Re:GameStop Is Rage Against the Financial Machine
by pbalau on Thursday January 28, 2021 @12:27AM
(#25938557)
From [0] and [1] I don't think chaining shorts, as described in the parent comment, is possible. Alice cedes control over the shares in return of a fee. Therefore, when Bob borrows 100 shares from Alice and sells them to Chuck, there are still only 100 on the market, not 200.
> When a security is sold, the seller is contractually obliged to deliver it to the buyer. If a seller sells a security short without owning it first, the seller must borrow the security from a third party to fulfill its obligation.
To actually answer your question, is worth noting that Bob has to provide a collateral to Alice at 100% + some margin (from wiki) the value of the borrowed stock. So, in short (ha!), Alice sells Bob a bunch of shares with the idea that they will revert the transaction at a later date.
Assume that her broker doesn't have a bunch of extra shares lying around, due to squeeze or bubble event.
Sincere question, I don't know how this works in practice.