rising their losses are unbounded (by contrast, their gains are bounded by how much they originally sold the option for).

> The option seller needs to buy the stock to deliver the shares when the option expires

Not just when the option expires. You can be assigned anytime after you sell an option.

Oh, but that depends on how you sell it?

Correct me if wrong, but my understanding with Robinhood is that you Sell to Close (by default anyway), which just goes back into the market. No further obligation?

You can buy or sell an option to open a position. If you want to buy it, you Buy to Open and Sell to Close.

If you sell an option, you Sell to Open. If you want to buy it back (at a profit/loss and you're not assigned), you Buy to Close which goes back into the market and closes your position. If you are assigned (i.e. the buyer of your option exercises his right to buy 100 shares at the strike price), you have no option other than to buy those shares at market price if you don't have any and deliver it to the option buyer.

There was a post on WSB yesterday evening imploring readers to exercise their calls instead of selling them, specifically to screw with options sellers.

Caveat vendor.

Nit: caveat venditor

Appreciate the correction, no pun intended.

I know nothing about the parent, but because most such claims are false, it should mean nothing to rest of us. And I think the parent shouldn't make it, as they are inflaming and encouraging a situation that will hurt a lot of people.

We know well that random people on the Internet aren't reliable. For those who respond, why are you taking it at face value?

Individuals selling call options into any stock is risky. Doing it into one of the most volatile stocks of the past few decades is insane. Bragging about it being "easy money" is just sheer lunacy.

You got lucky - you have nothing to brag about. Your actions are 100x worse than anything i've seen in WSB.

Man I would have closed that position this morning if I were you. Holy crap.

Seems like a great recipe for $gme to hit $1000 and have it excercised against you.

With how things go your break even price of $520 seems optimistic.

Naked call option?

--- My friend Andrew Left of Citron Capital, who was up 155% last year, was publicly short GameStop, so I called him last night to ask for his thoughts. He had plenty – and gave me permission to share them: The market has come to its lowest form. This is even crazier than Tilray (TLRY) [see below] and Tesla (TSLA). The Reddit crowd apparently said, "Let's find a company that's completely dead – and because everyone knows that, there's a big short interest – and engineer a short squeeze." There's not a five-year-old in the country who can kick my ass… but 1,000 of them probably could. That's what happened here. Even so, my losses have been minimal – and I'm making it back by selling ridiculously priced calls. For example, when the stock was at $75 today, I was getting paid $18 for $90 strike calls and $14 for at-the-money calls that expire on Friday! If you're a professional player, you adjust to the market to make money off it. ---

He wrote naked calls with a strike price of $90 and now the price is $350... Shouldn't he be wiped out if anyone exercised their call options?

If he did what he said, he definitely lost. Might have had a stop-loss.

I mentioned that quote from someone that thought in the same lines as the OP, had more money and was a professional in the area, and still lost his shirt - twice.

They won't lose their shirts, just the beer money they spent on a meme. Plenty of them really don't care.

you may be overestimating the responsibility of the people involved

I remember reading about people mortgaging their house to get into bitcoin, etc.

I don't know how the coming days will play out, but I'm quite confident when this is all over we'll be treated to stories in the NYT about how someone lost their life savings, alongside calls for regulation.

I used to hang out in that subreddit before I deleted my account. Most of them are a) lurking b) goofing around with maybe a few hundred dollars (I was in that category) c) people from hedge funds

There was a tiny minority that did stupid things like buy $20k of options on credit cards but there's a minority of stupid people like that everywhere.

That subreddit was built around losing money on bad trades.

Things may have changed since you last used reddit but now I regularly see people playing with $1000s of dollars joking about buying weekly options and trading on leverage that they don't have and then not understanding the implications of that when things come crashing down.

The subreddit has ~65,000 weekly active users (ignoring this week), and the screenshots of "big" positions aren't that common, and often from the same accounts.

It's a bit disingenuous for people to make it seem like there's thousands of people putting their life savings and retirements into stocks - and even so, I would guess that many of the people who do claim to use "life savings" actually mean "the 10k I had in my bank savings account" because they're only 23.

There's been a lot more of this in the last 8 months when it's been pretty difficult to actually lose in the stock market.

They can cover their initial capital outlay pretty easily by selling a small number of shares on the way up.

So mathematically, this is a pyramid scheme for the redditors. The people that buy at the inflated price fund the people who bought before them. The hope being that hedge funds will buy at the inflated price.

I also had a horrible thought, what if someone came in and bought short positions at inflated prices with his lunchbox money instead? Then that person is trying to wait out the redditors.

Wow. So many angles.

Too rich for my blood.

$20 is about 10* the 52 wk low of the stock.

