Right. My biggest concern with these plays, at this point, is that they're not taking into account the possibility of bankruptcy. There's a ton of "they have to buy it, if we hold all the shares then it'll go to the moon, 1k, 2k, 4k". (1) The sheer variety of financial vehicles available to professional investors is staggering, and while the initial DD was really good, we probably missed something at this point, and (2) if all else fails, and a fund can't buy back the 50,000 shares it owes some brokerage, that fund doesn't have to buy them back. They can just declare bankruptcy.

I think these realizations are why much of the r/WSB discourse over the past two days has shifted from "we're going to be millionaires" to "i'm just in it at this point to stick it to the man". That's fair, and some people did legitimately become very rich off of this, but at this point, more funds are playing with WSB than against them. Funds are not some conglomerate that moves together; they hate each other as much as the public hates all of them.

Short interest in the past week has remained pretty steady. Some people view this as "the funds are doubling down, get 'em while they're bleeding". No, actually; they know what's most likely to happen, which is, everyone is going to forget about this in about three days. Gamestop's stock isn't good. These new shorts are not priced like "I think its going to go below $7"; they're priced like "I think its going to go below $200".

>I think these realizations are why much of the r/WSB discourse over the past two days has shifted from "we're going to be millionaires" to "i'm just in it at this point to stick it to the man".

I think that's more the activist crowd that has joined over the past week. I have a hard time believing the original r/WSB people care more about making a political statement instead of money.

I know quite a few people who still think there's money to be made by getting in at $300+

I don't know if they're right or wrong, but the fact remains there are people who are getting in to both make money as well as stick it to the man.

That's a great part of their sentiment - "I may not profit that much, but these fat cats will suffer". Also, bankruptcy still means a fair share in the assets of the bankrupted.

Well, the other fat cats will have a claim on a fair share in the assets of the bankrupted; the WSB investors would not have any claim whatsoever on the assets of a bankrupt hedge fund who shorted the same stock - they will have the stocks they bought, the fund does not owe them anything, the broken promise to buy and return loaned shares was to some broker, not to any retail investors.

I believe anyone's shares can be lent out by their brokerage. That might differ broker by broker but that's the general idea, there's no dedicated "other side of the short" as such.

When I signed up for IB I had to check a box that permits IB to loan out my shares for a small fee. I'm not sure if a broker can loan out a client's shares without the client's approval.

It may be fine print in the TOS, though.

> My biggest concern with these plays, at this point, is that they're not taking into account the possibility of bankruptcy.

Whose bankruptcy? The WSB crowd are very vocal in their goals of bankrupting hedge funds who have a lot riding on forcing gamespot's stock price to plummet.

The funds. There's an ocean of difference between "we finished the year down 98% but we met all of our obligations" and "we finished the year down 100%, and we also failed to meet our obligations". Those obligations include the repurchase and repayment of short-sold stocks sold by the brokerage.

WSB wants a short squeeze. They got that. But, their theory is that it isn't over, and if they get the 10x+ returns in the coming weeks (I don't think they will, but lets say they do), then these funds are potentially looking at commitments that approach their AUM, and a nasty margin call. That's a real recipe for shutting down, and if that happens, there is no more short to squeeze. Everyone loses.

> That's a real recipe for shutting down, and if that happens, there is no more short to squeeze. Everyone loses.

It seems you didn't understood that for the WSB crowd the definition of winning is getting these funds to shut down, regardless of their personal losses.

This is no longer about money. This is a protest against a rigged system.

In a sibling thread someone already coined the term "spite investing".

I'm personally into boring index and ETF vehicles, but I am stocking up on something right now: popcorn.

I thought bankruptcy would still mean the brokers are on the line for the money?

They are. That’s what collateral, broker risk management, and (if the broker fails) DTCC is for, to derisk counterparty failure risk.

Someone is paying up.

This is as I understood it. There is a lot of misinformation from folks who believe to understand the entire situation from all players' perspective. I am not able to comprehend the situation well enough. If anyone has seen a good non-biased write up on what has happened so far and what may happen, I would love to see it.

