Today, there is still a 122% short position on Gamestop. There are still many funds hedged against GME. Melvin might have had one of the larger positions, but there are many more funds with this position. Source: https://finviz.com/quote.ashx?t=GME
As you say, they would make money by running the orders, regardless if GME goes up or down. So - why would they stop? It is most likely that Citadel is still exposed to other funds holding short positions in GME.
There is literally no evidence that Citadel has stopped serving GME orders. That is entirely the conjecture of this thread and ignores the much more likelier option that it was Robinhood that limited the stocks.
Why wouldn't you short GME after the price has risen so high? I'm sure there are plenty of hedge funds shorting now at a much higher price.
Hell, I shorted AMC yesterday and have made quite a bit off of that already.
Because the stock is already over 100% short and an army of retail investors is purchasing it
Because that is also often when it is a good time to make money.
It's entirely unsurprising to me that short pressure on the stock would increase after this.
The risk to a company that processes trades is that many of these retail investors accounts would turn negative and the company that processes the trades would take giant losses they did not plan for. To prevent that, they stop processing trades.
If you have to buy by EOD Friday and the price starts skyrocketing Thursday, you might want to buy a little earlier even if it means eating a huge loss, because you don't know if that skyrocket will continue into the next day.
e: Why is that downvoted?
Put options do expire, but the worst case for puts is that they expire worthless. Regular shorts can have unbounded losses.
https://www.investopedia.com/ask/answers/05/shortmarginrequi...
Melvin Capital's short position was in the form of puts, I think.
Since they would expire worthless, better to sell them when it is skyrocketing than to wait and see it skyrocket further and lose all of your money.
This is incorrect.
[1]: https://www.institutionalinvestor.com/article/b1q8swwwtgr7nt...
You don't need an "emergency infusion of 3 billion dollars" if you just bought put options that are now deep OTM. As you mentioned, the total downside is capped at 100%.
They clearly had real exposure and serious panic. If they were using put options they were leveraged or had non-standard terms (not the same as typical retail investors)
If it were just puts, then their exposure to a run-up would have been 55 million, not billions. Puts can only go to zero. The filing merely hinted that they were shorting the stock because they also had some puts on it.
Think about it, if you buy a $9 put for $10, the most you could lose is $10 when the stock goes way above $9. The unlimited loss scenario with options is writing (selling) a naked call, where you receive a premium but if the stock price rises above the strike price your loss rises.
Melvin's position must have been mostly short equity. Perhaps only a few million shares of a $3 stock.
But honestly I doubt it was even possible to be short so much with options alone on such a low cap company (as it was before this blew up)
There is no ambiguity in what "closing the position" means. Stating on CNBC that you have closed the position when in fact you only bought shares to cover 1% of your short would put you in jail.
Your mental model for how the world works is wrong.
Is it equally illegal to say on CNBC that you closed it out, but to email your investors and tell them you didn't?
Is the legal issue that you're misleading your investors or that you're manipulating the market? Both?
And despite how it seems from outside Wall Street, hedge funds are definitely scared of the SEC. Banks worry less because their money is sourced differently. Hedge funds have to worry about legal action not just for the fines but also for scaring their investors. When individual investors are so large it only takes a few redemptions to significantly impact AUM.
I am not trying to conspire, genuinely curious.
Source?
Also potentially new shorters getting in? I shorted AMC yesterday and have made quite a bit today.
If this is accurate then your question makes sense. Why? But how do we know this is real though? They could play games as well and I'm sure they do. Stock trading is gambling.
Melvin Capital has already stated they have closed out their position, think it would probably be fraud if they hadn't.
IANAL but I doubt this would be fraud -- they arent a public corporation making statements about themselves. They did have LPs, but i'm not sure what restrictions there are around speaking -- would anyone know?
You wouldnt communicate to your LPs via CNBC or Twitter.
Maybe, the problem was just transferred to someone else so they can remove it from their statements. And now that someone is trying to deal with this. Unless we have trustable source with all the details on how that position has been closed, I don't think it's safe to assume anything.
Sure, there is some risk in liquidity provisioning, but I think you are really not understanding what market makers do and conflating it with hedge funds.
Two points:
1. As I understood it, they closed *A* position, not their whole position, and announced that in the hopes it would deflate the stock price so Melvin doesn't crater.
2. And what, exactly, would be the punishment for this fraud, assuming they even get prosecuted and convicted? Can you put a dollar figure on it? Now put a dollar figure on how much they would lose if they didn't make that announcement, and compare the two numbers.You recall incorrectly. I encourage you to Google before commenting your recollections, it's quite easy to find.
"Melvin Capital has repositioned our portfolio over the past few days. We have closed out our position in GME (GameStop)," the spokesman said in a statement. [1]
[1] https://www.usnews.com/news/top-news/articles/2021-01-27/hed...
this stinks.
If it's true they refused to process for certain securities for their downstream clients, then I believe "When?" and "Why?", specifically in relation to other actions, become legally relevant questions.
This is something many people are claiming is false. As far as I can find, Melvin have not issues any formal statement on the matter - this claim is purely based on a CNBC "source".
Melvin Capital closed out their short position yesterday with a large loss - and Citadel helped cover that loss.
As far as I know, Citadel and Melvin Capital no longer are holding any short positions in Gamestop. So what do they have to gain, by your narrative, from suppressing the price?
Citadel is probably making bank off of this actually, like a lot of other sell-side firms.