A few things. I'm not an expert, but:
> They don't even need to buy up 100%. They only need to buy up 20%. Then they're back in the situation of being under 100% shorted, and problem no longer applies.
They're still in a very tough position. Buying 20% will raise the cost of the stock further, since they're buying it at market price which would drive up the price. And raising the price makes maintaining the rest of their shorts more expensive. That's ultimately the goal - make and maintain a higher share price, which would force shorts to buy instead of continue to pay to maintain their position, which in and of itself would make the stock price grow.
This is also why /r/wsb is interested in other large but not greater than 100% short interest stocks. They might not get squeezed as much as GME but the pressure would still result in a similar situation with lesser gains.
This becomes much less possible as the short interest shrinks or the lower impact you have on the share price.
When a company issues shares, there is a finite amount. It determines the the percentage of the company someone owns. So if there is 100 shares, you own 20, it would mean you own 20%. When a company goes public, they typically give, say 10%, to the market. So those 10 shares exist only. You either stock split or issues more shares. But issuing more shares would mean you own less percentage (and who would do that to themselves without a payoff).
You can buy more than 100% if you buy a financial instrument that has its underlying value tied to the company stock price (i.e. vanilla equity derivative), but its price is determined by the stock and not the other way around.
> Then they're back in the situation of being under 100% shorted
Let's say now there are 5 hedge funds that hold GameStock. Each has 20% (because hedge funds bet big, not small). The first one to cover will lose the least. You never want to be the last one because you lose the most and liquidity would be scarce because no one is willing to sell you their shares since its going up, meaning you would be double screwed. With each player that leaves, it causes a cascading effect.
> With such a large short interest it means that a motivated or coordinated buyer can force them to cover it at highly inflated prices, and that's their fault.
Yup.
edit:
The only people that can issue more shares without dilution is the Federal Reserve. They have a count of how much money is in flow, and can print money when need. But that only works if people believe in it. It hasn't been backed by gold in a long time. Otherwise, you will be in the same situation as some European countries prior to WW2 - hyperinflation (i.e dilution).
Theres calls and covered calls. Some brokers will only let you sell the later due to the margin needed. With a covered call you have to own the stock and hold it in your portfolio. With a non covered call, if your option gets exercised you then buy the stock at market value and sell to the executor at the agreed upon price.
basically when people are saying they shorted over 100% of the stock they are saying that its a non covered PUT contract and there isn't enough stock to cover the volume of all the PUT options contracts.
BUT what we don't know is when this PUT options contracts expire, which could basically make all of this worth fairly worthless. If the shorts option contracts don't expire til next year then this really doesn't matter to them.
Generally the P&L dept will make them stagger the options contracts over dates spanning the next year or so though.
I would recommend reading up on call and put options for more information.
You're still in a kind of race to see whether it will stay that high for long, or if people will eventually want to take their profits. But it definitely puts pressure on you to reduce your exposure to that, even at the inflated price.
They don't even need to buy up 100%. They only need to buy up 20%. Then they're back in the situation of being under 100% shorted, and problem no longer applies.
With such a large short interest it means that a motivated or coordinated buyer can force them to cover it at highly inflated prices, and that's their fault. But doesn't seem to be impossible just because the interest is >100%, merely very expensive (perhaps bankruptcy expensive).
Am I missing something?