So the first few people will get an extremely high price because like you said, the shorts are forced to buy, but as the sell off begins the price will plummet.
I think the parties would just be exchanging money in lieu of stock and whoever bought the actual stock will have Gamestop stock, so after the utility for screwing the naked shorts goes away, people who bought in the rush will probably lose just like any other pyramid scheme.
but stocks are marked to market - the lender of the stock will ask back the market value, which if it was being pumped, is going to be high. If the shorts are settled by cash, it's not only not going to make a difference to the bottom line of those shorting, it will also not change the price of the stock.
It should all be convoluted by policy, settle dates, brokers selling and later replacing stock in margin accounts, etc. But basically anyone involved in buying GameStop stock itself is playing in the options market with insufficient evidence of understanding, and brokers are supposed to interfere with that.
If you want to be a conspiracy theorist, the smart thing for the insiders (those who control the board) to do would be to sell all their shares at this price, then declare bankruptcy. This would be illegal of courses, but there are lots of variations on this theme that make financial sense if you can get away with it.
Alternatively, I think a lot of people believed a chunk of put options were expiring soon which would cause a lot of contracts to be executed (I.e. forced stock buying).
1) Shorts all come due and hedge funds pay all the retail investors big gains
2) hedge fund dies and defaults so retail get screwed
I’m pretty sure WSB would collectively declare victory. It’s a suicide mission for them.
Could you explain this? Doesn't increased demand drive the price upwards?
For a retail business that earns single digit profit margins with no moat, no employed talent, and no real assets, I can only assume once the supply curve starts moving, it will move fast as everyone tries to exit.
This is what I've been thinking about the whole time. They can definitely pump the stock if they keep HODLing, since sellers effectively set the price when the short positions have to be closed.
Someone still has to be the bagholder and end up holding near worthless stock at the end of this though.
$GME will come crashing down once the short squeeze is over, and there's only going to be a small minority of retail traders who get out at the top.
People who have bought in later at hundreds of dollars are likely to lose a lot of money IMO. Possibly to the tune of over half their initial investment.
The thing that boggled my mind was plenty of people openly asking "Hey, I don't know anything about trading, but I want to join this and buy stock." and other people straight up telling them "Get the app from a broker (not RH!), open an account and buy $GME" (followed by a flurry of rocket and diamond hand emojis)
It is one thing to be told that markets can be irrational and emotional. It's a completely different thing to see it that playing out in real time on social media.
The hedgefunds are filling this niche. Trading slowed yesterday because brokers were afraid of going bankrupt.
Even if it turns out that GME can be short squeezed until there is not a single share shorted anymore, the retail investors will then collectively be HODLing a ton of stock in a company losing hundreds of millions per year. Buying pressure for such stocks is typically low. There is no way everyone can get out at the top, so a lot of people will have to sell at very low prices. This is even true if the original thesis of "we can pump this stock to $1000" is true.