I feel that I learnt something from this twitter thread.

https://twitter.com/KralcTrebor/status/1354952686165225478

That’s a good thread.

Here’s the part that makes no sense to me: why can’t Robinhood use customer funds for their deposit? Imagine a degenerate case: all but one client make no trades at all. One client has $100k deposited and buys $100k worth of GME. Prior to settlement, GME drops by 50%. That client is (effectively) out the entire $100k, and they are owed $50k worth of GME. Robinhood needs to post somewhere between $50k and $100k of collateral to the clearinghouse.

This all seems entirely reasonable with one giant of exception: apparently Robinhood may not draw on the client’s deposit for this. Never mind that, at settlement, the client will be debited the entire $100k. Somehow Robinhood is expected to temporarily come up with an additional $50k-$100k for a two day period. This seems bizarre to me.

Sure the collateral holders pay up. But if they need to get liquidated to service the debt, watch out.

There are two crucial differences. The first one is where the money goes. If they would cover the short, they buy the stocks for a large price on the open market and give the stocks back to the people who loaned them the stock in the first place - so the money goes to people who are currently holding that stock and would be willing to sell at that high price.

On the other hand, if they go bankrupt, then their assets are used to compensate (as much as possible) to everyone they owe in cash - not (as previously expected) in that stock. So the expected huge future purchase of the shorted stocks never happens, and all the WSB people who are holding the stock get to keep it or sell it to each other, as all that compensation money does not flow to the market for GME stocks as it would be if the shorts were actually covered. The brokers would be liable, and they might have insurance that might be liable, but all that liability would be cash-denominated and (as far as I understand - if I'm mistaken, please correct me) would not obligate anyone to buy any GME stocks.

The second big difference is in the timing. The current price is driven by short-term expectations, a hope that somebody is going to (or would be forced to) buy large quantities of that stock soon. If one of the shorting hedge funds goes bankrupt, then any settlement for that will take many months, and that money won't influence the market for that time.

In the case of shorting a stock, the broker is owed shares of the stock by the firm who shorted it. The broker is absolutely still "on the line for it". Its a red line in their books. But in this situation, there's no one going out into the markets to buy a share to repay the broker.

The remaining assets the firm has would be liquidated, those would be used to pay off debts, including those owed to the brokerage. I'm not 100% sure how this works, like, if the estate would purchase as many shares owed as possible, or if they would settle in cash with the brokerage, or what. But, regardless, that wouldn't happen until long after the epicenter of this black swan event.

> if all else fails, and a fund can't buy back the 50,000 shares it owes some brokerage, that fund doesn't have to buy them back. They can just declare bankruptcy.

If that's true wouldn't it incentivize the brokerages to help the funds weather the storm? Everyone can just wait it out till the stock crashes back and instead of sticking it to the man WSB just emptied their pockets into the mans accounts..

They may not do that because they are more risk averse than WSB. WSB can distribute losses over individuals and can tolerate, hedge funds probably can't. And it goes without saying - WSB can remain retarded longer.

This generally requires far out of the money call options for medium term and long term dates. For most of the week, there have been no options available for sale far out of the money. Last week there were no calls that even could exist that were out of the money. See last Friday's gamma squeeze and resulting short covering on the 25th and 26th. Anyway, at this point, the position is costing many 10's of % per week to carry, not exactly great when the bag has also been doubling in size every day.

According to one report I saw, the long/short fundamentals driven hedge funds see this as really bad news, but the quant funds are simply adjusting to the implications.

There is no free money. The IV on options like long calls to hedge a short is astronomical. Line numbers I've never seen.

The prices on puts go up even when the price skyrockets - it’s crazy!

I saw an IV yesterday that was 1000%. I’m not sure I’ll ever see that again in my lifetime.

IVs in the crypto world can get up to 100-250, but 1000 is insane even for crypto. Truly incredible.