Anadorr
The thing is, buying ITM put options usually due to delta hedging causes the counter-party (market maker) to sell shares short. If done directly (OTC) and with prior agreement, this 1) lets the parties create short positions owned by market maker, 2) hide these short positions, since market maker has 6 days to settle the trade (deliver the stock), but can fail to deliver and has in total 21 days for delivery.
The only short positions that need to be reported are "those short positions resulting from short sales that have settled or reached settlement date by the close of the reporting settlement date" [1], so as I understand market makers can hold a large non-delivered not settled 'limbo' position and not report it since it's not settled by the reporting date, and just reset the cycle every 6-21 days.
Oh, and short interest is self-reported and not enforced, so any self-clearing market making firm could make 'mistakes', sometimes even for 6 years straight [2], and go away with a small fine.
1 - https://www.finra.org/rules-guidance/rulebooks/finra-rules/4...
2- https://www.finra.org/media-center/news-releases/2015/finra-...
- Market Makers don't fall under the same requirements as other market participants (e.g. broker dealers) and can create artificial short positions without having shares to borrow, and are allowed extra time to deliver them
- Synthetic short positions (e.g. by the means of options) do not have to be reported and FINRA is only now 'considering' asking to report it [1]
- Short positions by the means of shorting ETFs containing GME are reported as ETF SI (and XRT, by the way, has 700% SI)
There are many indicators that suggest the opposite (that short positions were not closed):
- Retail directly registered over 10% of available float (excl. insider shares) as of 3 months ago [2]
- GME still had spikes of failure-to-deliver in August, similar to original FTD & price spike [3]
- GME is IBKR's hottest short by value as of 1/27 [4]
This is not a financial advice, everyone does their own due diligence. Disclosure: I own directly registered shares of GME.
1 - https://www.finra.org/sites/default/files/2021-06/Regulatory...
2 - https://investor.gamestop.com/node/19571/html "As of October 30, 2021, 5.2 million shares of our Class A common stock were directly registered with our transfer agent, ComputerShare"
3 - https://stocksera.pythonanywhere.com/ticker/failure_to_deliv...
4 - https://www.tradersinsight.news/traders-insight/securities/s...
Current price is, in part, driven by asymmetrical risk/reward - there's a small potential loss (size of one's position in GME) and subjectively high chance of having a real stock squeeze (and having a 10/100/1000x reward) assuming that original 120%+ short interest was not closed and is still held in the form of various derivatives.
The assumption hasn't been disproved so far, partly because current regulatory environment is very lax on reporting (which makes it very hard to disprove the thesis using public data) and partly due to other indicators (like retail owning over 10% of float as of last earnings report).
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