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%