They paid the price when the stock increased in price being forced to buy shares at higher price to cover.

Stock is going to normalize and go back down. Retail investors bought the stock at $50+, they are posting screenshots to WSB. When people start liquidating their position, you need a buyer on the other end of the transaction. And you’ll end up with a collapse in the price as there are way more sellers than buyers. Someone is going to be holding the bag and it’s going to be anyone who purchased above $50. It’s going to be similar scenario of a failed merger and merger arbitrage guys trying unravel their positions.

That's the idea, but there will also be a bunch of retail traders who get caught up in the frenzy and end up losing too much when the bubble pops.

Maybe it's their own fault for being greedy, but they do still exist. It won't only be hedge funds left holding the bag.

Also, there is a worry about multiple hedge funds going bankrupt and causing a cascading effect when they are forced to close out other positions which would hurt average people. I'm not blaming WSB for this, the hedge funds got caught being greedy and deserve everything they're getting, but we do need to try to prevent their failures from affecting the market as a whole.

> Also, there is a worry about multiple hedge funds going bankrupt

Like you, I struggle to feel sorry for them - surely a responsible hedge fund shouldn't be shorting a single stock with sums of money they can't afford to lose? If they really are behaving like that, they must think they can't lose...

Isn't this complicated a bit by the way shorts work? Like when you buy $n of stock, it is impossible to lose more than $n. But with shorting you could lose unpredictable amounts if shit hits the fan. I agree it's not a good look for a hedge fund to have put themselves in this position, but I think it was more about believing they couldn't lose so extraordinarily badly, not that they couldn't lose at all.

I know this has been discussed elsewhere, and it's kind of against the narrative, but my understanding is that typically if you're shorting like this, you would hedge your potential losses by buying calls. Ie, if you short at $20/share, and want to limit to 100% losses (excluding premium), you could buy calls at $40. If the price skyrocketed past here, you have the calls.

There is obviously much more complex math to optimize this.

I'm not entirely sure that I believe the story that a large fund like this didn't have some sort of protections in place (even if the WSB community couldn't find them).

It's also possible that they did have protection in place, but instead of using it to exit their position earlier chose to sell the protection for a quick gain (thinking that the price was going to drop again after the first jump).

To me, that just says they shouldn't be betting money against potentially unlimited losses, especially without the kind of fallbacks that @nrmitchi describes.

Unfortunately I think preventing it in the future will end up being something that prevents retail investors from impacting the market rather than reigning in Wall Street.

For the people with the stock now to make real money they'll have to sell eventually either to the people who've shorted or to a normal investor right? Then after the short position closes the stock price will fall at least some because the demand will fall. Unless the only person buying stocks near the end is the shorter and everyone unloads their shares to them someone's buying above the price $GME will fall to.

Many of those shorts are exiting their positions, or already have, and taken their losses. They're the ones who can afford their losses.

Perhaps there are some funds still holding out their end of the short war, but by the time this is all over... like over over... it will be retail traders selling inflated positions to other retail traders.

The short interest is still extremely high and likely a number of firms are already liquidating their positions to pay off GME. The squeeze should be on Friday when every option expires in the money.

well, true, but people are still reporting very high amount of short positions.

Is this data available anywhere?

No, the short float is still hight. Old short have covered but new ones have replaced them

Wait?

Wouldn't new ones be shorts against the inflated prices?

It could easily be other retail investors shorting the reddit pump and dump.

I suppose as long as no one innocent is hurt, it doesn't really matter if some redditors and hedge funds are cleaned out. But it seems more and more likely that the only thing that will have been done here in the end is to enrich the market makers.

This is being framed as retailers vs. institutional but in reality there's both on each side.

There were 70MM shares of gamestop short around the beginning of the month: https://www.marketbeat.com/stocks/NYSE/GME/short-interest/

Around 1BB shares of gamestop have been bought/sold over the last two weeks. So shorts covering represent at most 7% of the volume.

I think it's disingenuous to compare those two numbers. The mass majority of that trading is alogos trading within short time spans, not entities entering or exiting long positions. This includes all the market makers that have to hedge options under the insane stock volatility by exiting and enter both short and long positions as the stock moves. It further includes every flavor of HFT that can potentially syphon some value from high volatility combined with momentum.

This volume doesn't tell us anything about the actual change in stock held by various entities nor how easily 70MM shares could be obtained from entities.

> It's a short squeeze. The guys left holding the bag are people that are covering their short positions in the company. The average retail investor is not shorting stocks.

If the hedge fund blows up, the brokerages that loaned them the stocks to short are left holding the bag, and if that blows up SIPC/brokerage insurance, many retail investors or taxpayers may be left holding the bag.